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

[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.

[John Morgan]

Stay away from whole life. Max out your Roth IRA. And I wouldn't put in a penny over your company match in your 401k. I've taken out 92k from our Roth IRAs to buy real estate tax free. You can pull out whatever you have put in tax free. And I'm a fan of 401k loans. You can take out up to 50k tax free. I've done it 3 times for real estate. Then I pay them off with my RE profits. Then repeat and pull out another 401k loan.

[Mike S.]

@Todd Goedeke

Yes Dave Ramsey is a financial expert and believe you shall not use leverage ever…

So all of us here in BiggerPockets are stupid using mortgage to buy real estate…

Again, educate yourself and do the maths. But it appears here that even simple maths is too difficult for some to understand here as they are blinded by their absolute convictions and refused to challenge themself

[Jeffrey Evans]

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.

 I'm not an agent, but looking at that policy it is designed backwards for IBC use.  Yours has a large death benefit and small paid up additions.  If want to use it for IBC you want the smallest death benefit, usually 10 x your age, and the rest as paid up additions.   The paid up additions are what build the cash value up to access for other investments ect.   

[Thomas Rutkowski]

Quote from @Jeffrey Evans:

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.

 I'm not an agent, but looking at that policy it is designed backwards for IBC use.  Yours has a large death benefit and small paid up additions.  If want to use it for IBC you want the smallest death benefit, usually 10 x your age, and the rest as paid up additions.   The paid up additions are what build the cash value up to access for other investments ect.   

 Hey Jeffrey,

This post is many years old now, so I'm sure the OP figured it out by now. This is a very well-designed policy. Just look at the ratio of cash value to premium at the end of year 1. You can see that they are very close. This is well within the 85-90% guidance that I suggest so that people know their policy is well-designed or not. The cash value also crosses over the amount of premium paid into it at Year 3.

A 30 year old will get more DB for the same money than a 50 year old. 

[Jeffrey Evans]

@Thomas Rutkowski ah now that I look at it closer I miss read it.   Wish my policy was many yrs old :)

[Bruce Lynn]

Quote from @Bill Brandt:

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…”

2nd best ever answer ever given on BP, and I can't remember what #1 was, but I think you were the author of that answer too....so at least from what I remember you have the #1 and #2 best all time answers on BP...That's all I have to say about that.

[Todd Goedeke]

@Bruce Lynn agree, honest, truthful answer. Sold by same group of salespeople selling time shares , vacation memberships and “ pet rocks.”

[Sam Sciascia]

Quote from @Todd Goedeke:

@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.

You do know Dave Ramsey believes the insurance company steals your cash value when you die. The funny thing is I had to pass a test back in 2003 to get my license. One of the questions on the test is what the formula for Net death benefit? (Net death benefit = cash values + net amount at risk - any outstanding loans) Good old Dave doesn't understand that. 

Dave also doesn't understand when you get a loan from the carrier general account fund, they are collateralizing against your cash value, so your money is still growing. So, when he asks, "Why would you pay interest to use your own money?"  Your paying to use the carrier's money just like you do when you take out a home equity loan, that so-called respected financial advisor has no clue how Cash value life insurance works.

[Bryan Nash]

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. 

 Life insurance is not an investment to be compared with market investments. Insurance covers risk that are foreseeable, not speculative. Life insurance is for safe money. Why do people keep valuable assets in a safe? In a policy you transfer financial risks to an insurance company. So, you pay for the cost of insurance, fees, cash values. Those monies are contractually protected. Unlike a treasure chest, home safe that may be burglarized.

[Matt Ruttenberg]

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.

 "Infinite Banking" or "Be Your Own Bank" strategies are 100% not a replacement for long term investment accounts.  It's a means to another investment.  Or, to supplement other investments.  So comparing them isn't a good idea, you'll drive yourself crazy.

What I mean by that is you'll never keep up with the stock market.  It's a way to grow assets, then lend against those assets on your own terms.  

This is all assuming it's designed properly.  Looking at the illustration you posted (I know this is from 2 years ago, so hopefully it helps others) it looks it's designed properly.  You can see that when looking at the Cash Value... almost the same as the premium.  

A well designed policy SHOULD have the following features:

- Net 0% or "working loan" option.  Being able to toggle between the two are also a good idea.

- Paying interest in arrears and not in advance.

- Highly rated company that has a good track ready of dividends or indexing rates (in an IUL).

Every little interest rate % you tack on to the loan can hurt you in the long run.  

The most ideal situation is to use the policy to purchase a property, then pay it off with a long term mortgage of some kind. Wash, rinse, repeat. Then in the long run, you can utilize it as an tax-free income stream to supplement your REI.