Paradigm Life, Infinite Banking, Whole Life Insurance
Lender · New York City, NY · Member since 2015 · 104 posts · 26 votes
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 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.
@Richard M. First, I'm NOT an insurance agent or anything so my perspective is from having a couple policies geared toward wealth building strategies - I don't claim to have all the answers so I'll leave it to the pros for the more technical stuff.
In my first policy, my MEC is around $20,000, but my premium and paid up additions rider equal $13,000. I just hit my 1-yr anniversary, and as you have seen there are a lot of nuances to these plans. When you first get into this way of thinking they are just new idea's to many (they were to me) and it requires some learning (not a bad thing at all). So I didn't know what that 7K difference meant entirely. When I got my second plan a few months ago it was with Paradigm and they did more of the aggressive paid up additions funding. My first plan was still an infinite banking strategy, but not as aggressive at Paradigm's. In my second plan my premium and my paid up additions equaled right at the MEC limit (6K). So learning more how all this worked with the second plan I asked about the MEC of my first and the 7K disparity. There was also a relationship with the length of years the premiums are paid and the MEC limit to premium/paid up additions rider ratio, so I'm a bit fuzzy on that part, but nonetheless he ran some numbers and it definitely wasn't worth me cashing in the first plan to change it with a new one. Rather he called the insurance company to verify that I can actually get underwriting to fund that 7K difference up to the MEC (which was cool because he wasn't even my agent on the first plan, he was just trying to figure out the best scenario for me). The insurance company said I could fund the 7K annually but I had to wait until my first anniversary to apply for the underwriting, so I'm doing that process now.
To your point, I think you are correct that the better plans will fund everything they can right off the bat. The interest "game" isn't really needed or necessary since you basically capped out your additions rider from the get go. I'll let @Thomas Rutkowski chime in on those technical details. The benefit is that you are still saving interest or receiving benefits, but those extra monies will simply stay in your taxable bank account since your non-tax policy is maxed out. You're still winning.
I ran some cool numbers on using my plan to speed up my investment strategies, and even assuming that the excess profit is taxable, with all the tools WL creates it blows the alternatives away, IMO.
I'll let @Thomas Rutkowski chime in on those technical details. The benefit is that you are still saving interest or receiving benefits, but those extra monies will simply stay in your taxable bank account since your non-tax policy is maxed out. You're still winning.
I ran some cool numbers on using my plan to speed up my investment strategies, and even assuming that the excess profit is taxable, with all the tools WL creates it blows the alternatives away, IMO.
LOL. This subject is technical enough already. At the end of the day, the underlying product is life insurance. We are not using it that way, but it is life insurance. So there must be a valid need for the death benefit and the IRS has very strict rules about what constitutes an "investment" and what is "insurance". The rules are convoluted but are built into the software that we use to run illustrations.
Wouldn't it be nice to put $10M premium into a $10M life insurance policy? Now your heirs would receive $10M tax-free and totally bypass estate taxes. Its abuses like that that the IRS is attempting to fix. There has to be some insurance component. What I do is try to maximize the cash that you can "prepay" and minimize the death benefit while staying consistent with the rules.
What makes this truly magical is that all 50 states have language in their insurance statutes that REQUIRE insurance companies to make loans to their policy holders that are secured by the cash value of those policies. That may sound boring, and most of you probably don't see how significant this is. Your cash value remains in the policy earning interest/dividends even while you are re-investing the loan proceeds into real estate. Your money can work in two places at one time.
Again, an optimized design will put about 85% of the premium into cash value. And that is only for the first 10 years. Once the surrender charge period is over, there's only a small premium charge and the mortality charges. Its more like 94% of premium goes to cash value after the first 10 years.
I've got a couple of really cool spreadsheets that illustrate this. One shows the advantages of putting your money to work in two places at one time. It shows the growth of the cash value over time PLUS the value of the real estate you are purchasing with leveraged cash value. This spreadsheet compares this scenario against investing the same amount of money in the same exact investment. Over time you will build up much more wealth using this strategy. All the inputs are user-definable.
I've also got another one that shows why the cash value in a life insurance policy can generate 2-3 times the income of a typical brokerage account or IRA that invests in mutual funds. This is something that the Ramsey-ites just can't wrap their minds around. You can retire on half the savings or have twice the income from the same amount of savings.
I'm always happy to discuss and share with anyone willing to learn.
Right, when I was an insurance broker we had a saying, figures lie and liars figure. 94% of premium to the cash value, I'd say someone left out the admin costs, the agent's commission on renewal and the mortality risk!
Purchase insurance for the coverage needed, otherwise see you bank. :)
BTW, pushing a product in the forums should be in the commercial ad thread not personal finance. :)
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 am a Financial Advisor who believes in Banking on Yourself strategy using Whole Life Insurance as a vehicle to accomplish a variety of financial goals depending on the individual financial situation. It would make sense to use an Insurance Company that is Mutual, Participative and Non-Direct Recognition ( I would highly recommend one company) to maximize the performance of the cash value and subsequent use as collateral for any purpose, keep in mind, we are talking about Whole Life, Whole Life DOES NOT HAVE SURRENDER PERIOD, VUL or IUL does and that is another story.
Also I personally don't believe in the "buy term and forget the rest" strategy, term can be very useful but not as a stand alone solution.
"Never ask a barber if you need a haircut" -Warren Buffet
Gentlemen,
First, let me introduce myself. I'm a tax CPA with a Master in Taxation. So needless to say, when I heard of a financial vehicle that would allow me to have:
1. Tax Free death benefit for pennies on a dollar
2. cash growth without current taxation, which could range any where between 2-3% plus dividend for whole life to .75%-15% for index universal life
3. cash by accelerating my death benefit when I need Long Term Care
4. a collateralized loan using my cash value at a 1% net borrowing cost (interest I pay insurance company minus interest insurance company pays me back on the collateral).
5. my down payment to get this asset worth $2M (yes, life insurance is an asset just like real estate) is basically between 1%- 3% annually depending on my appetite which can be reassessed annually to fit my budget
I thought it was too good to be true. Are you telling me I can do a wealth transfer strategy involved no tenant, toilets, get an average annual growth of 6%-8%, liquid, low borrowing cost should I ever need fund to do my RE deals, and the cost to get in is only 1%-1.5% annually?
So I made it my mission to learn as much as possible about this too-good-to-be true product called life insurance. I ended up buying $2M worth of it, my husband bought $2M, each of my kid bought $700K. So if you think a CPA with a Master in Taxation knowing something about the tax code 7702A based on which permanent life insurance policy is treated for tax purposes is too dumb to use this strategy, rethink again gentlemen. Without going further into detail which exact policy we bought all I have to say is this: don't trust anyone, you do the studying yourself, you get yourself a license, make sure you contract with a broker who has multiple relationships with over 20 different insurance companies ranging from companies specialize in whole life, to universal life, index universal life etc...run all kinds of illustrations for both whole life, universal life, index universal life, variable universal life, guaranteed universal etc....study their cost structures inside out like I did before you decide". It took me a few months to do all the above but I'm glad I did it because I don't have to listen to a bunch of outsiders who know very little about this special secret tax code and trash permanent life policy or a bunch of insiders whose interest is to sell me policies so they can make money on me. To be fair to both sides, both have their own arguments but you know what, at the end of the day my end game is to make sure I divorce Uncle Same forever. That is why I bought it. However, with so many permanent life insurance policies out there how do you know which one to pick? Well, like I said before, do it yourself. It costs only a few hundred bucks to get a license, one week to study for it, then contact me if you don't know which broker will let you in with many quoting systems from different insurance companies. Permanent life insurance ain't so bad, the Clintons have millions of dollars tucked away in their various permanent life policies ranging from whole life to index universal life? Come on now, do you think the Clinton are stupid?They are also divorcing from Uncle Sam, too :)
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!
There are a lot of responses so i skimmed the content here, I didn't actually see any Paradigm Life customers responses here so let me be the 1st!
Summary - I bought a 7 unit through my policy and am continuing to look at more ways to arbitrage. It is working well and i don't see any evidence after over 3 years of heavy use that i am at risk in anyway, in fact i would say it is becoming a cornerstone to my wealth strategy.
Details - The concept of leveraging whole life insurance is complex and requires research and diligence. Lets face it, you didn't start building your wealth strategy based on a single add or buy your rentals off of a informercial. you had to layer in a foundation and actually learn what you are doing. Suzanna Lam above did a great recap of her research. The paradigm life site has great webinars and education, but it takes speaking to a wealth strategist (Agent) to really connect the dots.
we started to look at this about 4 years ago, but it took a focused moment where my husband and i were doing our annual planning (this one in Florence) for us to really grasp it and decide to move forward. After we had the policy and our additional paid up rider in place, we happened up an opportunity. A 7 unit in my home town of Aberdeen Wa had been on the market for ~1 year and the seller would consider financing. Perfect!
after 5 months of negotiation and diligence, we went under contract. 1/3 down, the rest at 30 year Am at 4.5% with a 10 year balloon. Perfect, now i just needed a 130K as the down payment and i would be set! I used a loan within my whole life policy, I believe the payback rate was ~5% and I am making ~12% CoC on the apt building.
Seriously, it is that easy.
Do you need to find good investments to use with the policy? yes, but you need that anyway
did it take some upfront costs in time, education, and some initial cash to establish the policy? yes, but that is true with all investments
Is there a massive tax advantage with this wealth building tool? Absolutely! i am sure there are ways to expose your self, but that is where the wealth building strategy partner helps you navigate this stuff. I've now repaid that loan and am looking to buy into a real estate based business with the funds available today, again loan at a small rate, and make $$ on the spread.
I have two life insurance "banking" policies. First, I used them to pay off credit card debt. Now I am using them to buy rental real estate. Personally, I would never put my savings in a 401k or IRA ever again.
Most insurance agents, and fewer people, don't truly understand how to design a policy that is optimized for the Infinite Banking Concept. I listen to Paradigm Life's podcast and Patrick sounds very intelligent on IBC and economics, but I don't know how he structures policies for cash value that is liquid in year one.
Google anything and you will find someone saying "SCAM"! Do your research, like I did for 2 years, and see if this concept might work for you. It has for me because I found the right agent. Send me a PM if you want to learn more about my experience with Infinite Banking.
Infinite banking is a very good strategy but the way that it is sold seems to be misleading and I think that throws people off.
There is all this talk about borrowing from your policy, paying yourself back, and while after some very in depth study it does make sense what they are getting at, it can be very confusing and kinda misses the point (I think).
To say something is or isn't an investment is completely subjective. If I want to put money into a savings account at 1 percent and I call that my investment then so be it.
Infinite banking simply uses cash value life insurance which, when the policy is created for growth potential and stuffed with cash, can grow somewhere around 4-6 percent over a 15-30 year period and when treated properly that growth is tax free.
So it isn't a bad investment. Sure, many individuals who are out there investing in stocks actively etc wont see this as a benefit. But for real estate it actually makes a great place to hold money and pay it back while getting a few tax advantages.
It also grows better than any bank savings account. However, this strategy is meant to replace your bank account in many ways, not the investment itself. Infinite banking should be seen as a strategy for saving money and holding money that, if you choose, you can invest in other places like real estate etc.
One of the things that appeals to me about it is that I can borrow 50K from my cash value, but that 50K continues to earn interest (as long as I use a certain type of insurance company ... I'm gray now ont he terminology). So I now have 100K. 50K is earning interest at whatever rate the insurance company is giving and my borrowed 50K is earning whatever I can squeeze out of it via my investment dujour.
Ok Hold up ALL of your guys (95%) just do not know what the hell your talking about.
First the orig thread question was about Paradigm Life they are NOT an insur. co. but is an insurance brokerage co for GA so they sell all the major WL company's (Ohio M Penn Mass Mutual NY Life Guardian MTL etc) products.
Which leads me to Derick Lacy's 1 st comment ...your talking about s & p 500 and 12% market returns etc, that is NOT a div paying WL policy! your talking about Index Universal Life IUL it has a completely different name because its a completely different product. Para Life do not even sell IUL's .
All this hate on WL and IUL when none of you ppl own or have done any proper research on them to be owning one , I will never know. Most ppl who buy these products are educated upper middle class or higher so they are either much more sophisticated (or should be) or have access to folks like RIA's CPA's CFP's etc because they get it! The financial pros who hate on these products have not done proper research on them.
But let me be CLEAR!!!!!
TERM by its self is garbage!
UL by is self is garbage!
WL by its self is garbage!
and if you buy a Variable or VUL ill shoot you myself! lol
if your comparing it to buying apple back in 19??? and holding it til its highs
or Amazon at IPO or Netflix Google etc...
but in 87 2001 2008 you wish a nice side portion of your portfolio was stuff into one of these policies
but they really shouldnt be compared to equities . Which way too many ppl do way too often.
Are you suppose to be making 10% returns in a WL or IUL policy no! anyone who thinks that should get f*cked by any agent that designs a policy that shows that!. (New laws in the IUL industry wont allow that anymore anyway) never could show something like that in a WL policy illustration.
These are VERY VERY VERY complex and confusing products and vary greatly from once carrier to the next & 1 product to the next which further complicates the calculus!!!
Agencies try and do a C- job of making these complex products simple to understand.
Div Paying WL blending term insurance into the policy & a Universal life policy which is basically term with a excess-account (my word) that links the overfunded portion of your premium to an Index(S&P Nasdq Bond index Multi Index etc.) are basically trying to achieve the same goal using two diff "crediting" strategies.
WL is using dividends and IUL are using Index credits IUL generally has a floor of 0%-1% in neg Market years with Caps of 9%-14% or if Uncapped the participation will be some number less than 100% i.e. 65%
WL dividends are not guaranteed but most co. like a Mass M or Penn M NY Life etc have a over a 100 year+ track record of paying dividends so to not pay one would like mean death of that insurer from a competition standpoint
For Banking purposes inf banking... they want you to use your policy loan feature like a checking account much like a HELOC although ( they dont offering check writing?!?!) but the work around is to take out a big loan and dump it into your personal checking account and pay for every thing! which "Paycheck parking" all your money back into the policy to pay off the loan although most ppl only use it for big ticket items like cars or big vacations, education etc. this goes for WL or IUL
For Maximum Cash Value your really not trying to use the policy as a "bank OR DEATH INSURANCE " per se but infact you design the policy to give you Maximum Cash Value to be withdrawn TAX FREE in retirement
there are three fights going on in this financial product space
1 is the WL vs IUL debate (which is pointless they both have +'s and -'s ) really comes down to risk level.
2 is Should you be using your WL / IUL policy as a bank (inf or BYOB or 7702 acct) or for Tax free income during your Retirement years.
3 Which is MY argument ...Why can't you have BOTH WL IUL why cant I use my WL / IUL for inf banking and Tax free income in retirement ...the answer is YOU CAN!!!!
Which is why both WL and IUL sells Billions of Dollars worth of these policies every year.
Everyone this thread is talking all this buy term and invest the rest crap thats that Dave Ram Suze Orman mess
Now SHE HATES!!!!! WHOLE LIFE RIGHT???? wants you to by term right???
https://www.youtube.com/watch?v=DFrBFT5HiOQ
anyway!
Can you create your own credit facility FOR REAL ESTATE INVESTING
with a IUL or WL ...Yes!
Whe you take out a policy loan does your IUL or WL still earn interest (dividend or index credit) yes!!...and this is Huge!!! i hope you can see why!
Can you Receive income for life ..TAX free ..yes! (You can also turn the policy into a MEC which basically makes it a glorified annuity and kill the whole TAX free thing.?!?!?
These policy's the way that they are sold ARE not suppose to be looked at as "Life insurance" .....the life insurance feature is the LOOPHOLE in the TAX CODE which the IRS is fully aware of (and you have to pay for it) which is why in the early years (accumulation phase) ppl really wonder what the hell did I just buy??? the paycheck to paycheck ppl are not who this is for yet it is sold to these folks because if you have great discipline it will work for you despite the fact that its really a sophisticated financial strategy for people with tax issues or people who will have tax issues in the future
Lets look at your cash value when you first buy one of these things
40 yrs male wants to sock away $1000 month or 12k year in a overfunded life insurance contract WL or IUL
Guarantee / Non- Guaranteed Assumption
yr 1 12k BUT cash value says 8500?!?!? 8800
yr 2 12k(24K) BUT cash value 18k?!?!? 19k
yr 3 12k(36k) BUT cv says 30k 32k
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Year 5 (60k).....BUT cash value says $55k(G) $60(N-G)
this will go on for 5 years!!! til you break even on the NON Guarantee side and maybe 9-10years on the Guarantee side. this will only occur if the agent is NOT trying to F*ck you and the policy is designed for Max Cash Value i.e. low Death benefit with a "PUA" paid-up addition rider attached (diff ins co.'s have diff names for a PUA's)
anyway ...this is a LONG TERM investment!
You Bigger Pocket ppl who buy notes getting 10% -17% Cash on Cash return on your Note wont break even for 4 5 6 7 8 years either!!! correct?!?! So you say but I have cash flow...well you have access to cash value yr 2-5 or yr2-til the end of time also
Now I know a way to "cheat" and get 3 years of premium into your policy in 1.5 years! or 2 yrs of premium in 1 year. and ANY good agent worth his salt should know also! and if he doesnt he prob also does NOT know how to properly design one of these every complex products either!
ok lets talk about commission
ANY AGENT selling IUL's or WL and want you to overfund the policy for banking or MAX cash value for retirement income purposes ...WILL BE TAKING A MAJOR HIT IN COMMISSIONS!!!!
Do I have to repeat this!!! TERM INSURANCE PUTS MORE MONEY INTO THE POCKET OF THE AGENT's....for one reason 1 ITS AN INSANELY EASIER SELL!!! (look at how much crap I have had to write already about this WL IUL stuff) and I haven't even scratched the surface .
lets take a IUL or WL 12k year premium
depending on age sex health etc etc.
the 12k is broken down into 2 major parts (BASE) premium and "excess" premium
take 40 yr old male
base may be $3000 of which the agent will get (70%-100% , mostly like 95%) as a 1st year and 1st year only commission
the other $9000 of the 12k premium is excess and the agent will typically recv only 1%- 3 or maybe 4% tops (diff carriers pay diff comm.) so less say 3% thats what $270 bucks?!?
So total the agent will make approx $2850(95%)+$270(3%) or $3,1201st year comm. off of a
$12,000.00 sell...but is it a 12k sell??? or a $300,000 dollar sell????
keep in mind your suppose to be paying into this thing til age 65 12k x 25years $300k in a typical case.
yes they have 20 pays and 10 pays and even single premium payments but ppl doing that are usually dumping in way more money than 12k anyway
back to comm.
So your agent does a 300k sale for $3120 bucks....ppl who sell cars make more! ...Real Estate brokers make more...
are there trail commissions???. ...yes most trails last for 10 years so typically it will be something like 2-10 pays 3%comm on "base" & "excess" or 12k x 3% or $360 bucks a year! so out of your $1000 monthly payment yes your agent will be getting $30 bucks a month from that for the next 10 years.
You pay your note servicer more than that!
Agents have to sell alot of this stuff to make money ! and like I said before they will sell more and its a much easier sell just to sell the TERM Insurance
Term is for folks who want death insurance (to replace loss income from a unexpected death) this inf banking, be your own bank, or tax free income stuff is NOT for death insurance !!!! (although it will in amazing fashion serve you well if you happen to die in your later years , a pua after all does buy more additional insurance with no proof of insurability req.)
fyi this WL /IUL stuff really doesnt work for the folk who want to pay $50 a month or $250 a month i am sure a policy can be designed around those payments just like you can buy a house for $4000 but ....well I hope you get what I am saying.
an IUL or div paying WL is called the RICH MAN"S ROTH IRA in the insurance world
because you can do 50k year premiums hell with "premium financing " there are 5M 8M 12 million dollar a year policies being designed for either be your own bank or tax free income or BOTH no one is dumping that kind of money into these products if they are sooo horrible!
BANKS.... ppl say why would i loan my self my own money etc. ...lol your a fool!
google "BOLI " Why do banks buy BILLIONS!!!! of dollars worth or cash value life insurance policies???? from Life insurance companies ????
ED Slott is a CPA & WELL KNOW TAX ADVISIOR!!!!! let him tell you!
https://www.youtube.com/watch?v=6vXuUeUT88E
short version 5min
https://www.youtube.com/watch?v=ZM6RlJs-n1c
long version 35 min
you need to look at this the same way you look at a QRP or ROTH as a TAX SHELTER!!!
and div paying WL and UL and IUL is better than a roth or QRP simply because you can put more money in it! and it you can have access to the money at less than 59 1/2 (now does a roth req insurability no....but whats the yearly limit on those things???)
I will say there are certain note buying stratagies that will still work very well with a Roth that you can't really do with an insurance policy. I am actually looking into using a roth for back end partials
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Ok so maybe I should have put this at the top.
YES I have a Life Lic. NO I am not trying to sell you or anyone else for that matter on Bigger Pockets ANY life insurance!!!! I dont care if you NEVER BUY ANY FROM ANYONE!!!!
I have a lic the same reason why some of you hold a real estate brokers lic so when you buy a house for yourself you can get the comm. OR dont hv to pay one however you want to look at it.
I own 2 WL polices and 1 IUL so I have no dog in that fight
WL guarantees are better... much better than IUL's
IUL's in theory should Always outperform a div paying WL policy from an IRR point of view over a 25 yr 30 year 40 year time frame...but who knows??!?!
guarantee vs non guarantee
I have a WL policy that pay 4% compounded guaranteed! for the life of the contract now remember the first few years you will have neg returns due to comm and cost of insurance and the fact that the dividends are based on the size of the death benefit and how long your policy has been in force so that 4% compound has to over come all of that and it will take years to do this (8 or 9) maybe even 10 years
so you will go from getting a $300 (yr 1)a year div to $4000(yr 10) a year to $14,000(yr)20 a year and rising
its the turtle in the race & the finish line is 65 or 66 years old for most folks
by age 65 you would have put in $300k in (premiums)
Guarantee cv will be prob $387k (thats ZERO Dividends paid all years!!!) (This will simply never happen people) if it does we have no financial system anymore not to mention if the co goes insolvent it will just be bought by another insurer)
Non-Guarantee will be prob hv $617k in cash value
(base on current div payouts and if they never go higher or lower)
either way $387k or $617k or something in between ...You have access to ALL of IT TAX FREE!!!!
Managment : if you take out any loans before you retire you have to pay it back or you destroy your bank...(NOW YOU DONT HAVE TO PAY THE LOAN BACK which is why ppl run into trouble)
this stuff req ALOT of discipline and if you are horrible with money you will mess this all up!
Design ....DESIGN DESIGN....you get NO DUE OVERS!!! if the WL or IUL is designed incorrectly you will get F*cked by the agent ..remember I told you they dont make alot off these things ...so I how can they f*ck you and make alittle more $$$$???
For IUL good design
for
WL you have to blend term into the WL design without getting too technical
the way you "cheat" is look at the illustration on the Non-Guarantee side
by year 5 or 6 (i say 5years) your CV should be equal to or greater than the amount of premium you have put in.
ex. 12k yr premium x 5 yrs $60k your Guarantee should say $60,094 or something around 60k with a standard deviation of 1k or 4% of premiums paid.
if in 5years you have put in $60k and your NON guarantee shows $48k or $32k oR $54k
the agent is trying to make you buy more Death Beneifit which raises your BASE premium (remember the 95% comm) and puts less money in "excess" 25 years from now that move could mean having cash value of 500k vs 600k compounded!!! so its huge over time
if it take 8-12 years (in my case 9 years) for the "Guarantee" side to match what you have put in thats fine
This looking at the Non-Guarantee side trick works for both IUL and WL but that IUL better not exceed a 6.5% projected rate of return may 7% but no higher!
for all of you 401k 403b self dir ira reits mutual funds your already getting f*ck today and will continue too in the future wall street LOVES 401k's that should be your first warning!
If your co match contrib to the max match take the rest n doing something else like buy a WL or IUL , if your co has no match dont waste your money contributing the fees destroy your returns in a good market n your completely f*cked in a bad market
Tony Robbins ?!?! of all people is going crazy over the fees charged for mutual funds and all of there derivatives
https://www.tonyrobbins.com/wealth-lifestyle/how-m...
http://www.forbes.com/2011/04/04/real-cost-mutual-...
personally:
I use one WL for a bank to buy real estate notes and pay off bills and shatter my OC home interest to turn a 30 mort into 5 years paid in full
I use the other WL & IUL for Max cash Value for income for life so when I am 65 I should have over 1 million in cash value that if I wanted to could pull out all at once on my 65 birthday(or at anytime) for free! or pay myself something like 80k-95k TAX FREE til I drop dead and when ever I do drop dead there is a calculation done and the remaining death benefit goes to my heirs tax free
Soooooo many different way to use these policies cant begin to tell you and you have sooo much room to get creative with them also.
So if you cant see that then your just missing something.
Can you buy a bad real estate note or trust deed ..yes! but in general is it a good investment yes!
same with this stuff in general this is the best legal TAX SHELTER in the US!!!! WL & IUL and UL for that matter nothing is better
the prob with a roth is that is a tax shelter you cant use til your 59 1/2 the WL /IUL thing lets you cheat! as said before you can tap it year 1 i say at least wait two year ....or 5yrs if you can
***PLEASE NOTE I HAVE NOT PROOF READ ANY OF THIS STUFF, Im too lazy for all that and no one is paying me for this anyway***
Once again I am not trying to sell you anything , personally i dont give a damn what you do..I do it! and ALOT of other folks and putting billions of dollars into these contracts also.
And the ONLY thing everyone says is I wish I started doing this earlier
fyi 529 plans suck an IUL or WL will crush any 529 plan any day of the week and give you more control over the money!
Wow! Finally someone who hits every point with concrete points and straight to the heart!! It’s amazing how many people that have no clue write incredible comments. Thank you Mr. Martell for taking the time and enlightening us with your knowledge
is it possible for me to get a student loan to pay for your classes in financial services .
@Thomas Rutkowski - my husband and I bought WL high cash value policies a couple years ago, and I'm wondering if they were set up in accordance with the optimization that you talk about...how could I assess my policy? Feel free to PM me if that is better. Thanks.
Hi Gabrielle and the BP community:
Thanks a lot for posting Gabriel! Helpful stuff. I took out a WL policy with Paradigm life 4-5 years ago. I'm about to take out my first loan against the cash value next week. I was nervous initially thinking that I was sold snake oil. ha ha.
@George Carnicle, you wrote: "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."
Sorry, but I don't understand your math here. If I buy something for $1, and then the value goes up to $1.03, that is not a "103% gain". It's a 3% gain.
You paid in $213.04, if your cash balance was then $213.04, your return would be zero. Because all that is there is what you paid. The additional $7.39 on top of what you paid in would equal a 3.5% return ($7.39 divided by $213.04).
Am I missing something?
The people who are nay sayers really don’t understand them. They should really be discussed more on BP as they are great for real estate investors. I would rather go take a policy loan any day to go buy a performing real estate asset than going to get a loan from a bank.
Thanks,
Mark - I love that you are out here supporting the use of life insurance like this. But lets be clear for all of the people that are using this thread to research the subject...
1. Infinite Banking is a sales system. A quick search of the internet will find about a half-dozen other "systems". What we are really talking about are Over-funded Permanent Life Insurance policies. And this can be done with any permanent life insurance policy, not just Whole Life and not just from a "certified" IBC agent.
2. To be most effective for leverage into real estate, the life insurance policy has to be funded right up to the MEC limit and not over. There is a loss due to the fact that this is life insurance and there are fees and commissions. So you want as much of your money working in two places at once as possible. IBC designs are NOT funded right up the the MEC limit. They leave room under the MEC limit for the client to "pay themselves interest". This "interest" is used to purchase paid up additions for the policy. If there was room to put the premium into the policy up front, it should have been done at that time so the client could have leveraged it. The typical IBC design results in about 65% of the annual premium going to the cash value. If the policy is properly designed, that number should be closer to 85%. The charges in an IBC design are much higher because the death benefit (and sales commissions) are much higher.
Does it makes sense to buy a policy and leverage its cash value to make an investment or to simply make the alternative investment? I have a business model that makes this comparison. The model doesn't work when the policy is not optimized. It takes way too long for the combined accumulation to exceed what you could have done by simply doing the alternative. Even at 85%, it still takes a few years for the combined accumulation to exceed what you could have done by simply investing without insurance.
3. Whole Life versus IUL. Anyone agent who blindly states that WL is "better" than UL/IUL doesn't really understand how life insurance works. The only real difference between Whole Life and Universal Life is the fact that a UL is "unbundled", meaning the cash value and the mortality charges are explicit. A Whole Life is more of a Black Box. You don't see what is going on under the hood. Both types of policies are based on the exact same mortality tables.
Its important to understand that all permanent life insurance needs to be able to pay a claim some day. So how would you do that if you were the insurance company? First and foremost, I'd want to make sure the premiums were enough that the policy owner would save up their own death benefit over their own lifetime AND given an extremely conservative earning rate assumption.
I'd also want to purchase some sort of short "term" insurance that I would keep renewing each year just in case the client dies early.
This is exactly what happens under the hood of every permanent life insurance policy: WL or UL/IUL. The premiums are simply designed so that the client saves up their own death benefit over their lifetimes. That is the cash value. The insurance companies invest the cash to take advantage of compounding growth over a very long time.
In order to make sure that they have enough money saved up by the time the policyowner reaches their natural life expectancy, they assume a worst-case interest rate that they must achieve. This is the "Guaranteed Rate" that they stand behind. [Note: THIS would be a minimally-funded policy design. An over-funded policy design is an entirely different animal.]
The Guaranteed Rate is not a real number. There is not some secret bucket of money to pay those guaranteed rates. If interest rates decline below the guaranteed rates, you are probably going to start seeing insurance companies struggle. Its simply a worst-case scenario for the insurance company.
The insurance company also has the risk of the policy owner dying early. In a UL you can very clearly see that the insurance company is purchasing a 1-year term policy that gets renewed each year. In a Whole Life policy you cannot see the mortality charges, but you can infer the charges by closely examining the ratio of premium to cash value and dividend rate to actual accumulation.
The size of this 1-year term policy is the difference between the death benefit and the cash value. Remember, the cash value represents the policyowner saving up their own death benefit. Thus, the risk to the insurance company is the extent to which the death benefit exceeds the cash value.
So now that we understand that the basic mechanics of the policy are the same when you look under the hood, which type of policy would you want? One where the return on the cash value is tied to the returns in the "Debt" markets? Or one where the return on the cash value is more closely linked to the returns in the "Equity" markets? Equity returns should always exceed Debt market returns over the long run. The increased risk requires a premium.
The insurance company wants the cash value to grow as fast as possible and as safely as possible. Linking the returns to the equity markets by using call options on the indices allows the cash value to earn a higher return while protecting the principal.
A UL/IUL simply credits the interest that is earned. It is an entirely mechanical process. A WL dividend rate is based on the recommendation of the company's directors/executive team. But ultimately, they pay out what they make. Neither company is making money off of the cash value. They all want the cash value to grow as fast as possible so that their risk is removed.
Given that the return on the equity markets will likely be higher than the return on the debt markets, I believe that the cash value in an IUL will accumulate faster than the cash value in a WL. This is common sense once you understand how the policies work.
I understand the principle fairly Well, but here are a few questions. Isn't the interested grown on the dividends taxable with an annual 1099 statement from the insurance carrier if they are accumulating or are you using a different strategy such as paid up additions etc...
Also, how are you eventually receiving the cash at the end when the growth is typically taxable upon the cancellation of the policy?
So I was going to write a post trying to find pros/cons of setting up a Whole Life Policy to be my own bank (while still collecting interest on money that's not there) then I found this post and saw amazingly-conflicting information over a 3-4 year span and was very fascinated!
Disclaimer: When I was a still a teenager (late 80s), I sold Life/Health Insurance (1 year) for a company called A.L. Williams (now Primerica I think). Our motto was "Just Do It" BEFORE Nike used it! (at least it seemed that way). What we really did was try to "teach" people to quit wasting money in Whole Life and Universal policies and instead buy TERM and take the rest and invest in Mutual Funds and over time - you Win! Big insurance companies are normally keeping all those investments. Once I realized people are skeptical about 18-year-olds knocking on their door (in Florida trailer parks) saying, "Hi, I'm Jim from A.L. Williams and we teach people how to become financially independent" (*grin* sure kid), I figured I would try college. But I believed the "Evil Whole Life" and lived my life by it.... Only....now I'm almost 48...and...sure enough...I spent all that mutual fund money on offspring higher education...and...my term policy is up...and if you have certain pre-existing conditions...well that's another story about outliving your TERM and NOT being 100% passively wealthy (yeah, life is like chutes & ladders)!
My point is...I know a little about Life Insurance...and have stayed in a Holiday Inn Express (and set up Whole Life for kids...conservative long-term vehicle)
To my main point...after listening to Patrick Donohoe recently on Michael Blank's podcast, I really started looking at how so many wealthy people DO seem to utilize certain Whole Life policies to (in effect) be their own bank for many purposes. No kidding!
Above in the posts, I've seen several people denote positive experiences. Other people are like "Only idiots would use Whole Life". [Apparently, I'm not the only person who thinks I'm ALWAYS RIGHT!] ...NEVER...ALWAYS...ONLY...words us know-it-alls use too much...
It sounds like the truth is maybe, "It (Paradigm or someone like them) could be for you, but be careful about your expectations, read carefully, and keep tallying up positive (or negative) votes from real people who have ACTUALLY used policies the way you want to."
I know a lot of people hate such loosely-defined answers...kind of like telling your kids, "yes, you can succeed, but USUALLY by WORKING HARD every day!" (i.e. a few people win the lottery)
Good Luck Whole Life Bankers! ...or those who HATE Whole Life...
I am planning to write an article on this and analyze using a while life policy versus just investing the money in real estate.
I am having a tough time finding actual schedules for how much you pay versus the cash value, premium cost, death benefit and fees. Shouldn't there be a graph that shows all this over time like an amoritization schedule?
It would at least be nice to see the numbers at 5, 10, 20, 30 and 40 years for like a 30 or 40 year old. Go up to 90 years of age to see the premium cost since that usually increases a lot.
I see tons of conceptual talk on this subject all over, but rarely see any actual numbers on the policy and money funding that policy.
@Mark Ferguson, great idea! ...enjoyed reading your book last year and just saw it on my youngest son's (@Jake Froehlich) night stand yesterday! (already a 2nd generation book...) Please let us know when that article is written! ...my oldest son has a whole life policy that he just took withdrew $$$ out on, but trying to read through the paperwork and decipher before/after consequence was a nightmare. Although some people think it's creepy/morbid to get life insurance for your kids at young age...I'm now seeing the benefit of passing on such a gift...though arguably, that same money could have been invested into a rental upon his birth as @Brandon Turner has written and talked about a lot...still...for those people who can't qualify for rental home loans when their kids are young...investing into certain whole life policies beats a savings account in my opinion. Hopefully your article can help us figure out whether to abandon all banks for personal banking! (though Life Insurance for banking seems counter-intuitive).
NUMBERS: For what it's worth, our oldest son's policy (age 8-28 so far) is l think: Death Benefit - $80K; time paid in over 20 years=~$20K and he was able to withdraw ~$8K (tax free) recently (not a loan) and the Death Benefit is still ~$80K and premiums just under $100/month for life. I don't remember the details for loans, etc. Technically, if he lives to be 78, then $80K will have been invested, but if he's able to take out another $24K (tax free) between now and age 78 (not to mention loans against it while benefit/interest accrual stays same)...then it still beats any Savings Plan I know of...and his family gets $80K when he dies...I suppose diminishing returns would start at age 100...sure the evil BIG INSURANCE company got a lot more out of our money...but so do those evil BIG BANKS...
Policy was taken more as gift for later in his life since investing in Whole Life (as stated above) goes against everything A.L. Williams taught me...
@Mark Ferguson, great idea! ...enjoyed reading your book last year and just saw it on my youngest son's (@Jake Froehlich) night stand yesterday! (already a 2nd generation book...) Please let us know when that article is written! ...my oldest son has a whole life policy that he just took withdrew $$$ out on, but trying to read through the paperwork and decipher before/after consequence was a nightmare. Although some people think it's creepy/morbid to get life insurance for your kids at young age...I'm now seeing the benefit of passing on such a gift...though arguably, that same money could have been invested into a rental upon his birth as @Brandon Turner has written and talked about a lot...still...for those people who can't qualify for rental home loans when their kids are young...investing into certain whole life policies beats a savings account in my opinion. Hopefully your article can help us figure out whether to abandon all banks for personal banking! (though Life Insurance for banking seems counter-intuitive).
NUMBERS: For what it's worth, our oldest son's policy (age 8-28 so far) is l think: Death Benefit - $80K; time paid in over 20 years=~$20K and he was able to withdraw ~$8K (tax free) recently (not a loan) and the Death Benefit is still ~$80K and premiums just under $100/month for life. I don't remember the details for loans, etc. Technically, if he lives to be 78, then $80K will have been invested, but if he's able to take out another $24K (tax free) between now and age 78 (not to mention loans against it while benefit/interest accrual stays same)...then it still beats any Savings Plan I know of...and his family gets $80K when he dies...I suppose diminishing returns would start at age 100...sure the evil BIG INSURANCE company got a lot more out of our money...but so do those evil BIG BANKS...
Policy was taken more as gift for later in his life since investing in Whole Life (as stated above) goes against everything A.L. Williams taught me...
Thanks Jim! That helps and glad you liked the book. I am working on a new one that will be a little different than the others.
I understand the principle fairly Well, but here are a few questions. Isn't the interested grown on the dividends taxable with an annual 1099 statement from the insurance carrier if they are accumulating or are you using a different strategy such as paid up additions etc...
Also, how are you eventually receiving the cash at the end when the growth is typically taxable upon the cancellation of the policy?
The answer to your first question is no. The answer to the second question is that you NEVER surrender the policy.
Explanation.
The cash value of a policy is quite literally you saving up your own death benefit. So as long as the cash never leaves the policy, it continues to grow, and over the course of your natural lifetime, you should save up more than enough to cover your own death benefit. The real risk to the insurance company is when you die early. So all they need to do is tack on the cost of a 1-year term policy each year to cover the gap between your cash value and the death benefit. But this gap shrinks each year as your cash value accumulates.
If you call up an agent and ask for a policy quote for a $1-Million death benefit, you are going to get a MINIMALLY FUNDED policy. That is, the premium will be no more than the minimum amount necessary to save up $1-Million over your remaining life expectancy and with the insurance company's worst case interest rate scenario (the "Guaranteed Rate"). When you are using a policy for wealth building, retirement income, or for personal banking, then you want an OVER FUNDED life insurance policy. This is the maximum that you can pay for the $1-Million death benefit. Its all about the cash value.
The insurance company is doing the "buy term and invest the difference" for you. The advantage is in the tax savings.
If you've read through this entire thread, the main point is that you do not ever WITHDRAW the cash. You take a policy loan or get a line of credit with your cash value as collateral. Loans are not taxable.
So if you get that $1M death benefit policy when you are young and you have kids, future college expenses, and a mortgage to worry about, by the time the kids are grown up, out of college and the house is paid off, you may not need that $1M death benefit any more. At this point you can leverage the cash value to generate tax-free retirement income.
This is how it works...
Let's say you have enough cash value to generate about $50K in loans annually for the rest of your life. The insurance company loans you $50K of their money, not yours. Yours is the collateral securing their loan to you. Understand? This is important. At the end of the year, you have accrued interest on the loan and owe the insurance company. But your collateral has also earned interest during that year.
Each year, the insurance company will loan you enough to pay themselves the interest on the loan. Your collateral that is securing the loan has grown by enough to cover the interest on the loan, so its a wash. It ends up looking just like a tax-free distribution from the policies cash values.
The key is that it is very important that you find a policy that has this wash loan provision. Many of the big, well-known companies, have punitive interest rates that cost you more than the dividends/interest that your policy is earning. In this case, you move slowly backward, eroding your cash value. However, policies like Indexed Universal Life, allow the cash value to capture a portion of the equity premium. Whole life and Universal Life are tied to the debt markets, so their their interest earning is likely to be relatively equal to the interest expense on the policy loan.
When you die, the loans are paid off from the death benefit. Your beneficiaries receive whatever is left. Thus, you have an opportunity to spend your kid's inheritance.
@Thomas Rutkowski First thanks for all your valuable input on this thread and in PM. My next question is not about whether WL is good or bad, I think we've heard a lot at this point. I'm wondering how best to use the policy once you have it in place?
You made this interesting comment awhile back: "This simple example doesn't even factor in the tax advantage if you structure your business properly and use a commercial line of credit secured by the cash value. Now that interest is an expense! The cash value grows tax-free."
So are you saying, if you have an LLC or other corp, you can get a commercial line of credit secured by a personal WL insurance policy? Can you elaborate on this?
Also, can you give some other real world examples of how someone would utilize policy loans best?
One idea I had is basically to use it like a HELOC. Purchase a property, take out a policy loan for remodel expense, remodel, refinance, pay back the policy loan, and keep the profit. No need to get remodel financing from a bank or private lender.
That's basically a short term loan that you plan to pay back asap. Are there other best uses for policy loans? Are there any situations where a long term loan makes sense, or would you generally just do short term loans?
Thanks!