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.
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…”
Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
3y
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.
Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
3y
@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
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.
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.
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.
@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.
@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.
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.
Investor · Houston, TX · Member since 2019 · 95 posts · 29 votes
5mo
Three years in is the worst time to judge a whole life policy. You already paid the expensive part. The growth is about to kick in.
But let me be clear -- this is NOT an investment. Stop comparing it to the stock market. A whole life policy is a private reserve account. You park money there so it's safe, liquid, and growing tax-free.
The investment is what you DO with the money. Market dips? You pull capital from your policy in 3-5 days and buy real estate at a discount. Or you lend it out at 12% plus two points. Your policy keeps compounding the whole time. That's interest rate arbitrage -- you make money on both sides.
To check if your policy is built right:
1. Is 50-90% of your premium going to paid-up additions? If not, it's not structured for this.
2. Is it with a mutual company that pays dividends?
3. Is your cash value at least 70-80% of what you've paid in after 3 years?
If yes to all three -- don't quit now. You already paid the hard part. The policy is the vault. What you deploy from it is where wealth gets built.
Investor · Houston, TX · Member since 2019 · 95 posts · 29 votes
5mo
Without seeing the illustration I can't tell you if the policy is good or bad, but here's what to look at yourself:
1. Base premium vs PUA ratio. If more than ~40% of your premium is base, it's a retail policy dressed up as an IBC policy. True banking design is closer to 10/90 or 20/80 base-to-PUA, up to MEC limits.
2. Year-1 cash value. Divide year-1 cash value by year-1 premium. Under 50% means heavy front-loaded commission. A properly designed policy typically shows 60-85% depending on age and carrier.
3. Non-direct recognition vs direct recognition loans. Either can work, but understand which one you have — it changes how dividends behave while you have a loan out.
4. Mutual carrier. Stock companies (Prudential, etc.) can sell whole life, but dividends at mutuals historically behave better for this use case.
If the numbers above look wrong, it doesn't mean the policy is unusable — it just means the break-even runway is longer than it needs to be. You can still use it, you just have a slower engine.
Investor · Houston, TX · Member since 2019 · 95 posts · 29 votes
5mo
Before you surrender, I'd reframe what you're measuring — because comparing this to 401(k) or Roth IRA returns is comparing two different categories of thing.
A properly designed high-cash-value policy isn't an investment. It's a **strategy** — a private reserve account. The job of the 401(k) and Roth is long-term market growth. The job of this is to be your liquidity, your control layer, and your capital access for deals, opportunities, and emergencies without asking a bank's permission or interrupting other compounding. That's a different tool for a different problem.
If you grade a hammer on how well it cuts wood, the hammer fails. ROI-vs-stocks is that grading mistake. The relevant questions for this tool are: how much liquid capital can I access on demand, how fast, at what interest rate, without disrupting my market-based retirement assets — and what does my cash value and death benefit look like at year 20 and 30 as a floor under my plan.
The investment piece happens **outside** the policy. The policy is the collateral. March 2020 is the textbook version — anyone with a seasoned policy could collateralize the cash value, pull a policy loan, deploy into the market drawdown (or a distressed real estate deal), ride the recovery, **pay the loan back**, and keep the gain. Meanwhile the cash value inside the policy never stopped compounding through the whole cycle.
The discipline piece that most people miss: **you pay yourself back**. The loan interest you pay goes to the insurance company, but you're restoring your own reserve balance so the capital is there for the next opportunity. That's the "be your own bank" part — not magic, just a rule: when you'd normally be paying a bank or a credit card, you route those payments to your own policy instead. Skip that discipline and the policy loan just erodes your death benefit over time. Follow it, and the cycle repeats — warehouse, leverage, deploy, repay, restore.
On the specific "I couldn't use cash value as a down payment" — no rental lender accepts cash value directly as a down payment because it's not seasoned in your checking account. What people actually do: take a policy loan, let the funds season in your personal account for the lender's window (usually 60-90 days), then close. The cash value continues earning inside the policy while the loan is outstanding — that's the "uninterrupted compounding" piece, and it's a feature, not a coincidence.
Before you pull the trigger on surrender, I'd ask your agent for the in-force illustration showing guaranteed cash value, non-guaranteed (current dividend), and the death benefit at years 20 and 30. And specifically: how much of your $30k premium is base vs PUA rider? A policy that's 70%+ base premium has a very different curve than one that's PUA-heavy. Many people who think the concept doesn't work actually have a policy that was never structured for this use in the first place.
Surrendering locks in the early-year hit permanently. A policy that's been in force almost three years is past the worst of the load — worth understanding what it actually is before deciding it isn't what you need.
Investor · Houston, TX · Member since 2019 · 95 posts · 29 votes
5mo
Before you cancel, change the way you're measuring it.
This is not an investment. It's a **strategy**. Your 401k and Roth are for long-term market growth. This is a **private reserve account** — a family bank. Different tool, different job. Comparing them is like grading a hammer on how well it cuts wood.
Here's the magic most people miss: when you borrow against your cash value, **your cash value keeps growing uninterrupted**. That's the whole point. Your money works in two places at once — inside the policy earning, and outside in the deal earning. No bank, HELOC, or 401k loan does that. So your dollar is doing multiple things at the same time including protection, Long term care ect.
On your down payment problem — lenders don't take cash value directly because it's not in your checking account. Take a policy loan, its in your account in 3-7 business days, then close. Some banks will give you a line of credit for it just like a HELOC . Money grows the whole time.
The first 3 years are the worst window of any properly designed policy. You're already past it. Before you kill it, ask your agent: what's my base-to-PUA split, and what does cash value look like at year 20 and 30?
And the discipline piece: **pay yourself back** like you owe a bank. That's the part that makes this work. Just reach out if you want me to explain further Cheers.
