Financing Through Whole Life Insurance
Cleveland, OH · Member since 2022 · 5 posts · 3 votes
Financing Through Whole Life Insurance
Most Popular Reply
Thomas RutkowskiPro Member
Financial Advisor · Boynton Beach, FL · Member since 2015 · 833 posts · 798 votesQuote from @Tommy Schluter:
Quote from @Thomas Rutkowski:
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?
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.
12 Replies
- Cleveland, OH · Member since 2022 · 5 posts · 3 votes3y
Would also like to add that I am entirely aware this is a long-term investment/banking concept. By asking how long does it take and recommendations for beginners, I am by no means trying to insinuate any get rich quick schemes and wind up fooled by some shady sales agent w/ a policy I know nothing about.
- 3yThomas RutkowskiPro MemberFinancial Advisor · Boynton Beach, FL · Member since 2015 · 833 posts · 798 votes
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.
- Investor · Rochester, NY · Member since 2016 · 576 posts · 358 votes3y
I'm the $200 per month guy @Thomas Rutkowski mentioned. I started mine 20 years ago. I have borrowed against the cash value to fund a down payment and for some repairs on a distressed property. Mine is not large enough of a value to fully fund a purchase. I'm having a hard time paying it back. I guess it seemed like an easy way to get my hands on the funds and didn't analyze the finances as carefully as I would have if I was borrowing from a bank.
- Cleveland, OH · Member since 2022 · 5 posts · 3 votes3y
Quote from @Thomas Rutkowski:
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?
- 3yThomas RutkowskiPro MemberFinancial Advisor · Boynton Beach, FL · Member since 2015 · 833 posts · 798 votesYes. 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.
Quote from @Tommy Schluter:
Quote from @Thomas Rutkowski:
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?
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. - 3yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesOr, you can just invest the money that you would be putting into the maximum funded insurance policy and then borrowing against directly into real estate and avoid paying the large cumulative fees charged to pay for sales, marketing, administration, overhead, asset management, and profit to the insurance co. Worried about future taxes? Set up a Roth retirement account.
Quote from @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!
Hey, there’s no magic to this “infinity banking” nonsense. It’s all written by insurance salesman disguising themselves as financial advisors, or financial planners. Let me simplify (although there’s a lot more to it). Send the insurance co $50,000. You get a term life insurance component that you can buy separately for $25 per month. Then you pay $9,700 in commissions, fees, etc. and you can “borrow” $40,000. Or, you can save the $9700 sales commission, and invest the full $50,000. Do it through a self directed retirement account and you’ve just added the tax deferral, or if Roth tax safi g component for about. $150 set up fee.
if you’ve ever been to NYC you’ve probably seen the hustlers with a table on the sidewalk where they have a small ball under a cup. There are three cups and you bet say $20 that you will be able to follow their hands to decide which cup has the ball underneath. If you stay watching long enough you’ll notice someone winning consistently because they have the ability to keep their eyes on nothing but the cup with the ball (no easy feat). What happens then is that the person running the table signals to a colleague to run a distraction so that it’s almost impossible for the guy winning to keep his eyes totally on the cup with the ball. All this infinity banking, the death benefit is reduce to pay for the loan, etc. is the distraction. To distract you from the LARGE fees being charged for this product. - Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes3y
Quote from @Don Konipol:
Or, you can just invest the money that you would be putting into the maximum funded insurance policy and then borrowing against directly into real estate and avoid paying the large cumulative fees charged to pay for sales, marketing, administration, overhead, asset management, and profit to the insurance co.I disagree with you. While investing directly into real estate will give you a better return initially, if you funnel the same amount through a life insurance first and borrow it to reinvest in the same real estate deals, on the long term, your return will be enhanced by this process. It's basic mathematics.
This long thread https://www.biggerpockets.com/... has some basic calculations proving it....
- Realtor · Ogden, UT · Member since 2019 · 338 posts · 415 votes3y
Hey Tommy,
If you're a beginning investor, without a strong cash position, the whole life policy is just going to slow you down for your first few years. However, if you've sold a few properties and are in a strong cash position, it's definitely a cool tool to consider.
Many very wealthy people use whole life but I've found that whole life isn't the way they got there. Instead, it's a way they stay there.
Good luck!
- Investor · Houston, TX · Member since 2019 · 95 posts · 29 votes5mo
Tommy — good that you're thinking long-term. In a properly structured policy (not the kind most agents sell), you can access about 85-90% of your premium as cash value in year one. So if you're putting in 20K/year, you'd have roughly 17K available to borrow against almost immediately. The key is finding an agent who designs for maximum cash value, not maximum commission. Most policies sold at retail are the opposite — heavy on death benefit, light on cash value. That's why people think it takes 10 years to use. It doesn't, if it's built right. Look into mutual companies like Mass Mutual, Penn Mutual, or Guardian. I have a training on my page that walks through the math.
- Investor · Houston, TX · Member since 2019 · 95 posts · 29 votes5mo
Two answers here.
For the OP: timeline depends entirely on how the policy is structured. A maximum over-funded policy with paid-up additions riders gives you 85-90% of premium as borrowable cash value in YEAR ONE. So if you fund $50K/year, you have $42-45K to borrow against by month 12. If you're funding $200/month, you're 5-7 years out before it becomes useful for real estate. Most people who give up on the strategy never funded it correctly.
Carriers to look at: MassMutual, Penn Mutual, Lafayette Life, Mutual Trust Life. All mutual companies, all have good PUA riders. Avoid stock companies and anyone who can't show you a designed-for-cash-value illustration.
For the follow-up question on death benefit vs cash value: you're thinking about it the right way. Larger death benefit = larger total loan capacity, but slower cash value accumulation. The choice depends on whether you want speed or scale. For real estate investors who need access fast, max cash value beats max death benefit every time. The death benefit grows with paid-up additions anyway, so you're not giving it up forever — just front-loading the cash value first.
The "Double Play" comment above is exactly right. You're using the same dollar in two places at once: it earns dividend inside the policy AND works in your real estate deal. That's the actual edge.
- Investor · Houston, TX · Member since 2019 · 95 posts · 29 votes5mo
Good question — and the honest answer is "it depends on design, not the company."
Two things drive how fast the cash value becomes useful:
1. How the policy is structured. A standard whole life policy is built for a death benefit first and cash value second. For banking purposes you want the opposite — a base policy with a paid-up additions rider so most of the premium goes into cash value from year one. Properly structured, you can have 60-80% of your first-year premium liquid almost immediately, and close to dollar-for-dollar by year 3-5.
2. How much you fund it. Cash value is a function of premium. $200/month takes years before it does anything meaningful. $1,000+/month funded aggressively into PUAs can have real working capital inside 12-24 months.
For mutual companies, the short list most agents use for banking-style designs is MassMutual, Penn Mutual, Guardian, NYL, and Lafayette Life. They all work — the agent and the design matter more than the logo.
One thing I'd flag as someone who's actually used policy loans to fund flips: don't over-focus on the first year. The real power shows up around year 5-7 when you can recycle the same dollars through multiple deals without liquidating anything.
- Investor · Houston, TX · Member since 2019 · 95 posts · 29 votes5mo
Two timelines to split.
Loanable cash in year one: a properly designed policy (heavy PUA rider) gives you 60-85% of your first premium as loanable cash value inside 12 months. On $30k premium, that's $18-25k you can access.
Useful for deals: you need 3-5 years of premium to build real dry powder.
Carrier questions that matter: **mutual company** (you become part owner, get dividends), 150+ year dividend history, A++ AM Best rating, and direct vs non-direct recognition on loans. Big 4 mutuals (MassMutual, Guardian, NY Life) all qualify, plus Penn Mutual and Lafayette Life.
Bigger point: design matters more than carrier. The same company can issue a bad policy or a great one. Ask the agent for base-to-PUA ratio and MEC-tested illustrations. And make sure your cash value keeps growing uninterrupted when you borrow — that's the whole reason to do this unless your also looking for protection and LTC. Feel free to reach out if you have any questions.
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