I am in the last stage of a whole life insurance policy application. I have a few questions before I proceed with finishing the app:
1. Has the borrow rate historically been lower than the dividend rate? Like before the great recession.. last 15 years was very abnormal.
2. Can you use the life insurance policy's cash value as asset on balance sheet?
3. Can you use the cash value as POF for purchase? I suppose I can take the money out and put into a bank account and then submit it, but that would be a lot more work
4. Anyone want to review their experience with whole life policies as a part of their real estate investing strategy?
The policy is from Mass Mutual fwiw.
I am a CPA, licensed agent, and have a lending background and think I can speak to the various parts of your question. MM has a number of different versions of whole life policies, and the current interest rate ranges from 5.0% to 5.72% depending on the product. The current dividend scale is about 6%, but when that kicks in depends on the cash value. Dividends usually begin in years 2 or 3 of the policy and your illustration should show this (guaranteed and non-guaranteed views). You can use the cash value in the policy as a source of funds for financing, and it is an asset and liquid through withdrawals or loan by borrowing against the cash value. The latter of these scenarios is usually preferable. Many clients have put the IBC or similar concept to use, but how effective it is and whether it's right for you depends on several factors as there are pros and cons to everything. Hope this helps.
If your producer can't answer these questions I would try to find a new insurance professional. First, figure out what you are trying to accomplish and be absolutely sure this is the right approach for you and your specific situation.
Probably about five or more life insurance brokers that specialize in cash value policies are active on BP reach out to them to get some other options and feedback.
Jonathan Bock, CPA
I am a CPA, licensed agent, and have a lending background and think I can speak to the various parts of your question. MM has a number of different versions of whole life policies, and the current interest rate ranges from 5.0% to 5.72% depending on the product. The current dividend scale is about 6%, but when that kicks in depends on the cash value. Dividends usually begin in years 2 or 3 of the policy and your illustration should show this (guaranteed and non-guaranteed views). You can use the cash value in the policy as a source of funds for financing, and it is an asset and liquid through withdrawals or loan by borrowing against the cash value. The latter of these scenarios is usually preferable. Many clients have put the IBC or similar concept to use, but how effective it is and whether it's right for you depends on several factors as there are pros and cons to everything. Hope this helps.
@Allen L.
Hi Allen,
Licensed agent here and Infinite Banking Concept practitioner using whole life insurance.
Great questions all around! I'll try to address a few:
1. The rate of interest on policy loans for large and reputable mutual companies is always going to be competitive relative to commercial or consumer lending. That's primarily due to the collateral that is the policy death benefit....low risk for the insurer because they know, eventually, you'll die and they'll recoup the outstanding loan before paying out the death benefit. And dividends, although not guaranteed, have historically have been pretty good, even during recessions, wars, and pandemics. Simply getting a dividend is a positive sign of an insurance company who manages their reserves well.
2. Absolutely can! It's quite literally cash value.
3. Yes you can! Although not all lenders have to as subject to their own overlays and underwriting rules. That said, I just did this as POF for reserves on a $1MM short term rental purchase in February. And It did NOT have to be withdrawn from the policy!
4. See number 3. I only WISH I had known about this ability to make money earn in two places at once while ALSO getting a death benefit and future tax benefits. I'll have more examples of my leverage of my whole life policies in the coming years ;)
Hope this helps and best wishes. Here to answer or help if I can!
To respond to your inquiries, Helen:
Lastly, regarding the policy with Mass Mutual (or NW Mutual too), it may not be advisable to use them for your intended purpose. Their setup does not ideally support frequent transactions in and out of your account, especially if you're looking to employ the infinite banking strategy.
Hello,
Others have answered your questions, but I want to mention that if you are prioritizing the cash value, you should really set the policy up for Infinite banking. You'll have a reduced death benefit, as most of your premium will go to the cash value.
We use ours as savings account, so we basically took the monthly amount we were saving, and that became our premium. The plan was built around that payment so the maximum could go to cash value. We love it and have used the funds several times for down payments. Banks and realtors treat it like any other form of cash.
There are tax implications for creating this correctly, so best to go with an agent who is familiar with it, otherwise you could end up with a MEC, which becomes taxable.