Many retirees must take required minimum distributions they don’t actually need. Redirecting that money into life insurance can turn a taxable distribution into a larger, income-tax-free legacy for heirs. The concept is simple; the hard part is financial justification, and that’s where carrier choice matters.
Key takeaways
- Using unneeded RMDs to pay life insurance premiums can leverage a taxable IRA distribution into a larger income-tax-free death benefit.
- Because retirees usually have no earned income, carriers justify coverage with net worth formulas instead of income multiples.
- Owning the policy in a trust can avoid probate, control distributions and add creditor protection even when there’s no estate tax concern.
Use the money the client must take but doesn’t need, and leverage it into a death benefit for the next generation.
Why the RMD-to-life concept resonates
Required minimum distributions generally begin at age 73. For clients whose pensions, Social Security and other assets already cover their living expenses, RMDs are often just a tax bill. Redirecting the after-tax amount to life insurance premiums can create a death benefit that is typically much larger than the RMDs used to fund it and passes to beneficiaries income-tax-free.
The idea has gained strength since the SECURE Act. Most non-spouse IRA heirs must now empty an inherited IRA within 10 years, which can push distributions into higher tax brackets. For more on that shift, see our article on IRAs and the SECURE Act.
The underwriting challenge: financial justification
A client in their 70s seldom has earned income, so coverage can’t be justified as income replacement. Often there’s no federal or state estate tax exposure either. That leaves underwriters asking why the coverage is needed and how much makes sense.
Carriers that are comfortable with this concept usually look at two things:
- Premium as a share of income. What percentage of the client’s annual income is going to premiums? A higher share may be acceptable when the file clearly shows living expenses are covered by what remains.
- Face amount formula. The death benefit is typically limited by a formula tied to assets. A common example: permissible coverage equals 50% of net worth attributable to investment assets, plus the fair market value of the residence, minus coverage already in force.
Formulas differ by carrier, which is why placing the case with the right carrier matters. Our guide to financial underwriting covers more of what underwriters look for.
Don’t overlook trust ownership
Because many of these policies are bought when no estate tax is expected, clients often skip trust ownership. That can be a missed opportunity:
- A living trust keeps proceeds out of probate and allows distributions on a schedule that a simple beneficiary designation can’t provide.
- An irrevocable trust can also protect the proceeds from creditors and keep them out of the taxable estate.
Encourage clients to review ownership with their attorney before the policy is issued.
How SRS can help
We know which carriers are comfortable with the RMD-to-life-premium concept and how they size coverage for retirees. Send us the client’s age, health overview, assets and RMD amount, and we’ll help you design the case and position it for underwriting. We also have marketing material to help you introduce the idea to clients.
Frequently asked questions
At what age do RMDs start?
For most people, required minimum distributions generally begin at age 73. Clients should confirm their own start date with their tax advisor.
How much life insurance can a retiree with no earned income buy?
Carriers usually use an asset-based formula rather than an income multiple. One common example is 50% of investment-related net worth plus the home’s value, minus existing coverage. Each carrier sets its own limits.
Is the death benefit taxable to heirs?
Life insurance death benefits are generally received income-tax-free by beneficiaries. Estate tax treatment depends on who owns the policy, which is one reason trust ownership is worth discussing.
Reviewed by Tim Fuller on 2026-09-26
Tim Fuller
President, SRS Inc.
Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.
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