Have you leveraged Whole Life Insurance / Indexed Universal Life?

12 Replies

I'm actively looking into getting a Whole Life Insurance policy to use as an investment vehicle. I plan to add an initial lump sum and contributions each month so that I can borrow against it but still have the policy interest cover my loan. I will eventually add a IUL, but I wont be able to borrow against it within a month or two. 

Does anyone have experience setting up a Whole Life Insurance policy and borrowing against it to invest a real estate deal? What has your experience been like so far? I also have a few general questions I'd love to run by someone that has gone through this. Thanks in advance.

I have been using loans secured by the cash value of permanent life insurances to invest in real estate. I mostly have IUL, and you can borrow from it immediately. If you are using the loans to invest, you should use a third party lender instead of a build-in policy loan so you can deduct the interest payed as investment expense. 

@Mike S. Thanks for the feedback. I thought IUL had a waiting period before you could borrow against it. I thought the interest on the policy would outweigh the interest you pay on the loan. If I understand correctly, you are recommending to use a third party to initiate the loan? 

@Abby Austin

I bought 4 single family homes by utilizing WL insurance policy. I used the concept bank for yourself method. Essentially borrowing money from the policy and paying it back. I believe WL is a true asset, not investment but a place to store capital and deploy for investment opportunities.

Originally posted by @Lane Kawaoka :

WL is for building your net worth to deploy into deals or rentals.

IUL is after you have reached critical mass and just want no headaches. (4-6M net-worth)

 I would disagree,

WL and IUL can be used for both. The only difference is with WL you have a steady, but lower growth. With IUL you will have an overall better growth, but you may have some years with none.

So in my view, during retirement if you are dependent on the income generated by the life insurance, WL is probably a better choice. However, if you have some reserve and can withstand two or three years of no growth, IUL is probably better on the long term.

When used in conjunction with other investments, IUL is a good fit as if one year I don't have much growth, I just don't have new income to invest. The next year, when the growth is better, I can invest more. But on the long run, the IUL will outperform the WL IRR by 1 or 2%.

@Mike S. is right on the money. There is no fundamental difference between whole life and IUL except in the way the cash value is credited with the surplus. In a WL policy the surplus is allocate it among policies as a dividend. The only difference in an indexed universal life is that the insurance company takes the dividend they would have paid you and they use it to hedge a stock index. Their goal is to capture as much movement in the market as they can get with the money they have to spend. Historically, they've been able to capture about a 2.5 to 3% premium over the debt market rate of return as measured by the Moody's Corporate Bond Yield.

One other thing I'd address is the idea that you are going to have years of zero returns with an IUL. Understand that while this is certainly a possibility, it is highly unlikely. First, there are multiple interest crediting strategies that can be selected. Spread your exposure across indexing strategies tied to different indices. Second, the cash value can be dollar cost averaged into those different strategies. So instead of having a single 12-month segment with a floor of zero and a cap of, say 9%, you will have 12 rolling 12-month segments.

While this doesn't eliminate the risk of having a zero year, it certainly mitigates that risk.

Thanks @Mike S. That definitely helped clear up a bit of confusion on my part with IUL. If I am in my mid-30s, healthy, but also looking to borrow against the policy within the next year, it sounds like you might recommend IUL as the best option for slightly greater overall growth?

Thanks @Thomas Rutkowski I definitely need to learn more about the interest credit strategies you mentioned. While there is potential for greater return with IUL, for wanting to be able to borrow against the policy to use for RE investment, it sounds like WL might be better in the short term. Would you agree?

Originally posted by @Abby Austin :

Thanks @Thomas Rutkowski I definitely need to learn more about the interest credit strategies you mentioned. While there is potential for greater return with IUL, for wanting to be able to borrow against the policy to use for RE investment, it sounds like WL might be better in the short term. Would you agree?

With a properly set up WL, you can probably access in the first 30 days 80 to 85% of the premium paid the first year. Expect to get at least 100% of the total premium accessible within 5 to 10 years. In a properly set up IUL, you should expect 75% to 80% available in the first 30 days and 100% or more of the total premium within 4 to 9 years. So you may have initially a slight advantage to the WL the first year, but that the IUL will overpass the WL very shortly after.

But the difference is not major, and you can do well either with a WL or an IUL. On the long term however, I prefer IUL as it has a better growth than WL.