Is anyone familiar with using Life insurance to invest in Real estate? I am looking to open a life insurance policy for Infinity banking concept to invest in real estate. I am debating between Whole life or IUL. Which one is better as a private lender to invest in Real Estate?
Please provide unbias guidance for those familiar with this strategy; thank you.The only people who make money with this are the people who are selling the life insurance.
In all of my investigations of this, it has never penciled out for me. Partially because when you loan yourself money out of your cash value, the interest you pay yourself is taxed but not tax deductible.
Life insurance, including cash value life insurance, is a great estate planning tool. That being said, the additional cost to go from term to whole life insurance, has terrible math that takes years to just break even. Even on an accelerated timetable I think it is 3 or 4 years before the cash value exceeds the additional cash put in to get the cash value out.
Wanted to touch on the taxable interest part... it's only taxable if it becomes a MEC (modified endowment contract). Meaning, the IRS sees it becoming an investment, basically just like an annuity. It would also be taxed if the cash value is simply withdrawn instead of loaned against regardless if it's a MEC or not.
The design of these is a balance between the death benefit and the contribution amount, and not allowing it to become a MEC. The goal is to "squash" the death benefit while maintaining the tax benefits.
I'd be happy to show you a design where it's completely optimized and show you the difference in commissions when designed properly versus not. 3x less in some cases.
The only people who make money with this are the people who are selling the life insurance.
In all of my investigations of this, it has never penciled out for me. Partially because when you loan yourself money out of your cash value, the interest you pay yourself is taxed but not tax deductible.
Life insurance, including cash value life insurance, is a great estate planning tool. That being said, the additional cost to go from term to whole life insurance, has terrible math that takes years to just break even. Even on an accelerated timetable I think it is 3 or 4 years before the cash value exceeds the additional cash put in to get the cash value out.
@Alex Xu The difference between the two, is more of a personal choice. WL is a more steady growth where the IUL has more fluctuation in the returns. The IUL has more flexibility once the policy is in force where WL is more set with the original plan design.
The goal is "squash" the death benefit down as much as possible in the design. The internal costs (and commissions) are related to the death benefit amount. Both types of policies are done in different ways. Many will say it only benefits the person selling the policy, this is far from the truth when designed properly. When compared to term commissions, the ratio is higher per premium payment in a term versus WL or IUL when designed properly.
As an administrator of 401k plans, defined benefit plans etc, these aren't to replace a retirement plan or other investment, it's to stack on top of those vehicles. I wouldn't use these as your first and only contribution vehicle.
The real investment using these policies is what you're investing OUTSIDE of the policy... the real estate.
And finally, these are long term policies. When designing these for short term access, it hurts the policy long term actually. The concept is to use these in the short term as the down payment on the properties, or a portion of. Then, as it grows, use them like a "fix and flip" loan where you pay off the loan with a long term mortgage, just like any other private or hard money loan. Then, rinse and repeat.
When designed and implemented properly, you should be able to purchase multiple properties over the years, and still have a way to supplement your retirement in the end with the cash value.
Feel free to reach out with any follow up questions.
The only people who make money with this are the people who are selling the life insurance.
In all of my investigations of this, it has never penciled out for me. Partially because when you loan yourself money out of your cash value, the interest you pay yourself is taxed but not tax deductible.
Life insurance, including cash value life insurance, is a great estate planning tool. That being said, the additional cost to go from term to whole life insurance, has terrible math that takes years to just break even. Even on an accelerated timetable I think it is 3 or 4 years before the cash value exceeds the additional cash put in to get the cash value out.
Wanted to touch on the taxable interest part... it's only taxable if it becomes a MEC (modified endowment contract). Meaning, the IRS sees it becoming an investment, basically just like an annuity. It would also be taxed if the cash value is simply withdrawn instead of loaned against regardless if it's a MEC or not.
The design of these is a balance between the death benefit and the contribution amount, and not allowing it to become a MEC. The goal is to "squash" the death benefit while maintaining the tax benefits.
I'd be happy to show you a design where it's completely optimized and show you the difference in commissions when designed properly versus not. 3x less in some cases.
This topic has been well-covered in other posts here on BP. This one was pretty thorough: https://www.biggerpockets.com/...
You can use either type of policy. IUL is what I recommend and what I personally use. Just make sure it is maximum over-funded. You want to see 85/90% cash value to premium in Year 1. That shows that the fees have been minimized.
To the comment above about the agent being the only one making money:
It's important to understand that you are leveraging the cash value to invest in real estate. This means that you are literally putting your money to work in two places at one time. The higher combined growth will make up for the slight haircut your premium dollars take. Its not a get rich quick scheme. Instead, it is a slow methodical way to build more wealth over your lifetime. The haters just don't understand the math.