Paradigm Life, Infinite Banking, Whole Life Insurance

119 Replies

Has anyone on this forum had experience with this company? Paradigm Life claims to use Whole Life Insurance Policies as a financial tool and since i trust this community, I am reaching out to get some referrals.

Originally posted by @Ben Rutkevitz :

Has anyone on this forum had experience with this company? Paradigm Life claims to use Whole Life Insurance Policies as a financial tool and since i trust this community, I am reaching out to get some referrals.

 I have experience with life insurance.  In what way are they proposing a whole life policy a a "tool"? Sounds sketchy.

On second thought, i'll speak more candidly...life insurance isn't  meant to be an investment, however, agents often market it that way. I have no idea how someone can wrap an insurance policy around a real estate deal.  If you are just talking about a life policy on its own (with no regard to real estate, then that"s another discussion. (Since this is a real estate forum I assumed it had something to do with real estate)

Hi @Steve Kordish ,

Thank you for your input. What they are pitching is to use my whole life insurance policy as a self banking tool. So they are suggesting to put capital into my whole life insurance policy and then when i need funds for real estate investments, or any other investment, to take a loan from the insurance company against the value/funds in the policy. They claim there are certain tax benefits to this structure as well and that this system is vastly superior to the traditional banking one. 

It's the old infinite banking scheme from the 80's.  Here is the issue, they will over inflate the gains (an insurance agent can input the interest rate to over inflate the policy), they will have you only focus on the non-guaranteed side of the illustration (the side that they over inflated) and will tell you not to worry about the guaranteed side.  The issue is this is insurance, so the guarantee is what you are buying.

What is your time horizon on your money?  If you are fine socking it away for 10 years before you can get a sizable loan from it, then infinite banking may work for you.  If you are thinking take out this policy and in 3 years access the money, well there won't be a a lot of money to access.  

As for the rate they will propose on the non-guaranteed side, ask them for a copy of the ACTUAL returns received by a client in the same product for the last 5-10 years.  Get that from the actual insurer, 9 times out of 10 on the infinite banking scheme you see they over inflated by about 5%.  I had a client bring me a different agencies proposal for the same, they we're proposing that the S&P 500 would increase at a steady 12% rate year over year for 20 years, thus my client would be VERY happy.  Well we will all be VERY happy if the S&P returns 12% for 20 years straight, it would be the most prosperous time in the history of the US.  

Those are the words of caution, with that being said, I do play a bit of infinite banking on my policies that are now 20 years old, but that's the time horizon you need to make it really work.  

Except for a few, select situations the whole concept of whole life insurance is sub-optimal.  The general consensus is to buy term and invest the difference.  I would also argue that at some wealthy level it is better to self-insure and drop the term entirely.  

Investors on this forum can generally make in excess of 20% on their limited amount of equity to invest.  Investing those dollars in a whole life policy is complete and utter nonsense for most people on this forum.  

Hi @Ben Rutkevitz

I read through the thread and I didn't see any feedback on Paradigm Life directly as you requested... :)

I haven't personally worked with anyone at Paradigm but I know that at least 2 of the agents are Authorized Infinite Banking practitioners and have friends who do business with them. I recommend that you listen to what they have to say, read the literature they recommend, do your research and then make your well informed decision if what they presented is good for you and your situation.

@Steve Kordish is right they shouldn't be calling the policy an investment. It's not... A whole life policy that is optimized for banking has a guaranteed death benefit and cash value you will be contractually entitled to if you keep up your end of the deal (pay your insurance premiums) As we all know an investment goes up and down in value depending on external factors. There is no guarantee of performance or even future value. Josh Dorkin does a great job of giving this disclaimer every time on the podcast.
@Derek Lacy made a great point! If they focus on the non guaranteed side of the policy illustration and promise you x% returns in the future you should definitely stay away from them. That definitely sounds like a scheme you should stay away from.

To help you in your endeavors here are some things you should be listening for:
- The insurance company they use should be a mutual company.
- They should be talking about whole life insurance not variable or universal life.
- The sample illustrations they work with using your information should accentuate the cash value instead of the death benefit.

I bought my first "infinite banking" policy in 12/2009 and this year will mark 6 years of using my policy to finance things in my life. Over the past few years I have used the money to pay for my honeymoon, finance investments, pay off unexpected medical bills and pay my property taxes all while having a permanent death benefit in place. I've enjoyed getting what I paid for and look forward to making that monthly payment because I know that it's going to be right there for when I want to make my next financial move. In my opinion a correctly setup whole life policy should be part of everyone's financial arsenal because of the security, flexibility, protection and freedom it provides.

Ben, 

I'm not familiar with Paradigm Life. However, I will highlight the comment above that Term is the only insurance that makes sense.  Whole Life have a very small niche in the market for instance, if you have a child with down syndrome or elderly parent that depends on your income.  Other than that:

Buy Term (with convertible option), and invest the rest.

Get this book and read the insurance part.

Making The Most of Your Money: Jane Bryant Quinn

Thank you @Frank S. @George Carnicle @Derek Lacy @Bryan Hancock @Steve Kordish , this is exactly what I was looking for when I turned to this community. To be specific, I am less interested in the death benefit (life insurance) aspect of this plan. Paradigm Life is asserting that using the whole life insurance policy in the way they propose is a better alternative than keeping money in the bank because of the following:

- the returns are considerably higher

- i can access the profits tax free through getting a loan against the policy

- even when i take a loan against the policy, the entire cash value is still earning dividends and "guaranteed" returns.

The agent has been upfront with me that the first few years of the policy are going net high losses because of the upfront fees, but over time, 5-7 years, the policy returns will make up for the initial fees and I will start being able to access my cash through loaning against my policy while still seeing my policy grow. 

@Derek Lacy, can you speak more about the time horizon and returns. The policy my agent is proposing is saying I will be at about par within about 6 years. Of course that assumes that the returns are what they say they are. He says that initially the policy will return between 3-4% net. That includes the dividends and guarantees combined. Does that sound logical?

Dividends are always optional, but 3-4% sounds a bit reasonable.  I would want to know more what the past historic rates paid out are.  What the concern always is on life insurance is the surrender period.  So if it's 10 years that means you have 10 years of reduced accessibility to your money.  

Now a surrender period does graduate downward, meaning year one may be 100%, two 90%, three 70%, etc.  But that also means that if you put in $50k a year and on year three you want to remove some money on a loan you would have paid $150k in, but only have access to $45,000 of that principle.  

Again, I know nothing about their exact product, but those are the items you have to look at.  

Another one is the interest rate charged on loans, does it only offset the interest gain or does it actually drain the policy.  Meaning do they charge 10% interest on loans and only give 5% on the money in the account?  If so, that's not going to work well for infinite banking.  Most insurers it equals to be the same (meaning your money is not really growing when it is on loan, but that's a bit expected).

Thanks!

A mentor of mine told me once that you don't need life insurance if you have enough passive income and assets to support your spouse.   I have been working that advice.


Frank

Thank you @Derek Lacy

Can any of you comment on how accessible my money would be from these policies. Meaning, if I wanted to take a loan out against my policy is it relatively liquid (days) or would I have to wait weeks/months?

Ben, 

A 3% return is accurate for  this type of insurance policies over the long term. However,  recall that inflation is about 3%. This means you will loose the purchasing power of your contributions due to inflation. 

Life insurance is a bad idea, because it is not an investment tool. They make money for the agent, not for you. 

For tax deferred, you should already have your 401(k) ( $18,500) or spousal IRA. ($5,500), check your age, income online. Then, look into HSA, FSA, 529 college savings, and even tax exempt bonds.

https://www.bogleheads.org/forum/viewtopic.php?t=1...

Check the Bogleheads, they rock. 

http://whitecoatinvestor.com/8-reasons-to-avoid-wh...

A good life insurance requires between 10-15 times your salary.  Term is cheap.

http://www.term4sale.com/ is the best website to buy term.  

Buy term and invest the rest in broadly diversified low cost index funds according to your risk tolerance.

Agents will pitch WL, VUL, etc, because their commission is one year premiums. Do they rather earn $800 for Term  $6,000 in WL?  Additionally, 85% of the WL cancel the policy, loosing money. 

Best, 

Frank

Originally posted by @Frank R.:

A mentor of mine told me once that you don't need life insurance if you have enough passive income and assets to support your spouse.   I have been working that advice.


Frank

Frank, this Frank agrees.  

This is true. Insurance replaces your income. If your income doesn't originate from your work, then you don't need it.  You need a good umbrella policy, instead. 

Congratulations for digging a little deeper on a topic that seems to get dismissed so quickly! 

I bought a whole life policy optimized for banking in 2009 after doing extensive research. I started using it within the first year and don't ever intend to stop. I became an agent in 2013 after being a client first and enjoy helping my clients on a part time basis.

My policy will be "breaking even" on the guaranteed side in 3 more years but due to my using it (taking loans and paying myself back with interest) and the dividends I've already realized I'm ahead of schedule.

The company I bought my policy through and who I now primarily use to write new business through charges a fixed 5% annual interest rate on policy loans and all of that interest goes back into the policy to be loaned out again.

If the policy is optimized for banking you should be seeing immediate cash value from year one and your cash value should equal and then exceed your cumulative premium payments 5-7 years after your policy begins. Make sure that you start out with a manageable payment structure that you can maintain for that first 5-7 years so you don't have to worry about lapsing/surrendering your policy and walking away with less than you paid in. Once you've owned and used your policy for any length of time you will realize that it will never be in your interest to surrender the policy.

If you're interested, I would be happy to give you a second opinion to help you make sure you're getting the best possible option for your situation. Just shoot me an email directly!

Yes, that is better, unless you are totally maxing out your SEP IRA, Ind 401k, HSA, 529's, etc. There really is no reason to use the expense of a life insurance policy for tax deferral. And I'm an insurance agent that sells Whole/Universal (about .5% of what I do). The reason I do sell .5%, because there are VERY specific times where Whole life make sense. Again, I do infinite banking with an old policy my father set up for me when I was 3. I over fund that policy, its surrender charges are long past and use it for that.

I cannot think of a reason I would recommend setting up a new policy for infinite banking.  You have to remember that insurers keep about 40% of all gains to pay themselves and their agents, so you will be dealing with 60% money.  Meaning if they pay you $6 in interest, that's only because they made $10.  

Investing in life insurance is a really poor choice in my opinion. I would not even call that an investment and those who understand the concept would agree. You have absolutely no control over those moneys and as it was mentioned above relying on over-inflated numbers... If you need life insurance to protect your loved ones now because they are financially depend on you and you are the bread-winner in the family - buy inexpensive term life insurance policy. And at the same time focus on maximizing your money to real investments (rentals, flips, trust deeds, private lending, etc.). Whole life insurance is NOT an investment. Never mix your insurance and investments. 

The fees that you would pay on the policy greatly deplete your returns. 

Real life personal story
I lost my index finger in a table saw accident on 6/12/15. In anticipation of the medical bills I reached out to my agent via email on 6/22/15 at 6:39PM to request a policy loan. On 6/24/15 my loan was in my personal bank account to be used as needed. This has been the fastest turned around I've seen. My previous loans took between 3-5 days from the time I requested the loan until it was in my account. In my opinion this is pretty liquid!

My return on investment for just the month of November was 103.9%. I paid in $213.04 and saw my cash value grow to $221.43. My total net return as of today is 81%. This doesn't take into account my potential dividends for 2015 (they will be paid out in Dec). Also my policy was setup to break even in 10 years vs the 6-7 the one you're looking at. Deferring the break even period gives me a higher death benefit and cash value down the road. It's a tweak I made with my agent based on my preference at the time.

@Dmitriy Fomichenko I agree with you, investing in whole life insurance is a bad investment. To give you a very rough high level view of what is being discussed here. A whole life policy is being modified to behave like a compounding savings account with a guaranteed death benefit. The fact that a whole life insurance policy is being used is really secondary. The point is to use the money that is saved into a policy to finance actual investments. The policy owner has multiple benefits:
- the obvious death benefit
- a contractually guaranteed cash value that can be used at the policy owners discretion
- potential dividends (not guaranteed) which will be used to buy more paid up life insurance and compound over time while the policy is in force
- potential bankruptcy protection
- tax benefits
And more

Please be CAREFUL!!! I have just crossed over a very bad experience that stems from this company. I opened what I though was a cash flow banking account and kept funding it. When I had a crisis and needed my now saved money (what I thought was MY saved money) it was gone. Over $6000 was gone in a crisis. BEWARE!!! My money was not going to be accessible for YEARS (as long as I kept funding it) and this is not what I was originally told. 

@Dondi Gerber I'm very sorry for your experience! It sounds like there were some failures on multiple levels. :( Who specifically were you working with at Paradigm Life? Could you also tell us what product you actually bought vs what you thought you were buying?

Originally posted by @George Carnicle :

@Dondi Gerber I'm very sorry for your experience! It sounds like there were some failures on multiple levels. :( Who specifically were you working with at Paradigm Life? Could you also tell us what product you actually bought vs what you thought you were buying?

George,

Do you work for Paradigm?  Please disclose if you do.

Thanks,

Mark

I'll do the same thing.  Give me your money.  I will lend it back to you later. Hopefully after the enormous surrender time has passed.  I will charge you secret fees for 'managing' your money, deflating your 'guaranteed' rate to an absolutely laughable, dismal real rate.

Oh- and when you die, I will keep all accrued 'cash value'.  Your heirs will only receive the face value of the policy.  Cheers!

Originally posted by @Steve Vaughan :

I'll do the same thing.  Give me your money.  I will lend it back to you later. Hopefully after the enormous surrender time has passed.  I will charge you secret fees for 'managing' your money, deflating your 'guaranteed' rate to an absolutely laughable, dismal real rate.

Oh- and when you die, I will keep all accrued 'cash value'.  Your heirs will only receive the face value of the policy.  Cheers!

Steve, I love your explanation! It is disgusting how those insurance companies and their agents present this and mislead so many people! No one in their right mind if they truly understand how it works would agree to go for it.