Investing in Real Estate with Life Insurance
Bobby PaquetteBusiness Member
Real Estate Agent · Abilene, TX · Member since 2019 · 223 posts · 88 votesInvesting in Real Estate with Life Insurance
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Specialist · Grand Rapids, MI · Member since 2020 · 116 posts · 80 votes
3yFull disclosure, I own an agency, but Indexed Universal Life vs. Whole Life is the conversation you're looking for. I personally lean towards IUL because of the flexibility. It does take some time to get the policy working for you, but also depends on how you're funding it. I would wait until you're able to contribute at least $500 a month towards it.
Also, the design of the policy needs to be optimized properly. In short, the death benefit needs to be "squashed" in order to promote cash value growth. Thats because the majority of the costs are based on the death benefit and could, in the long term, cost you 6-digits in lost assets to the insurance costs.
The other thing to consider is the loan provisions and how they are calculated. You want to achieve a "net 0%" loan in order to use it's full potential.
A few more details here, but this is a good start.
10 Replies
- Specialist · Grand Rapids, MI · Member since 2020 · 116 posts · 80 votes3y
Full disclosure, I own an agency, but Indexed Universal Life vs. Whole Life is the conversation you're looking for. I personally lean towards IUL because of the flexibility. It does take some time to get the policy working for you, but also depends on how you're funding it. I would wait until you're able to contribute at least $500 a month towards it.
Also, the design of the policy needs to be optimized properly. In short, the death benefit needs to be "squashed" in order to promote cash value growth. Thats because the majority of the costs are based on the death benefit and could, in the long term, cost you 6-digits in lost assets to the insurance costs.
The other thing to consider is the loan provisions and how they are calculated. You want to achieve a "net 0%" loan in order to use it's full potential.A few more details here, but this is a good start.
- 3yDenver McClurePro MemberFinancial Advisor · Flower Mound, TX · Member since 2018 · 661 posts · 480 votes
Disclosure as well, I'm a General Lines Agent. I would completely agree with @Matt Ruttenberg on an IUL being better suited for the average real estate investor. The tax benefits mixed with the 0 cost loan capabilities are what most investors are looking for when it comes to finding low cost capital for RE down payments, renovations, etc.
Just make sure you work with an Agent who is a licensed Fiduciary and understands real estate investing as well. There are far too many life insurance agents out there that might not care about your financial situation or real estate goals and will just push any product on you for a commission.
- I am investing in real estate and using an IUL. While the WL provides a steady growth and has more third party lenders, IUL has a variable growth and less lenders but on the long run will probably outpace the WL. Also the IUL is more flexible for the premium schedule.
Most of IUL cash value will not be available immediately unless you pay for an early cash value option that will slightly reduce your IRR on the long run. Depending on the value of your premium, it may be worth paying for that option as you get more cash available to reinvest earlier.
I concur with the previous statements that whatever kind of policy you use, it has to be set up properly to maximize the funding and minimize the death benefit. It is probably easier to set up a optimized IUL than an optimized WL as the later is more an art than a science (see the diversity of opinions in the WL about the 10/90 vs 40/60 due to risk of MEC with a 10/90). - Real Estate Agent · Abilene, TX · Member since 2019 · 223 posts · 88 votes3y
Quote from @Matt Ruttenberg:
Full disclosure, I own an agency, but Indexed Universal Life vs. Whole Life is the conversation you're looking for. I personally lean towards IUL because of the flexibility. It does take some time to get the policy working for you, but also depends on how you're funding it. I would wait until you're able to contribute at least $500 a month towards it.
Also, the design of the policy needs to be optimized properly. In short, the death benefit needs to be "squashed" in order to promote cash value growth. Thats because the majority of the costs are based on the death benefit and could, in the long term, cost you 6-digits in lost assets to the insurance costs.
The other thing to consider is the loan provisions and how they are calculated. You want to achieve a "net 0%" loan in order to use it's full potential.A few more details here, but this is a good start.
Thanks for sharing, If i decide to go with a policy, I will be in contact!
- Real Estate Agent · Abilene, TX · Member since 2019 · 223 posts · 88 votes3y
Quote from @Denver McClure:
Disclosure as well, I'm a General Lines Agent. I would completely agree with @Matt Ruttenberg on an IUL being better suited for the average real estate investor. The tax benefits mixed with the 0 cost loan capabilities are what most investors are looking for when it comes to finding low cost capital for RE down payments, renovations, etc.
Just make sure you work with an Agent who is a licensed Fiduciary and understands real estate investing as well. There are far too many life insurance agents out there that might not care about your financial situation or real estate goals and will just push any product on you for a commission.
Thanks!
- Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes3y
It's like having your own bank, where you can make money in two places at once by using a whole life insurance policy that grows and then you take a loan based on that policy's value to invest in real estate or other sweet deals.
Here's how it works in simple terms:
- You make a deposit into your policy.
- You take out a loan using the policy's cash value as collateral.
- You invest that borrowed money
Now, when you've got real estate deals exiting and giving you some cash, instead of stashing it in a low-yield bank account, you can pay off the loan on your policy and keep funding it. That way, you've got your capital safely stored while waiting for your next big investment.
Policies are backed by AAA insurance companies, so they're considered more secure than regular banks. No need to worry about them pulling a loan out from under you - that is where the term your own bank comes from.
Plus, you get some asset protection with life insurance policies depending on what state you live.
Some insurance policies can have high fees, it's not a scam like some regular whole life policies. The key is doing the minimum or 10% insurance. But the agents normally don't like that.
Remember, it's not an investment method itself, but it's a smart move for those who want their money working harder in real estate and beyond.
Also IULs are more investment in stock market tools. They don't have as much liquidity as wholelife policies - the Paid up additions are not a large so you can't over fund as much.
- I'm not sure to understand your statement. There is no PUA on IUL. And the payment are much more flexible than in a WL. You can overfund in the same ratio on a IUL and WL, expect 75 to 85% in cash value available in the first year with the early cash value add-on.
Quote from @Lane Kawaoka:
Also IULs are more investment in stock market tools. They don't have as much liquidity as wholelife policies - the Paid up additions are not a large so you can't over fund as much.
In a WL however, you may not be able to put as much PUA every year. - Real Estate Agent · Abilene, TX · Member since 2019 · 223 posts · 88 votes3y
Quote from @Lane Kawaoka:
It's like having your own bank, where you can make money in two places at once by using a whole life insurance policy that grows and then you take a loan based on that policy's value to invest in real estate or other sweet deals.
Here's how it works in simple terms:
- You make a deposit into your policy.
- You take out a loan using the policy's cash value as collateral.
- You invest that borrowed money
Now, when you've got real estate deals exiting and giving you some cash, instead of stashing it in a low-yield bank account, you can pay off the loan on your policy and keep funding it. That way, you've got your capital safely stored while waiting for your next big investment.
Policies are backed by AAA insurance companies, so they're considered more secure than regular banks. No need to worry about them pulling a loan out from under you - that is where the term your own bank comes from.
Plus, you get some asset protection with life insurance policies depending on what state you live.
Some insurance policies can have high fees, it's not a scam like some regular whole life policies. The key is doing the minimum or 10% insurance. But the agents normally don't like that.
Remember, it's not an investment method itself, but it's a smart move for those who want their money working harder in real estate and beyond.
Also IULs are more investment in stock market tools. They don't have as much liquidity as wholelife policies - the Paid up additions are not a large so you can't over fund as much.
Thanks for the input! Do you currently use one ?
- 3yBette HochbergerBusiness MemberAccountant · 33301 · Member since 2022 · 57 posts · 43 votes
Life insurance should not be solely used as an investment use (though it does come with a few potential tax benefits). Its primary purpose is to provide protection for your loved ones in the event of your passing. Before incorporating life insurance into your real estate investment strategy, make sure to conduct a comprehensive analysis of your financial situation and consult with a financial professional that specializes in real estate.
Bette Hochberger, CPA, CGMA4.622 Reviews - Specialist · Grand Rapids, MI · Member since 2020 · 116 posts · 80 votes3y
Quote from @Bette Hochberger:
Life insurance should not be solely used as an investment use (though it does come with a few potential tax benefits). Its primary purpose is to provide protection for your loved ones in the event of your passing. Before incorporating life insurance into your real estate investment strategy, make sure to conduct a comprehensive analysis of your financial situation and consult with a financial professional that specializes in real estate.
I would have to agree! The benefit of using a properly designed policy is primarily being able to utilize the cash value for real estate investments, investing in businesses, etc. outside of the policy.
In addition, it's a good idea to use it as a supplement to your 401k, IRAs, REI, etc. The tax benefits make it an even more attractive vehicle. However, I wouldn't try to compare it to traditional investments.
In short... it's a piece of the pie!
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