Life insurance thoughts

7 Replies

Here is a question for all buy and hold investors specifically. How do you feel about life insurance? Do you have large policies ($1M plus) or are your investment properties your form of life insurance if something happens to you? Meaning your loved ones can sell the properties if need be.

In my situation, I am planning on getting enough properties, and teaching my SO how to run them, so that we can self insure. I would maintain life insurance until the point that I am comfortable that my family would be okay without me. Until then, I will carry insurance. Though, if my investments can produce enough income, my need for protection disappears.

I maintain a mix of policies with face amount significantly in excess of my real estate debt.  That way the insurance proceeds would fully pay off all properties with money left over, and nobody would be forced to sell a property if it did not make sense.

We both each had $1million Term for 25 years. Then we put everything into a trust. Kids will not starve. BUT my son was peeved when we decided that no spouse will be a beneficiary of the Trust per se, but grandkids are covered. We told them if their spouse needs coverage buy it yourself. Term is cheap at a young age.

There are 2 main reasons for life insurance. Replacement of income and tax free transfer of wealth. As @Pat L. said if you have a prepared a trust there’s little need for coverage. 

There’s no problem anticipating that rentals will provide for your family there’s 3 things to consider:

1) legally set up operations so that your beneficiaries can simply continue them without any kind of weight of going through probate (other wise a little life insurance for probate season can be helpful- this should really be a conversation with your lawyer if you have questions about probate - thankfully @Pat L.’s doing the right thing with the trust). If your expectation is that your wife/kids will start selling properties to pay the bills, you might want to have a small amount to help cover any initial liquidity problems they might have or count on them selling below market rates.

2) Do you have business partners that will need to be bought out? Will all of your proposed beneficiaries be ok with continuing your business? If you have business partners and you and your spouse die in a plane crash - will your children want to continue working with your business partner? Will your business partner want to work with them? Even more importantly. What if you drink your bottled water, but your business partner dies and you don’t want to work with his garbage kids. You should have policies on each other to fund the amount you’ll need to supplement the buy out (unless you’re ok selling properties to do it and waiting for the payout). In this case I recommend a policy with living benefits so you can accelerate the death benefit if your partner becomes critically, terminally, or chronically ill.

3) Discuss with your tax professional what any tax liability on passing down an estate could be. Obviously trusts and other entities help. If you’ve got property in your own name that gets transferred to your children there’s reasonable tax liability. Move it into a trust or get them a policy. 

One other thought: sometimes I get calls from people who simply don’t trust their beneficiaries to not blow the money a live like Richie Rich for a few years and lose it all. For those situations we build a policy that will pay out specified amounts over time. The insurance company continues to pay interest on the money they hold.

Life insurance is not for everyone, but it can be helpful!

@Bob Anthes

You might calculate what the net proceeds would be from a distressed sale of your portfolio. Might be a LOT less than you would think. It would probably be sold to investors or wholesalers for pennies on the dollar.

Why not have enough death benefit to pay off all the mortgages, plus enough for the care and education of your family? Then your family could decide whether to keep or sell off the portfolio, but it wouldn't have to be a stressful, rushed sale for bargain prices.

I personally use Infinite Banking, which used a whole life insurance policy structured in a very specific way, as a tool to build cash value and provide a death benefit.

My IBC policy is a reserve fund (Fannie Mae requires 6% of unpaid balances if you have enough loans), an escrow account for income taxes, property taxes, and hazard insurance premiums, and a place to set aside allowances for vacancy/repairs/capex.


You might watch some Truth Concepts videos on YouTube. They are a software company that compares IBC to other financial investment products like 401ks, stock market and term life insurance. The differences are pretty crazy when you see the numbers side-by-side, after taxes.

Originally posted by @Kevin Grove :

@Bob Anthes

You might calculate what the net proceeds would be from a distressed sale of your portfolio. Might be a LOT less than you would think. It would probably be sold to investors or wholesalers for pennies on the dollar.

Why not have enough death benefit to pay off all the mortgages, plus enough for the care and education of your family? Then your family could decide whether to keep or sell off the portfolio, but it wouldn't have to be a stressful, rushed sale for bargain prices.

I personally use Infinite Banking, which used a whole life insurance policy structured in a very specific way, as a tool to build cash value and provide a death benefit.

My IBC policy is a reserve fund (Fannie Mae requires 6% of unpaid balances if you have enough loans), an escrow account for income taxes, property taxes, and hazard insurance premiums, and a place to set aside allowances for vacancy/repairs/capex.


You might watch some Truth Concepts videos on YouTube. They are a software company that compares IBC to other financial investment products like 401ks, stock market and term life insurance. The differences are pretty crazy when you see the numbers side-by-side, after taxes.

 Great points about the use of the death benefit. Having sufficient death benefit that pays out no matter when you die ensures your obligations *as well as* your various savings accounts (retirement, college savings, etc) "self-complete." 

The "disability waiver of premium" is another option that would provide this "self-completing" capability in the even the insured gets hurt and/or becomes too sick to work. The insurance company would pay the premiums to their cash value policy, thus providing a source of income in the event of a disability.