Paradigm Life, Infinite Banking, Whole Life Insurance

106 Replies

@Martell T. ,

I got halfway through reading your post, and I just can't help but wonder to myself...

"Why is this guy so angry?"

I'll have to finish the other half later.  

Damn...Daniel!?!?....Damn!!!!.... Clearly you dont know how touchy this subject is..the first thing ppl want to do is label you as someone who is trying you sell  something and I make it clear several times that is not the case with me.  We can't channel our inner Zen as well as you can Mr. Chang!

I have a WL policy that I started about 5 months ago...  I have big plans for it.  I'm gonna work that money big time.  The life insurance portion is a benefit for my family (along with the tax shelter), but the money that gets capitalized is tax free, guaranteed, and I have full flexibility to use it as I want. The insurance portion is just icing on the cake and a perk for the family after I pass.  I'm a real estate investor, so that will be the biggest areas I'll use it in.  There are fee's to the product, but it's a long term strategy... the break even point is usually after a few years of capitalization and then the momentum really starts to go... all with cash you can use today for anything you want.  So for me after much research and talking with various agents, it makes sense.  

@Ben, I wrote a book called Millionaire Baby Cracking the Wealth Code on this very topic.  It is available on Amazon, you can download it for free on Kindle. 

When you set out to build wealth, you look at things long term, not just in this generation but many generations to come.  You also want a vehicle that let you take out cash at the time you need most to take advantage of opportunities (like 2008) and earns equity market-like return while your money sit idle waiting for deals to come by.  Last but not least the cost of borrowing is low like 0%.

Tax is also another consideration.

Compounding interest is also another consideration.

Average rate of return versus real rate of return is another consideration.

The cost of borrowing to minimize your opportunity cost is also another consideration.

And of course, peace of mind is the biggest consideration of all.

I have played the game of real estate investing and cash value life insurance for the past 7 years.  In my opinion as a working mom juggling with multiple priorities in life, cash value life insurance IUL gives me all the above.  I never lose sleep over my money when the market tanks.  If something happens to me (God forbids), my family will inherit discounted money (if you buy an asset pennies on a dollar you call that discounted money and life insurance does that).  I wouldn't say my return is 12% because it ain't so but I'd be comfortable to tell my clients an average 8%-9% annually is a likely scenario because that is how much I've been getting.   Good luck.

@Suzanna Lam I just bought your book (Kindle, $2.99, not free unless you have Kindle Unlimited) and look forward to reading it. I've been "fascinated" by the whole "Bank on Yourself" concept for years but have never grasped it firmly enough to take the plunge. Hopefully your book will be a little more interesting than the couple that are out there on the BOYS concept. 

@Thomas Rutkowski Thank you. Sounds like you actually know something about this topic...probably because you have a financial planning background. Lots of ridiculous comments here. Work with someone who knows what they are doing; someone who can structure the policy(s) to meet your investing, insurance, tax planning, retirement, and legacy goals. This is not going to be someone who only sells insurance. WL structured properly is a vehicle or a place to store your money that has many benefits. It is more complicated strategy, but it has been around much longer than 401ks (do you know why 401ks were invented?) and it's been used by banks, corporations, wealthy families, etc. for over 100 years. If you want to keep your money in your bank account, max fund your 401k, IRA etc., go ahead. See how much interest you earn (just wait for negative interest rates). In a liquidity event/need call up your 401k provider and see what they say. Also, 401k disbursements on the back end are taxed at ordinary income rates. Or here's an idea...call Paradigm and talk to them, I bet they can answer your questions.

Originally posted by @Bryan Hancock :

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.  

 Buy term and invest the difference is not a good strategy at all. This idea was invented by the companies like Primerica to sell their product. There are two problems with it. The term insurance does not get any of the tax and asset protection benefits that can be obtained by a properly structured whole life and/or IUL. The second problem is mutual funds is intended as the "invest the difference." Why get 7% returns, pay 4.5% in guarantee fees and take the risk of losing up to 40% of my money? What Wall St does is highway robbery and this the conventional wisdom and what the average person should invest in.

I would not discount life insurance as a real estate strategy. In investing, you need both a high rate of return and liquidity. I used my whole life and IUL policies in 2009 to buy real estate at the best time. I was getting 14% average IRR on these policies and they provide both asset protection and a tax shelter. There are advantages to defined benefit plans. The problem is finding any licensed life insurance agents that understand what the best policies are. You want minimum death benefit and as close to the MEC limits. In fact, life insurance was such a great tax shelter for the wealthy that the IRS created the MEC to limit the investment advantage of life insurance in the short run. As the other poster mentioned correctly, the infinite banking concept only works after about 6 to 10-years. It is a long term strategy. In the short term, it is not possible to use this infinite banking strategy because of MEC.

Life insurance is not for newbies or even middle level. It is a super advanced strategy that requires the right team to add to your mix. It can also be mixed with a self-directed solo 401(k). 

In my experience, the insurance ironically seem to see real estate as risky. The problem is that financial planners and real estate investors see themselves on opposite sides of the investing.

Originally posted by @Frank Sanchez :
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. 

 Life insurance is not something you need if you're not making millions of dollars. You will need life insurance as a tax vehicle if you run into the problem of making too much money.

The biggest problem with the infinite banking concept is that their practitioners are not necessarily real estate investors too. They do not design their policies right up to the MEC limit. Recently I shared one of my policy designs to an IBC practitioner. His design for the same client showed only 60% of each premium dollar going to the cash value where mine had 85%. If you're a real estate investor, would you rather leverage 85 cents of every dollar or only 60 cents? You want as much of your cash working in two places as possible!

He told me my design wouldn't work because it would create a MEC. Huh? Policies only create a MEC when you pay too much premium into them for the amount of death benefit. These are limits determined by the IRS. Since the client won't be putting any "additional" premium into the policy each year, how can we possibly create a MEC? Well its because IBC practitioners do not design their policies up to the MEC limit. They leave room for the client to "pay interest" on the money they borrow from their own "bank".

I think it is very phony to tell people that they are borrowing from their own bank and paying themselves interest. 

All policy loans are loans against the policy's cash value. You essentially have an open line of credit secured by your cash value up to the amount of your cash value. It is Mass Mutual, for example, who gave you a loan of THEIR money. You have to pay THEM interest. Your cash value is still in place as collateral for this loan. This is true in IBC policies too. This concept of paying yourself interest is simply excess premium paid into a policy via a Paid-up additions rider. Its a gimmick.

In a properly designed policy for real estate investors, I fund policies to the greatest extent possible. This purchases the least amount of insurance, keeps the commissions and fees to an absolute minimum, and most importantly, gives the investor the largest Line of Credit to borrow against (Immediately, I may add, not 7 years later). Not funding a policy to the MEC limit allows for a higher death benefit and consequently, higher commissions for the agent.

If the real estate investor pays the interest each year and treats it as a cost of doing business, the cash value grows by itself and will never create a MEC.

The concept is very simple: if you can put your money into an asset that is earning 6-8% interest, and you can get a line of credit secured by that asset, then anything you invest that money into that earns more than your loan rate is creating value on top of the cash value of the policy. That's it. 

https://www.biggerpockets.com/blogs/7595/47651-are...

It's amazing this is still going on.

Many agents push cash value, WL, and VUL for one reason and one reason only: the juicy commission = one year premiums.  

Term is too cheap to not have. 

40 year old can get 1 million 30 year Term for about $800 a year.  It's pizza and beer money.

A whole life would cost $6,000 to $9,000.  85% of those are cancelled.  The returns are chewed up by inflation, unknown fees, and more fees of fees.

If you are loaded and want to hide cash, go for "investment" insurance.  If not, don't fall in the trap of the insurance industry.

I just cannot believe this thread. This last comment written by Frank is the best "DON'T FALL INTO THE TRAP". I lost a significant amount of money believing what I was told by "Paradigm" pos in my opinion. 

It's hard to argue with someone with a headset on, but most of the recent responses in this thread are rubbish.  Telling people they don't need term insurance unless they're wealthy is clearly inaccurate so it really isn't in the realm of something worth responding to.  

There are niche situations where exotic life insurance strategies make sense, but they're not very common.  Having complete control of your money so you can invest it actively is likely to be a better strategy for almost everyone BP.  

I also see people posting about eye-popping IRRs skimming through recent threads. IRRs like this are very suspect and are likely not imputing the labor component of the poster. If you carve the salary they're not accounting for out of the computation I think the IRR would be far less impressive. Projects where money works in excess of 20% unlevered without conflating the labor component in the overall IRR calculation are unlikely to last for long. Levered you can certainly do better, but with added risk.

Originally posted by @Frank Sanchez :

It's amazing this is still going on.

Many agents push cash value, WL, and VUL for one reason and one reason only: the juicy commission = one year premiums.  

Term is too cheap to not have. 

40 year old can get 1 million 30 year Term for about $800 a year.  It's pizza and beer money.

A whole life would cost $6,000 to $9,000.  85% of those are cancelled.  The returns are chewed up by inflation, unknown fees, and more fees of fees.

If you are loaded and want to hide cash, go for "investment" insurance.  If not, don't fall in the trap of the insurance industry.

Juicy commission! That's funny. In an over-funded policy design, the commissions are far from juicy.  The insurance component of the premium is absolutely minimized. The agents are doing you a favor yet you have the nerve to make these totally uneducated comments. You pay more on your typical real estate deal.  No overfunded policy returns are chewed up by inflation, that's for sure! 

Whole Life insurance - the most hated product by everyone who doesn't have it. The rest of us who do, probably go back and forth on it.

I'd recommend only an AAA rated company. I have Guardian and my guaranteed dividend for this year is 6.25%. I wasn't the smartest guy on the block, and I'm still not, but I got a policy in 2008 and several others in 2009. I read the infinite banking concept, but for me, it was mostly forced savings and the whole ability to borrow against it from the insurer and still maintain tax advantages and death benefit. If death benefit isn't at least part of it for you, I'd do something else...

Personally, I loaded my insurance as much as possible. I was working commission and at every chance, I put my big checks on as PUA (Paid Up Additions). By 2013 I had gone through the downturn in stocks, etc and had almost $300k in LI value making over 6% and then I started buying real estate.

You don't have to pay yourself back, but you should. If you tax guy understands what you're doing, you can write off the interest that you pay (even through you basically pay yourself, but not technically), and then you can keep using your cash value. Now that I'm refinancing and taking cash out, I'll be able to to take around $700k against my initial $450k home purchases, put it into guaranteed 6.25%, pay 4.75%, and earn the spread while I make cash offers and look for the next properties.

I'm sure I could have just put the money aside in a high yield account (that isn't lawsuit or BK protected) making .75% and probably could have done a lot of the same, but I didn't and it worked for me. Now, you will have to keep paying the premiums, but if your investments cover them, then you'll always leave a chunk of cash and properties for your family and if they use a conservative approach, they'll have money that will continue through generations.

The lessons I got from the infinite banking concept (which is a bit misleading and has flaws) are these:

- Just like if you owned a store, you wouldn't and shouldn't take groceries for free, you should pay for them, don't steel from your savings: pay yourself back. It is a loan, treat it as such. If you stole one can of corn from your store, you'd have to sell 13 cans to pay for the one you stole. If you don't pay back your LI loan, it works against you.

- If you planted trees each year for 10 years before you started harvesting, you could eventually use the money that you sold the trees for to buy more saplings and keep planting. The same is true for LI: you have to keep planting/paying/Maxing PUAs for about 10-12 years and then the dividends you make will cover the premiums and you'll build wealth. You can benefit from it only if you allow it to grow and "cultivate" it.

- Use your cash value to buy assets that other people pay the notes back for you (i.e. Real Estate). They used an example of a truck leasing company, but the point is the same: if other people pay the loan, other people grow your bank and you benefit.

Is whole life the best thing? No. Is it the most efficient thing? No. Is it something misunderstood, oversold, and always debates? Yes. Can you make it work for you? Depends on whether you can make any financial strategy work for you. Nothing is free in life and everything takes work.

Keep reading. I can send you a paper that is heavy agains whole life and has good suggestions on what else to use as your planning concept and I can send the Infinite Banking concept book, then you have the tough decision.

Sorry for the long post. And sorry for the people who's blood pressure just went up and now you need to figure out how you will respond to my post because whole life sucks and never works. Last words: I'm not the sharpest tool in the shed, but I'm making mine work until I decide to take my money somewhere else, if I decide to do that.

"The agents are doing you a favor"

Well, I lived to read that. 

Note there was no rebuttal on the coverage amount versus premiums payments. You simply can't afford 10x to 15x your salary without Term. Unless,  you are loaded as I said above. 

Also, note there was no follow up on the 85% cancellation rate or discretionary fees charge by these products. 

The 6% return offered falls very short from actual returns.  Please,  prove me wrong  with long term audits.  Good thing mango money, Netspend, and others provide 5% APY savings. ( note, they cut back as they got popular, but those options to park cold cash exist).  I missed the good days of 6% apy savings.

Note that fiduciary fee only financial advisors don't push these life insurance investments for a good reason. Their very specific cases when they are useful. 

Re:

Boggleheads Books

Make Most of your Money Now,

Financial Buff

White Coat Investor

Any Fiduciary Fee Only Advisor will help you.  It's money will spent. 

 The following post by Luke has good nuggets.

I'm happy with term. It's cheap. 

Best wishes, 

Frank

Originally posted by @Luke Grogan :

Whole Life insurance - the most hated product by everyone who doesn't have it. The rest of us who do, probably go back and forth on it.

I'd recommend only an AAA rated company. I have Guardian and my guaranteed dividend for this year is 6.25%. I wasn't the smartest guy on the block, and I'm still not, but I got a policy in 2008 and several others in 2009. I read the infinite banking concept, but for me, it was mostly forced savings and the whole ability to borrow against it from the insurer and still maintain tax advantages and death benefit. If death benefit isn't at least part of it for you, I'd do something else...

Personally, I loaded my insurance as much as possible. I was working commission and at every chance, I put my big checks on as PUA (Paid Up Additions). By 2013 I had gone through the downturn in stocks, etc and had almost $300k in LI value making over 6% and then I started buying real estate.

You don't have to pay yourself back, but you should. If you tax guy understands what you're doing, you can write off the interest that you pay (even through you basically pay yourself, but not technically), and then you can keep using your cash value. Now that I'm refinancing and taking cash out, I'll be able to to take around $700k against my initial $450k home purchases, put it into guaranteed 6.25%, pay 4.75%, and earn the spread while I make cash offers and look for the next properties.

I'm sure I could have just put the money aside in a high yield account (that isn't lawsuit or BK protected) making .75% and probably could have done a lot of the same, but I didn't and it worked for me. Now, you will have to keep paying the premiums, but if your investments cover them, then you'll always leave a chunk of cash and properties for your family and if they use a conservative approach, they'll have money that will continue through generations.

The lessons I got from the infinite banking concept (which is a bit misleading and has flaws) are these:

- Just like if you owned a store, you wouldn't and shouldn't take groceries for free, you should pay for them, don't steel from your savings: pay yourself back. It is a loan, treat it as such. If you stole one can of corn from your store, you'd have to sell 13 cans to pay for the one you stole. If you don't pay back your LI loan, it works against you.

- If you planted trees each year for 10 years before you started harvesting, you could eventually use the money that you sold the trees for to buy more saplings and keep planting. The same is true for LI: you have to keep planting/paying/Maxing PUAs for about 10-12 years and then the dividends you make will cover the premiums and you'll build wealth. You can benefit from it only if you allow it to grow and "cultivate" it.

- Use your cash value to buy assets that other people pay the notes back for you (i.e. Real Estate). They used an example of a truck leasing company, but the point is the same: if other people pay the loan, other people grow your bank and you benefit.

Is whole life the best thing? No. Is it the most efficient thing? No. Is it something misunderstood, oversold, and always debates? Yes. Can you make it work for you? Depends on whether you can make any financial strategy work for you. Nothing is free in life and everything takes work.

Keep reading. I can send you a paper that is heavy agains whole life and has good suggestions on what else to use as your planning concept and I can send the Infinite Banking concept book, then you have the tough decision.

Sorry for the long post. And sorry for the people who's blood pressure just went up and now you need to figure out how you will respond to my post because whole life sucks and never works. Last words: I'm not the sharpest tool in the shed, but I'm making mine work until I decide to take my money somewhere else, if I decide to do that.

 Its always nice to hear from the people who are already doing it and showing that it works.  You were earning good returns in a tax-free vehicle and you held on to your wealth throughout the financial meltdown. I'd say you are pretty smart!

Just watch your comments. You need to remember that you ARE NOT borrowing from yourself. That is the mistake most people make. A policy loan is a loan against the policy. It is technically no different from going to your neighborhood bank and getting a loan secured by your cash value. While you can collateralize the interest, you shouldn't. Simply treat the interest on the policy loan as the cost of money for your business. The interest goes to the insurance company for the money THEY loaned you. Your CV never left your account.

You've discovered what I call the "Triple Play". Using levered home equity to purchase high cash value life insurance. If you further leverage that cash value to invest in real estate, then you quite literally have 3 assets all working for you simultaneously. You're profiting from the spread between your mortgage loan rate and the dividend rate on your policy as well as the spread between the policy loan rate and the return on your real estate investments. And controlling 3 separate asset classes all for the cost of that monthly mortgage payment.

Home equity doesn't earn a rate of return. Most people retire with most of their net worth tied up in an asset that doesn't help put food on the table or keep the lights on. Its a shame. 

That strategy also protects your home equity from a downturn in the housing market. You will have essentially taken the equity you built up and moved it into a safe, principal-protected asset class. If real estate values drop, who cares? You still have your equity.

Kudos!

Easy answer. You are not a Unicorn. "Paradigm Life claims to use Whole Life Insurance Policies"   Done. They are in the business of taking your money. Insurance is a terrible investment vehicle.  Its like debating whether Ford or Chevy makes a better parachute. Just.Dont.Go.There.  

Originally posted by @Raymond McGill :

Easy answer. You are not a Unicorn. "Paradigm Life claims to use Whole Life Insurance Policies"   Done. They are in the business of taking your money. Insurance is a terrible investment vehicle.  Its like debating whether Ford or Chevy makes a better parachute. Just.Dont.Go.There.  

 Anyone who can read everything in all the posts above and still make a blanket, uninformed statement like this does a huge disservice to the bigger pockets community. You really need to put down the Dave Ramsey book and do yourself a favor and learn how life insurance really works. 

One of the most popular investments strategies discussed here on BP is BRRR: This concept is based on leveraging one asset to purchase another. Life Insurance is no different... only it is much more liquid than a piece of real estate.

I can put my cash into a high cash value policy where the cash value can easily earn 6-8% tax free. I can leverage that cash value to purchase real estate. If my investments earn more than my cost of money, I am adding value. What is so hard to understand? 

Life insurance is not the investment. Its a tool that enables you to make more money from the investments you are already making. Just as with the BRRR strategy, your money is working in multiple assets at the same time.

@Thomas Rutkowski I apologize. I came across too bluntly and disparaged your job. Dave Ramesy? Yes, I have been through his Financial Peace course and agree with his position. Wasn't it Warren Buffet who said "Never invest in a business you cannot understand." ? Buy insurance at 10x, 20x or  50x the price because of investment value?  Maybe Forbes and others are wrong? In 20 years, I don't plan on needing life insurance anymore because my house will be paid for and kids gone, so the need for insurance gets lower as you get older and get more wealth. Insurance? Need. Investing? Need. Whole life? Not an option on my radar due to myriad of better options.

BRRR strategy is clear and works if you also have enough emergency fund to minimize risk. Comparing this debt pyramid strategy for wealth building (investing) to Whole life insurance (investing) is comparing REI to a convoluted method to buy Stocks.

Originally posted by @Raymond McGill :

@Thomas Rutkowski I apologize. I came across too bluntly and disparaged your job. Dave Ramesy? Yes, I have been through his Financial Peace course and agree with his position. Wasn't it Warren Buffet who said "Never invest in a business you cannot understand." ? Buy insurance at 10x, 20x or  50x the price because of investment value?  Maybe Forbes and others are wrong? In 20 years, I don't plan on needing life insurance anymore because my house will be paid for and kids gone, so the need for insurance gets lower as you get older and get more wealth. Insurance? Need. Investing? Need. Whole life? Not an option on my radar due to myriad of better options.

 Again, you clearly are thinking of life insurance as "life insurance". What you are describing has nothing to do with the high cash value policies that are being discussed in this thread. I don't plan on "needing" life insurance in the sense you mention either. But I know that every day that goes by, my cash value is growing tax-free and earning a great rate of return and it is being leveraged to make other real estate investments that are tax-advantaged because of the leverage.

The people using this strategy are making more from their money than anyone else making the exact same real estate investments. If you don't get why that is, fine, don't use the strategy. But the strategy works and you will make more from your money. Life insurance is not THE investment. Its simply a tool that lets you make more from your real investment: real estate.

Forbes, and especially Ramsey, are wrong. Dollar for dollar, life insurance will provide 2-3 times the income of a traditional retirement savings account. 

I'm not sure why you would pay off a house. Every dollar you sink into home equity is a dollar that is lost until you sell that house. That's one more example of bad dave ramsey advice. I meet clients all the time who have two-thirds or more of their net worth tied up in their homes. What a waste. None of that net worth does anything to put food on the table during retirement. You still have to pay taxes to live there. You still have to insure the property. After 20-30 years, the mortgage would have been dwarfed by these other expenses.

I have two policies so far and coming up to end of year one. In one account I have around 6K in cash value (13K annual payment). The other I have around 4,500 in CV (6K annual payment). On the first the 7-pay is around 20K, and the second the 7-pay is 6K, so for the first one I can get a little more underwriting and under the same policy stash another 7K – which I’m in the process of doing now. After 1 year or so that’s $17,500 in cash, tax free, protected, and around 784K in death benefits out the gate (that’s not counting the new underwriting for the additional 7K that I’m doing right now). I consider this my “home base” of funds. Yes, I’ll still have an emergency account in a separate bank in the early years, but this WL thing is all part of a larger strategy – which is to fund my own life, have money access TODAY, protect this money, and leave legacy money to future generations.

So, the true number is that I’m paying 26k of my own cash, to get 17,500 in immediate cash value for year one… that looks horrible at first glance to anyone with or without a calculator… but this will be the absolutely worst year from the first glance view.  Fast forward 15 years and here are the numbers, assuming I do the same as I’m doing now and just let the money sit doing nothing (estimating and average return of only 5% on the 7K annual portion of the CV by the way… could be more aggressively compounded):

I will have contributed $390,000 (end of 15 yrs)

My Cash Value will be $559,000 (end of 15 yrs)

My death benefit will be 1,432,000 (this doesn’t include any underwriting for the 7K extra each year – not sure how that will affect the death benefit)

-------

Fast forward to 30 years, and assuming I only have these two policies and no others and left everything alone, my cash value will be $1,800,000… and my death benefit would be 2,415,825 (again, not including additional kickers for the 7K). All that 1.8mm money can be taken out tax free in loans, while STILL making money on it (there is always an arbitrage the policy holder makes as the loan is being paid back and the cash value still making interest and dividends. Even an IRA distribution after 59.5 years is gone forever once out of the account.)

But here's the real kicker, I'm a full time real estate investor. My goal is to take cash value loans out as early and often as possible and self-fund some bread and butter rehab projects that I'm already doing… So, I'll in theory repay the loan to my policy, however, the proceeds from the rehabs are taxable, but they would be anyway if I was using cash sitting around my .01% bank account. The other thing I'll do is buy properties as my cash value gets bigger and immediately sell them owner finance to get a down payment, and create money out of thin air on notes to pay my loans down and give me cash flow TODAY. And then I have rental strategies using portions of my cash value if I want, or I can lend to other investors and make 20% all day long (I do that already with some of my SD IRA money – just lend at 12% and 2 points, 4 times over in a year – or lend on equity splits and make more, etc)… so many options. This is above and beyond the mainstream strategies of using this as my bank to buy my cars or other financed items to save on interest - real estate vehicles to me has a much great velocity of return.

I look at these policies as a holding tank that is protected, grows at reasonable rates, has guaranteed growth, and I can USE MY MONEY TODAY. I also have a SD Roth that I’m getting great returns on (limited to 5,500 contributions at year), and I have a Solo 401K Roth, but other than regulated 401K loans, I can’t use this money TODAY. If the downfall is that on paper it looks like I “lose a little bit of money” as I fund these policies for a few early years, then that is a total cost of doing business (creating my own bank essentially for some up-front investment – sign me up!). Oh, and by the way, I get life insurance death benefits as a byproduct of this tool. And if the death benefit amounts aren’t enough at some point, buy some term. I bought my wife a term policy in case she was to pass, but it can/will be converted to WL for her later down the road.

Because I can't technically have a flip business in my IRA or 401K (you can do x amount before the IRS calls you on it, but no one knows that number, maybe 1 maybe 5 – all to risk getting your whole retirement account becoming taxable), that means that turning my cash value into huge chunks of money is far easier and more reasonable using a WL plan as the engine. Not to mention the 10's of thousands saved from using my current lenders money (and I can still use their money as my deal flow increases, or I simply use mine to supplement or gap my deals). I'll need to do the math after 2 or 3 years of doing this.

If people don't have the funds to pay for the premiums, then I can understand the restraint, but in many ways, these are more powerful than IRA and 401K accounts – and people can use much smaller premium amounts to start that what I posted. Some people contribute 100's of thousands in premiums - total flexibility. The only thing that comes close to this holistic strategy with WL, in my opinion, is an investor who knows how to use and really work self-directed accounts… but even those aren't helping with money to use TODAY, and they have their own limitations. I use all three strategies – SD IRA, Solo 401k, and 770 accounts (WL). I have nothing to do with the insurance industry, I'm just a customer who has done a ton or research and see's the opportunity. And the other add-on to the above numbers I provided is that I will pepper more of these policies over the years…

@Thomas Rutkowski - interested on your thoughts...  I'd be curious to see your illustrations vs what I have so far.

Its so nice to see someone who is actually doing it chime in and add value to the discussion. You've nailed it. Unlike a 401k or IRA, cash value life insurance is a retirement plan that you can leverage every day between now and the day you retire. Qualified retirement plans may be growing in a tax advantaged manner, but the money is only working in one place at one time.

By the time you retire, Derek, you are going to have two piles of cash to rely upon. One, your cash value will provide 2-3 times the income that a retirement based on traditional market-based assets can provide. And two, you'll have all of the real estate assets that you accumulated over a lifetime of leveraging the cash value.

A properly designed policy for leverage like this should have about 85% cash value to premium in a 5-pay or 7-pay design. The infinite banking guys underfund their policies to allow you to "pay interest to yourself". This "interest to yourself" is really just excess premium that you should have paid into the policy up front. Underfunding is great for the agent (higher commissions) but bad for the client (less cash value to leverage). 

Remember, policy loans are loans from the insurance company. They are loaning you their money with your cash value as the collateral. The more cash value to premium, then the bigger the loan you can take. The bigger the loan, the more money that is working in two places at one time.

Strategically, and this is for everyone following, you should get a commercial loan with your cash value as collateral/personal guarantee. This will allow you to get a better rate and more importantly, deduct the interest as a business expense (assuming you are doing business in a business entity. So not only do you get the advantage of tax-free growth on the cash value, but you can also reduce the taxable income on your real estate investments.

I'd be happy to share my policy designs with you. Just contact me privately.

Tony Robbins provides good insight  in chapter 5 of Money: Master The Game. 

@Thomas Rutkowski  @Derek M.  Thank you for the great insight and clarification. 

If I'm understanding this correctly, if you fund the maximum up to the MEC then you shouldn't ever plan to pay excess interest rates ('to yourself', but in reality to the mutual company) because you would trigger the MEC limit? I get that the excess interest payment is simply additional Paid Up Premiums, but your point is that you could have paid that all upfront and have it work for you from day 1. Is that right? This is different from what Nelson Nash writes in Becoming your Own Banker. 

Would you mind sharing with me how you set up your plans? I'll private message you. 

@Tony Figurelli Thanks for pointing out the chapter in Robbin's book.

BTW, can people please stop posting about term insurance on this thread or about how WL is a bad investment? You're missing the point and creating a lot of confusion. No body using the infinite banking concept would ever buy life insurance simply for the death benefit. It's simply a bonus to creating what is essentially a personal monetary system. 

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