Financing Through Whole Life Insurance

[Tommy Schluter]

Does anyone here finance their real estate investments through a loan against their Whole Life Insurance policy via a Trust? If so, how long does it take to have enough Cash Value to 1.)  Begin financing and 2.) Really be able to not worry about when you need a loan and be able to jump on opportunities as soon as you see them? Also, any recommendations on Mutual Life insurance Companies for beginners.

Thanks in Advance!

[Thomas Rutkowski]

Quote from @Tommy Schluter:

Quote from @Thomas Rutkowski:

@Tommy Schluter

I'm an agent, but I do have a policy myself and I do use it for what I call "The Double Play": leveraging the cash value of a maximum over-funded policy to invest in real estate.

I see you've found the Paradigm Life thread. That is one of the oldest and most thorough threads here on BP. You'll get a full spectrum of perspectives, good and bad. 

To answer your questions above, the cash value is a function of how much premium you are putting into a policy. In a properly designed, maximum over-funded life insurance policy, the ratio of cash value to premium should be about 85 to 90%. So if you make a $50,000 annual premium, you should have something more than $40,000 that you can immediately borrow against. However, if you are funding your policy with only $200 per month, it will take a while before you have a meaningful amount of cash value to do anything. 

 I am relatively new to this concept, but I have read the book, What Would the Rockefeller's Do? To be clear, when you recommend Maximum Over-Funded Life Insurance, you are referring to a policy with the most possible cash value and minimal death benefit, correct? In the book they mention a few different "Infinite Banking" concepts or ways to utilize the method, however one of the most talked about concepts was the idea that in a case where you didn't pay back the loan, it would just be deducted from the death benefit. So in a sense, wouldn't a larger death benefit allow the potential for access to a larger loan against the policy, that in turn allows for more real estate financing opportunities through the policy, even if it means it takes longer to accumulate the cash value? 

Yes. A maximum over-funded policy has the most cash value and the lowest death benefit. "Infinite Banking" policies are typically NOT maximum over-funded. They are simply over-funded. The "interest" you are paying yourself is actually paid up additions... which could (should) have been put into the policy as part of the premium. You can't add Paid up additions to a maximum over-funded whole life, because its "maximum over-funded". Just to avoid confusion, the premium will include paid up additions. I'm talking about PUA coming later... not as part of the initial premium.

It's important to realize that Policy loans are loans against the cash value. The death benefit does not impact this. If a 20 year old and a 50 year old both put $50K per year into a policy, both policies will have roughly the same cash value. However, the 20 year old will have a much higher death benefit than the 50 year old.

A properly-designed policy should have about 85-90% cash value relative to the premium. If you raise the death benefit, you will increase the internal costs and the ratio will decrease.