Infinite Banking, still a good idea? Evaluate my policy.

Member since 2019 · 15 posts · 10 votes

Hey folks,

I started a Whole Life Insurance policy almost three years ago for the purpose of investing in real estate. Lately, I have been thinking on cancelling my policy and put that money towards maximizing my 401k and opening a Roth IRA. I have read most posts here about infinite banking, but I'm still not convinced it's a good investment vehicle. My agent is a big believer of the infinite banking concept, she introduced me to it and I read the book but when I compare it against ROI of the stock market, it's almost a no brainier that the stock market is a better investment. Also in my first real estate rental I was not able to use a cash value as a down payment, that's a big downside for me.

I put 30k a year towards the premium. Here's my tabular values (only showing the first 30 years). Should I keep it, if so, what's the ROI you are seeing, perhaps I'm running my numbers the wrong way, but I get 2% ROI, that's very little. If I should cancel it, what other investment vehicle do you recommend me to place these funds.

I would love to hear your input.

Thank you so much folks.

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Bill B.

Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes

It was a semi-bad idea when interest rates were 6%. A bad idea when they got to 4% and a horrible idea today. Have any whole life insurance agent show you the vacation they took with the commission they made selling it to you. A classic example of “it’s never purchased by anyone, it’s sold to them…”

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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
5y
The whole idea of buying a vehicle (whole life insurance) that allows you to borrow (and pay interest) a portion of what you have put in....never made any sense to me.....even when you give it done whiz bang concept name.
4 Reply
Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
5y
It was a semi-bad idea when interest rates were 6%. A bad idea when they got to 4% and a horrible idea today. Have any whole life insurance agent show you the vacation they took with the commission they made selling it to you. A classic example of “it’s never purchased by anyone, it’s sold to them…”
7 Reply
Mike S.
Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
5y
If your goal was to only put your money into the whole life insurance, then yes it is not a good investment.

However, if your idea was to put your cash flow into the life insurance, then borrow against it to reinvest the money in other investments. then yes it is a good idea. You then get your money working at two places at the same time.

Overfunded permanent life insurances are not very good during the accumulation phase, but are excellent during the disbursement phase. If you use the cash value as collateral for a loan, you then increase your rate of return and get the best of both world.

3 Reply
Lane Kawaoka
Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
5y
I have been doing it but make sure invest first and your net worth is over 500k. You need to invest before paying those commissions.
1 Reply
Mike S.
Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
5y
Originally posted by @Lane Kawaoka:
I have been doing it but make sure invest first and your net worth is over 500k. You need to invest before paying those commissions.

You don't need to have a net worth over $500k to use this strategy. And you want to put all your cash flow into the policy first before investing. The commissions are front loaded, but over the life of the policy, the average fee are around 0.25 to 0.5% per year, very comparable or even lower than a 401k or an IRA investment.

2 Reply
Zachary Paschke
Scranton, PA · Member since 2017 · 168 posts · 137 votes
5y
A few notes on this.
1) The fees on this policy is low, it looks like it was set up the right way. You can know this because of the cash value the first year. Many things happen to the money that doesn’t end up as cash value. Part of it is payment of commissions. The agent that write this policy is doing fine, but it looks like they structured it to minimize their commissions and maximize your cash value.
2) Whole Life is not an "investment vehicle". It is a stable, secure, insured place to park your money. If you invest in the market, IRA, 401k... there is no death benefit. The market has no "guaranteed interest" or guarantee your principal won't go down. This is about security of your money. Also, you can't borrow against stock growth.
3) You can’t guarantee the market will do better than your Whole Life policy, especially considering the tax benefits.
4) Your Whole Life policy should be part of your strategy. It’s not stocks or WL, it can be both. You’re smarter to get this established first since the costs of the policy are lower at your age.
5) you should be able to borrow your money, but I always recommend you wait 3 years minimum before you do so. Most carriers let you borrow current cash value less a premium payment or two.

6) you don’t have to pay on this policy forever once you stop your done, but the cash value will continue to grow (including dividend) just not as quick as with the money. Your death benefit will drop a bit, but to be understood your agent can illustrate what that looks like.
7) This is even more powerful for children. This is highly debated in circles, but I highly recommend designing these policies for children and funding them while they’re young. As an agent I don’t make as much off of them that way, but it’s what I do for my kids.

Good luck!
4 Reply
Antuan C.
OP
Member since 2019 · 15 posts · 10 votes
5y
Originally posted by @Zachary Paschke:
A few notes on this.
1) The fees on this policy is low, it looks like it was set up the right way. You can know this because of the cash value the first year. Many things happen to the money that doesn’t end up as cash value. Part of it is payment of commissions. The agent that write this policy is doing fine, but it looks like they structured it to minimize their commissions and maximize your cash value.
2) Whole Life is not an "investment vehicle". It is a stable, secure, insured place to park your money. If you invest in the market, IRA, 401k... there is no death benefit. The market has no "guaranteed interest" or guarantee your principal won't go down. This is about security of your money. Also, you can't borrow against stock growth.
3) You can’t guarantee the market will do better than your Whole Life policy, especially considering the tax benefits.
4) Your Whole Life policy should be part of your strategy. It’s not stocks or WL, it can be both. You’re smarter to get this established first since the costs of the policy are lower at your age.
5) you should be able to borrow your money, but I always recommend you wait 3 years minimum before you do so. Most carriers let you borrow current cash value less a premium payment or two.

6) you don’t have to pay on this policy forever once you stop your done, but the cash value will continue to grow (including dividend) just not as quick as with the money. Your death benefit will drop a bit, but to be understood your agent can illustrate what that looks like.
7) This is even more powerful for children. This is highly debated in circles, but I highly recommend designing these policies for children and funding them while they’re young. As an agent I don’t make as much off of them that way, but it’s what I do for my kids.

Good luck!

Thank you so much for your input here @Zachary, it was quite insightful. Glad to hear a second opinion on the policy.

1 Reply
Thomas RutkowskiPro Member
Financial Advisor · Boynton Beach, FL · Member since 2015 · 833 posts · 798 votes
5y
@Antuan C.
That policy is designed very well. The ration of cash value to premium is very high. Your expenses and fees are minimized.
You are making a mistake trying to calculate a return on the life insurance premium. You need to consider the real estate investing you are doing at the same time with the same money. Policy dividends represent the return on the cash value portion of the policy. And the guaranteed cash value portion at that. So a 6% dividend, for example, is credited toward the guaranteed cash value. So by maximizing the cash value to premium, you are insuring the highest possible return for the entire policy.
There shouldn't be any reason why you can't use a policy loan to make a down payment. Life insurance cash value is a valid source of funds for a loan.
Whatever returns you earn by investing with your policy loan is gravy over and above what the policy's cash value is earning at the very same time. The sum of those two components will exceed the return you'll achieve by simply sticking your $30K directly into real estate.
Keep the policy. Just use it properly.
Also, there is no reason you need to have a $500K net worth. Its all relative.
You also don't want to wait 3 years before borrowing against the policy. That's just foolish. You want your money working in two places at one time from day 1. There is no reason to forego returns.
I disagree with Zachary. You should have insurance on yourself for the benefit of your children. You want their college paid for in case something happens to you, for example.
3 Reply
Antuan C.
OP
Member since 2019 · 15 posts · 10 votes
5y
Originally posted by @Thomas Rutkowski:
@Antuan C.
That policy is designed very well. The ration of cash value to premium is very high. Your expenses and fees are minimized.
You are making a mistake trying to calculate a return on the life insurance premium. You need to consider the real estate investing you are doing at the same time with the same money. Policy dividends represent the return on the cash value portion of the policy. And the guaranteed cash value portion at that. So a 6% dividend, for example, is credited toward the guaranteed cash value. So by maximizing the cash value to premium, you are insuring the highest possible return for the entire policy.
There shouldn't be any reason why you can't use a policy loan to make a down payment. Life insurance cash value is a valid source of funds for a loan.
Whatever returns you earn by investing with your policy loan is gravy over and above what the policy's cash value is earning at the very same time. The sum of those two components will exceed the return you'll achieve by simply sticking your $30K directly into real estate.
Keep the policy. Just use it properly.
Also, there is no reason you need to have a $500K net worth. Its all relative.
You also don't want to wait 3 years before borrowing against the policy. That's just foolish. You want your money working in two places at one time from day 1. There is no reason to forego returns.
I disagree with Zachary. You should have insurance on yourself for the benefit of your children. You want their college paid for in case something happens to you, for example.

Thank you so much Thomas. Very detailed and insightful! Following you on youtube!

1 Reply
Lane Kawaoka
Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
5y
Yes someone with a dollar can do this but those under 500k need to invest first and not pay front loaded commission products is my point.
2 Reply
Mike S.
Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
5y
Originally posted by @Lane Kawaoka:
Yes someone with a dollar can do this but those under 500k need to invest first and not pay front loaded commission products is my point.

I would disagree with you.

In my point of view the amount of net worth is irrelevant. However, I would put the two following conditions to make it worth:
1/ You have more than $5,000~$10,000/year of available cash for investment;
2/ You expect to have this amount available every year for at least the next five years;
1 seems a minimum to have a reasonable permanent life insurance policy. Lower than that and you may not be able to meet the minimum death benefit required by some carrier while keeping the policy optimized for maximum cash accumulation and minimum fee.
2 is the minimum amount of time to have the most efficient funding without triggering a MEC; and to absorb most of the front loaded fee. Also, if your time frame is lower than 10 years, you would probably earn more investing directly without using a life insurance. If your time frame is longer (even if your funding phase is only 5 years), your return of investment will probably be better by using a life insurance policy in the mix.
Using a life insurance policy is a long term game. The sooner you start it, the better you will be in the end. So even if you don't have a high net worth yet but have a minimum investment budget, it is worth considering starting a policy now as you will be ahead of the game later on.
My main regret with maximum over-funded permanent life insurance policy is not to have started using them ten or twenty years earlier. I am even recommending all my friends with newborn to start a policy on their kids instead of funding a 529.
0 Reply
Abraham Philbrook
Member since 2018 · 1 post · 1 vote
5y
Another thing to remember is when you pass away the death benefit will be passed down tax free. This is a massive advantage of the whole life method. As others have mentioned, if you borrow the max amount every year to invest then your money is working twice for you. The only downside is you limit your available capital by the difference between your premium and available loan amount. Usually by year 10 or so your available loan amount will have surpassed your total premiums paid, thats when it really starts to pay off. The only reason I would cancel your policy at this point is if you need 100% of your capital for investments that you are convinced will have massive returns. If you're just worried about its effectiveness compared to a ROTH or 401k I would definitely hold your policy and borrow against to invest.
1 Reply
Sam Sciascia
Member since 2021 · 10 posts · 9 votes
4y
How are you getting 2%....But remember the 1st couple of years will always be the worst. The agent set up the policy correctly. depending on the carrier you should expect to see a 3%-5% net tax-free.
1 Reply
Don Gouge
Specialist · Johnson City, TN · Member since 2021 · 139 posts · 146 votes
4y
Insurance agents have found them to be profitable.
1 Reply
Todd Goedeke
Contractor · Sheboygan, WI · Member since 2016 · 917 posts · 266 votes
3y
@Mike S.front end commissions and life insurance costs mean that not 100% of your money is working for you. Sure you may be only paying a 1/4 to 1/2 per cent yearly, but that is besides the big chunk paid up front.
No 401k is taking huge commissions up front like whole life plans do.
1 Reply
Sam Sciascia
Member since 2021 · 10 posts · 9 votes
3y
Quote from @Todd Goedeke:

@Mike S.front end commissions and life insurance costs mean that not 100% of your money is working for you. Sure you may be only paying a 1/4 to 1/2 per cent yearly, but that is besides the big chunk paid up front.
No 401k is taking huge commissions up front like whole life plans do.
A 401K will have more fees for starters compared to a policy set up for infinite banking. Remember, these policies lower the base (life insurance).
0 Reply
Todd Goedeke
Contractor · Sheboygan, WI · Member since 2016 · 917 posts · 266 votes
3y
@Sam Sciasciathere are no upfront fees or setup fees paid by a participant in a 401k.
In a Solo 401k investing in RE there are no ongoing fees to manage the RE. You can lease RE to a 3rd party for fixed returns of 18%+.
No insurance policy comes close to averaging better than 6-7% long term. You will never see returns posted as investment returns for life insurance.
1 Reply
Mike S.
Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
3y
Quote from @Todd Goedeke:

No insurance policy comes close to averaging better than 6-7% long term. You will never see returns posted as investment returns for life insurance.
Insurance policies by themselves are getting a 3 to 7%long term IRR tax free. It is not phenomenal by itself. However during retirement you can safely get 8% of cash per year out of it forever you live, while in a 401k you don't want to take more than 3% out per year if you want it to last just 30 years.

Also, during the growing phase, while 3 to 7% IRR is way less than some good real estate syndication, when you use a cash value life insurance in your investment system in the same syndications, you increase your syndication investment return by a few percents. No one here is advocating using only a cash value life insurance policy as an investment. But by using them with your other investments, the few percent increase of return will in the long term (over 10 years) bring more wealth, despite the initial loss of investment capital due to the front loaded fee.
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Todd Goedeke
Contractor · Sheboygan, WI · Member since 2016 · 917 posts · 266 votes
3y
@Mike S.Your opinion is not based on basic math. You are touting returns unheard of except by people brainwashed by an insurance salesman.
Both syndications and whole life policies are handicapped from the beginning by front end fees of 10% or more. RE earning a fixed 7% ConC return via a NNN lease will always outperform a whole life policy in terms of cash flow. Whole life policy illustrations are filled with smoke and mirrors as evidenced by 7-10 pages of disclosures meant to explain the misleading illustration.
Return of principal during retirement years in terms of cash flow is “ return of” your money not “ return on” your money. That money in form of policy loans is not an investment return based on underlying investments it’s return of premium.
Over the last 40 years I have seen universal life and whole life called different names, today the trendy name is “Infinite Banking”. The only infinite thing about those policies is the fact the life insurance industry comes up with an infinite number of ways to hide the fact those policies enrich high 6 figure incomes for insurance executives. This comes at the expense of people who are subject to the phrase, “ there is a sucker born every minute.”
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Sam Sciascia
Member since 2021 · 10 posts · 9 votes
3y
Quote from @Todd Goedeke:

@Sam Sciasciathere are no upfront fees or setup fees paid by a participant in a 401k.
In a Solo 401k investing in RE there are no ongoing fees to manage the RE. You can lease RE to a 3rd party for fixed returns of 18%+.
No insurance policy comes close to averaging better than 6-7% long term. You will never see returns posted as investment returns for life insurance.
Reading is a skill I didn't say upfront. Number why are you comparing it to an investment? The IRR on these policies is between 3%-5.5% tax-free from what I have seen during low-interest rate environments, which is terrible for insurance but great for real estate.
Whole life is the vehicle, not the investment. Understand that when you are leveraging cash value to invest in real estate, you are putting your money to work in two places at one time. And because your money is working in two places at one time, you are earning a higher combined rate of return.

2 Reply
Brandon Elliott-Pandey
Realtor · Erie · Member since 2022 · 194 posts · 88 votes
3y
Quote from @Antuan C.:

Hey folks,
I started a Whole Life Insurance policy almost three years ago for the purpose of investing in real estate. Lately, I have been thinking on cancelling my policy and put that money towards maximizing my 401k and opening a Roth IRA. I have read most posts here about infinite banking, but I'm still not convinced it's a good investment vehicle. My agent is a big believer of the infinite banking concept, she introduced me to it and I read the book but when I compare it against ROI of the stock market, it's almost a no brainier that the stock market is a better investment. Also in my first real estate rental I was not able to use a cash value as a down payment, that's a big downside for me.
I put 30k a year towards the premium. Here's my tabular values (only showing the first 30 years). Should I keep it, if so, what's the ROI you are seeing, perhaps I'm running my numbers the wrong way, but I get 2% ROI, that's very little. If I should cancel it, what other investment vehicle do you recommend me to place these funds.
I would love to hear your input.
Thank you so much folks.

Did you end up canceling your policy or did you keep it?
0 Reply
Matt Ruttenberg
Specialist · Grand Rapids, MI · Member since 2020 · 116 posts · 80 votes
3y
A few things on this:
1). It looks like the policy was set up properly to enhance the cash value growth. Curious why you weren't able to use the cash value in it though?
2). I wouldn't do a direct comparison with your 401k. The 401k is the investment that you'll most likely hold (or keep invested) for the long haul. The WL policy isn't the investment, but the catalyst to allow you to invest at scale. Yes, it earns some interest, but that's not the "final investment"... the real estate is. And we all know the power or REI is that someone else is paying down your mortgage + the capital growth of the property. So the WL policy allows you to scale that.
3). When using these policies, the idea is to use it as a form of lending, just like a fix and flip, private money, etc. The loan rate should be set up as a "wash loan", meaning the money is still invested even though be loaned against. But you should pay it off with a long term refi just like any other short term loan and pay off the loan. Wash, rinse, repeat. This allows you to scale your REI, which most likely excel beyond the 401k plan in the long haul. This is a very long term strategy.
4). I'm just noticing that this was a post from 2 years ago and curious what you ended up doing with it?
1 Reply
Todd Goedeke
Contractor · Sheboygan, WI · Member since 2016 · 917 posts · 266 votes
3y
@Sam Sciasciathe only people agreeing with your rates of return are insurance agents and insurance executives who get paid commissions off of gullible consumers.
A 3.5-5.5% tax free return in RE is poor.I know investors who have locked in guaranteed lease income off their properties at rates of 9-10% without mortgage leverage.
Your opinion would be partially believable if there were You Tube testimonials from people owning policies for 20+ years who benefitted.
0 Reply
Sam Sciascia
Member since 2021 · 10 posts · 9 votes
3y
Quote from @Todd Goedeke:

@Sam Sciasciathe only people agreeing with your rates of return are insurance agents and insurance executives who get paid commissions off of gullible consumers.
A 3.5-5.5% tax free return in RE is poor.I know investors who have locked in guaranteed lease income off their properties at rates of 9-10% without mortgage leverage.
Your opinion would be partially believable if there were You Tube testimonials from people owning policies for 20+ years who benefitted.
It might be a little bit than your brain can handle. Those IRR are realistic if you set them up correctly. Suposilly someone like yourself who claims to understand Real Estate for some reason can't comprehend what leverage is. My Real Estate investors are smart enough to understand what leverage is, and they don't have to choose; they do both because they understand leverage.
3 Reply
Todd Goedeke
Contractor · Sheboygan, WI · Member since 2016 · 917 posts · 266 votes
3y
@Sam Sciascia maybe your brain can handle this! An expert in financial advice made reference to you on his radio show tonight, Monday , May 8th.
Dave Ramsey, nationally known and respected financial advisor called you and others insurance promoters, an “enthusiastic ignoramus”! A con job that has been around for decades in the form of whole life insurance, now peddled as Infinite Banking. Borrowing money from yourself and calling it tax free.

Readers should look up You Tube videos called “ Infinite Banking” con job by Dave Ramsey and other financial experts.
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