Retirement Planning, Long-Term Care & Life Insurance Glossary

What is a Tax-Free Retirement Strategy (TFRA)?

A Tax-Free Retirement Strategy, sometimes referred to as a TFRA, generally refers to using a properly structured permanent life insurance policy to build cash value that can be accessed later through policy loans, often without triggering income tax when managed correctly. This works differently than a 401k or IRA, where withdrawals are typically taxed as income. This strategy can also include living benefits that provide access to funds while the policyholder is still alive, such as in the case of a terminal, chronic, or critical illness. Whether this approach fits your situation depends on your income, goals, and overall retirement plan. Learn more about this strategy.

What is a defined benefit plan?

A defined benefit plan, sometimes called a 412(e)(3) plan, is a retirement plan that can allow for significantly higher annual contributions than a typical 401k in many cases, particularly for business owners and high income professionals saving later in their careers. It is generally funded through insurance and annuity contracts rather than being invested directly in the stock market, and it can be structured to provide guaranteed income based on those underlying contracts. For example, a business owner in their fifties who started saving seriously later in their career might use a defined benefit plan to contribute significantly more per year than a 401k alone would allow. Learn more about defined benefit planning.

How does a defined benefit plan relate to a 401k?

A defined benefit plan can allow for significantly higher annual contributions than a 401k in many cases, and it can be structured to provide guaranteed income based on the underlying insurance and annuity contracts. A 401k, by contrast, is a contribution-based plan where your retirement balance depends on how much you contribute and how your investments perform over time. These plans are not mutually exclusive. In many cases, a business owner can maintain both a 401k and a defined benefit plan at the same time, combining the flexible contributions of a 401k with the structure of a defined benefit plan.

What is key person insurance?

Key person insurance is a policy a business takes out on an owner or critical employee whose loss would significantly impact the company financially. The business is typically the beneficiary, and the payout can help cover lost revenue, the cost of finding a replacement, or other transition expenses. This is commonly used for businesses that depend heavily on one or two people, such as a founder, top salesperson, or specialized technical employee. Learn more about business protection strategies.

What is a buy-sell agreement?

A buy-sell agreement is a legal contract between business partners that outlines what happens to a partner's share of the business if they leave, become disabled, or pass away. These agreements are often funded using life insurance, so there is a clear source of funds available to buy out a partner's share without disrupting the business or forcing a rushed sale.

What is long-term care insurance?

Long-term care insurance helps cover the cost of extended care services, such as a nursing home, assisted living, or in-home care, that are not typically covered by standard health insurance or Medicare. Costs for long-term care can be significant, and needing this type of care becomes more common later in life, which is why many families plan for it separately from other retirement and insurance decisions. Learn more about long-term care planning.

What is a hybrid life insurance and long-term care policy?

A hybrid policy combines permanent life insurance with a long-term care benefit in a single contract. If long-term care is needed, funds from the policy's death benefit can typically be used to help pay for that care. If long-term care is never needed, the policy still pays a death benefit to beneficiaries, which is different from traditional standalone long-term care insurance where premiums are not returned if care is never used. For example, someone concerned about paying for coverage they may never use might consider a hybrid policy so the value is not lost either way.

Long-term care insurance vs. self-funding: what's the difference?

Self-funding means paying for long-term care directly out of savings or other assets as costs come up, without a dedicated insurance policy in place. Long-term care insurance, by contrast, involves paying premiums ahead of time so a policy can help cover some or all of those costs if care is needed later. Self-funding can work for people with substantial assets who are comfortable absorbing the cost directly, while insurance is often used to help protect savings and reduce the financial impact on a spouse or family if extended care becomes necessary.

What is term life insurance?

Term life insurance provides coverage for a fixed period, typically 10 to 30 years, and pays a death benefit to your beneficiaries if you pass away during that term. It generally costs less than permanent coverage because it does not build cash value and only pays out if the policyholder dies within the term. For example, a 35-year-old with a 30-year mortgage might choose a 30-year term policy so the coverage lines up with the years the mortgage is outstanding. When the term ends, coverage ends unless the policy is renewed or converted, so it is worth understanding what happens at that point before buying. Learn more about life insurance options.

What is whole life insurance?

Whole life insurance is a type of permanent life insurance that covers you for your entire life as long as premiums are paid. It includes a cash value component that grows over time and can be borrowed against or accessed later. Because it lasts a lifetime and builds value, it generally costs more than term life insurance for the same death benefit. Whole life is often used by people focused on estate planning, leaving a legacy, or wanting a predictable, guaranteed cash value that does not depend on market performance.

Term vs. whole life insurance: what's the difference?

The core difference comes down to length of coverage and cost. Term life insurance covers a set number of years and is generally more affordable, making it a common choice for temporary needs like income replacement while raising children or paying off a mortgage. Whole life insurance covers your entire life and includes a cash value component, which makes it more expensive but suited to longer-term goals like estate planning or legacy building. Neither option is universally better. The right choice depends on how long you need coverage and whether building cash value matters to your overall plan.

What is cash value life insurance?

Cash value life insurance refers to permanent policies, such as whole life or indexed universal life, that include a savings-like component alongside the death benefit. A portion of each premium payment goes toward building this cash value, which grows over time and can be accessed through withdrawals or policy loans while the policyholder is still living. This is different from term life insurance, which has no cash value and exists purely as death benefit protection.

What is indexed universal life insurance?

Indexed universal life insurance, often called IUL, is a type of permanent life insurance where the cash value can grow based on the performance of a market index, subject to caps and floors set by the insurance carrier. This structure limits how much the cash value can grow in strong years but also limits losses in down years, since the policy is not directly invested in the market. Some things worth understanding before choosing an IUL policy:

• Cap rates and floor rates vary by carrier and can change over time
• Fees and policy structure affect how much of your premium goes toward cash value growth
• Illustrations showing projected growth are based on assumptions, not guarantees

Because IUL policies are more complex than term or traditional whole life, it is worth reviewing the specific carrier's terms carefully before deciding if it fits your goals.