#4 Life Insurance

Generally speaking, life insurance policies cannot be titled as a qualified plan or an IRA, and in return, they will also not be allowed to be housed in such a plan or account as an asset. Meaning that no matter what type of life insurance (whole life, term, universal, or variable policy) is purchased, any amount can be included as an asset in IRAs, SEPs, or even SIMPLE plans.

There is one exception to the rule, which is qualified plans. They also include another rule, the incidental benefit rule, that states that those who have a qualified plan can end up purchasing life insurance in a small amount for one of the plan’s participants. Yet, it has some limitations. Given that these plans have the main purpose of offering retirement benefits, the total amount of the death benefit that will be given must be “incidental” when compared against the plan balance!