Life Insurance as Retirement Planning for H1B Visa Holders: Benefits

Retirement needs do not stop at the border. If you are a visa holder living in the U.S., planning for retirement poses additional challenges, as there are multiple factors to consider. In this post, we will present an option utilized by many to help plan for the future: life insurance as retirement planning for H1B visa holders. In this detailed guide, we will cover the most common retirement risks non-U.S. citizens face, what their options and benefits are, and key considerations to keep in mind.

What We Will Cover

• The 4 Retirement Risks for Visa Holders
• What is Life insurance as retirement planning?
• Benefits of Life Insurance as Retirement Planning for H1B visa holders
• Things to look out for when setting up a plan
• How to secure the best life insurance as retirement planning

This guide is packed with information. If at any point you have questions or would like us to expand on a topic, simply reach out to us. Our goal is to provide accurate and to-the-point information when it comes to life insurance as retirement planning for H1B visa holders.

The 4 Retirement Risks for Visa Holders

In this section, we will discuss how life insurance can help in retirement planning for H1B visa holders and how it can mitigate The Four key retirement risks:

• Dual Taxation: Some retirement accounts may be subject to taxation both in the U.S. and your home country.
• Plan Portability: Traditional U.S.-based retirement accounts may not be accessible if you move abroad.
• Accessibility Restrictions: Government-regulated retirement accounts have withdrawal age restrictions and penalties.
• Market Risk: Traditional investment-based retirement plans are exposed to market volatility.

We’ve provided more information on these topics in our retirement guide for visa holders.

One way to minimize and even eliminate these risks is to explore alternative solutions. An option that some people may not be aware of is strategically designed life insurance.

In the following sections, we will explain what life insurance as retirement planning entails, go over its benefits, and explain how it fits into your overall retirement strategy as a visa holder.

What Is a Life Insurance Retirement Plan (LIRP)?

We believe it’s important to start here.⤵

A Life Insurance Retirement Plan (LIRP) is a specially designed life insurance policy with the goal of maximizing cash value growth within the policy. The key term here is design. The policy is structured in a way that provides the most cash accumulation potential while still maintaining the status of life insurance.

There are life insurance plans that build cash value within the policy. Many people utilize these plans for their tax efficiency and to reduce the risk of dual taxation.

Here’s how it works: the money within these accounts grows and can be accessed at any point for various reasons. If the plan is structured correctly, you will be able to take advantage of tax-deferred growth, tax-free withdrawals (via policy loans), and a generally tax-free death benefit. It is a win-win-win.

What Exactly is Proper Policy Design?

We cannot stress this enough. When it comes to life insurance as retirement planning for H1B visa holders, the proper policy design is the key.

To maximize the policy’s growth, we must keep the death benefit as low as possible while funding it with as much money as possible. This concept is completely opposite to traditional life insurance thinking, where most aim to get the highest death benefit for the lowest cost. Instead, with LIRP, we secure the lowest death benefit for the highest contribution to optimize cash value growth.

We discuss this design and various strategies in more detail in our guide on the best life insurance plans for visa holders.

7 Benefits of Life Insurance as Retirement Planning for H1B Visa Holders

Now that we’ve covered some of the common retirement risks and introduced LIRP, let’s turn our attention to the benefits of this strategy.

1. Portability of Life Insurance Policy

This is a huge advantage. If you ever decide to move abroad and no longer live in the U.S., you do not have to cancel this plan. You can continue funding it and let it grow. Many U.S. banks are restricting and even closing brokerage accounts for non-U.S. residents. Morgan Stanley, Fidelity, Merrill Lynch, Ameriprise, TIAA, Edward Jones, USAA, UBS and many other institutions have taken actions to close retirement accounts. (Source: Creative Planning)

Having life insurance as a retirement planning tool eliminates this risk. You can maintain and access your policy’s cash value as long as you keep the policy active and have a U.S. bank account.

2. Tax Benefits of Life Insurance as Retirement Planning

As mentioned earlier, life insurance as a retirement planning tool offers favorable tax treatment:

• The funds within your policy grow on a tax-deferred basis, meaning you don’t pay taxes on the growth.
• You can access the funds income tax-free via policy loans.
• Upon your passing, your beneficiary will receive the death benefit income tax-free. Unlike inheriting a 401(k), your beneficiaries will have no restrictions on how or when they must use the funds. (Source: Fidelity)

Life insurance policies receive favorable tax treatment. This makes them a good financial asset when it comes to retirement planning for visa holders.

3. No Government Restrictions Compared to Other Accounts

Life insurance is voluntary participation, meaning:

• There are no restrictions on how much you can contribute.
• There is no minimum age to access the funds; you do not have to wait until you are 59 ½ years old.
• There are no required minimum distributions (RMDs), unlike 401(k) or IRA accounts, where you must withdraw funds upon reaching a certain age to avoid penalties (source: IRS).

Life insurance as retirement planning for H1B visa holders avoids all of these restrictions. As long as you qualify to secure a life insurance policy, you will be in charge of when or whether you want to access the funds within the policy. We like that the client maintains control over the use of their funds and will not be penalized if they access them too early or too late. 

4. Market Protection in Negative Years

Life insurance as a retirement planning tool is protected from market downturns. This is another key benefit of life insurance as a retirement planning for visa holders. Here’s how it works:

• Life insurance companies set a floor, typically zero, meaning that if the market performs negatively, your policy will be credited zero – no loss.
• If the market rebounds, your account can be credited up to a set ceiling, often around 8 – 12%.

Here is an example of how it works:

• If your 401(k) has $100,000 and the market drops 20%, your balance falls to $80,000.
• If the market then gains 20%, your balance increases to only $96,000.
• With an LIRP, if the market drops, your balance stays at $100,000, and when the market rebounds, you gain based on a capped rate (e.g., 12%), reaching $112,000 instead.

This eliminates market risk and ensures your funds remain secure, making it a valuable option as you approach retirement or have started withdrawing funds from your accounts.

5. Life Insurance Loans Have No Effect on Provisional Income

Withdrawals from a life insurance policy via loans do not impact your provisional income tax calculation. Unlike Social Security, 401(k), or pension withdrawals, which count toward taxable income, LIRP withdrawals do not increase your tax burden.

Ultimately, you can keep more of your money in your pocket.

6. Access to Living Benefits in Case of Illness

Some life insurance plans offer living benefits, allowing you to access the death benefit early if diagnosed with a critical, chronic, or terminal illness. For instance, if you cannot perform two out of six daily living activities (bathing, dressing, eating, toileting, transferring, and continence) or suffer from a serious illness like cancer, stroke, or heart attack, you can use part of your death benefit while still alive.

There are plans that you don’t have to die for the policy to pay out. Please note that not all companies offer living benefits, so we recommend consulting with an agent to ensure your policy includes this option.

Here is a quick comparison betwen life insurance as retirement planning vs. traditional accounts

Feature	401(k) & IRA	Life Insurance Retirement Plan (LIRP)
Tax-Deferred Growth	Yes	Yes
Tax-Free Withdrawals	No (except Roth IRA)	Yes (via policy loans)
Required Distributions	Yes (for Traditional IRAs)	No
Downside Market Protection	No	Yes
Uncapped Market Potential	Yes	No
Flexibility if Leaving the U.S.	Limited	High

Things to Watch Out for When Setting Up Life Insurance as Retirement Planning for Visa Holders

To maximize the benefits of this strategy, here are key things to consider:

• Not Proper Policy Design

We touched on the importance of design earlier. If not structured correctly, a policy may not perform well. The best design ensures the highest possible cash accumulation by keeping expenses low and funding the policy optimally.

• Avoiding Modified Endowment Contract (MEC) Status

The IRS limits how much money you can contribute to a life insurance policy before it becomes a Modified Endowment Contract (MEC). Once a policy becomes a MEC, it loses its favorable tax treatment. To avoid this, ensure that your contributions remain within IRS guidelines.

• Keeping the Policy Active

Allowing your policy to lapse can be a costly mistake. If you’ve taken loans from the policy and it lapses, you could face a tax bill on all withdrawn gains. Properly managing your policy ensures it remains in force for life.

How to Secure Life Insurance Planning as a Visa Holder

To set up the best plan for you and your family:

1. Work with an experienced agent -a knowledgeable agent will tailor a plan to fit your needs and goals.
2. Understand the policy design – make sure it aligns with your long-term financial strategy.
3. Fund the policy properly – avoid overfunding or underfunding the plan.

By carefully structuring your life insurance policy, you can create a secure, tax-efficient retirement plan that works across borders.

In conclusion

Life insurance as retirement planning for H1B visa holders is a fundamental part of the financial planning puzzle. It addresses the 4 retirement risks that foreign nationals face:

• Dual taxation;
• Portability of the plan;
• Accessibility of the plan;
• Minimizing market risk.

It also provides diversification and immediate coverage in the form of a death benefit or in the evet of a chronic illness. It is not a surprise that more visa holders are considering adding life insurance to their portfolio of assets.

If you would like us to review and assess if life insurance as retirement planning is right for you, simply reach out.

We hope you find this helpful. Hope you have a great rest of your day!