Cash or Whole Life Insurance Policy? ? ?

5 Replies

Hey BP,

I had this conversation with another RE investor today, and wanted to see what the forums thought.  

IF you have a larger RE Investment Cash Account ready to go for your next investment, would you rather keep it in cash or pay up your additional riders in your whole life insurance policy? 

**this is not all of your cash this is only cash you use for RE Investments**

**Life insurance policy is 4.25% to borrow against**

Lets keep this educational and not argumentative please

Thanks ! 

All my free cash flow goes to the life insurance. When I need some back for investment, I take a loan out from a third party lender (not from the insurance company) so I can deduct the interest as investment expense. Most of the time the arbitrage between the loan interest and the interest gained in the life insurance is positive. On the long run I love putting my money to work at two places at the same time, and get a 'free' life insurance on top of it.

If you do take out a whole life policy you want as much cash in it as possible. Using the paid up additions riders lowers the cost of the policy and helps get as much money in as possible. It raises the cash value.your agent will help you, but there are limits on the % of premium that can go into the policy. You want to be as close to that limit as possible. 

I recommend not starting a policy unless you have at least 3 years to fund it before you start taking significant loans against it. 

Math is pretty simple. Your life insurance should pay a healthy interest rate and dividend. An agent can illustrate for you how money going in and out of the policy should affect things for you. 

Originally posted by @Mike S. :

All my free cash flow goes to the life insurance. When I need some back for investment, I take a loan out from a third party lender (not from the insurance company) so I can deduct the interest as investment expense. Most of the time the arbitrage between the loan interest and the interest gained in the life insurance is positive. On the long run I love putting my money to work at two places at the same time, and get a 'free' life insurance on top of it.

I second what Mike S has stated. Don't borrow from the insurance company. Borrow using a cash value line of credit. Just google that phrase to find a bunch of banks that do this. You should be able to get a loan at prime that is secured by an assignment of collateral against your policy. 

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