All Forum Posts by: Ryan Kempkens

@Melissa Nash your on the right track but in this case he is pre-approved for $250,000 not case to put into a Whole Life policy, banks are not going to lend to you to fund your life insurance. Your correct in that when you borrow form your whole life insurance your not taking out principal so your still making a return on that principal that is more often than not more than your paying in interest on the policy loan. 

When you say over-funded a lot of times people are talking about over funding an IUL which when taking loans against can be a very dangerous product. You want a whole life product where your paying around 10% to death benefit and 90% to PUA's Paid up Additions. Two very different products with two very different purposes. 

@Zackary Thomas just from the way you formed your question I can see you have started your research, great job on that!! You know that the Whole Life policy is not an investment in it's self, it is a vehicle to make your investments from. If you start a properly structured policy at 20 years old your 40 year old self will love you Lol. That said there are a lot of well meaning agents out there that don't understand what they are building for you so make sure you interview them and they know how to build it. 

For the purpose your thinking about using this I would not get talked into an IUL. I have sold both and they have their place but not as a banking vehicle. They are sold on their flexibility but if they are not max funded they are not a viable product and the loans will put them in jeopardy. The problem with them is that they are 1 year renewable term life contracts with a cash value. If your cash value is high enough the amount the insurance company has to pay at your death is smaller so the cost of insurance stays low, if you don't over fund or take loans against that cash value the more the insurance company has to pay when you die so the cost of insurance goes up as you get older. So it is actually becomes less flexible because you have to max fund it to keep it enforce in the later years of the policy. 

In a Whole Life policy your cost of insurance stays the same. You can adjust the amount of PUA (Paid Up Additions) to make it more flexible. You want to put the least amount possible towards the death benefit as possible and still keep it under the MEC line to keep the tax favored status. How to do that can't really be explained it a post. 

If you ever have any questions or need help asking the right questions to your agent or prospective agent feel free to reach out. I have no doubt you will find yourself in a great financial position in life, starting to think about and plan for your life at such a young age!! 

Here is a good video that explains the best way to build a policy. 

@Michael K. I would be very careful with a broker that "rigs" an insurance contract. Keeping your payments artificially low seems great until you need the coverage and there is non because you made a material mis-representation in the contract. The building might never be a total loss but you very well could have a liability claim big enough for the insurer to investigate that.  

 Every situation is different based on goals and time horizons, structured properly you should be able to get around 90% of your money into the cash value right away. Your not going to be able to stay under the MEC line with a single deposit of $100,000 but if you made it a 5 pay contract with $20k a year with a 90/10 design ( $18,000 going to Paid up Addition and $2000 going to death benefit) you should be at or close to break even by year 4.5 or 5. It's beyond the scope of a forum post to go to far into policy design but it when used properly its a great tool, when structured wrong it's more expensive than the tax benefits are worth and benefit the insurance salesman more. You have to use the right product and the right agent 

@Khari F. You don't have to qualify or have any seasoning period in these types of loans. Your thinking of them like bank financing which it is not, the loan provision in a whole life contract is a stipulation of the contract. Meaning that the insurance company has a contractual obligation to make the loan to you. This is why you can only get a loan up to the the cash value of the policy. 

If you put 20% down on a property from your saving or investments, you are no longer earning interest on that money. It may be earning a return from the RE investment but not interest directly from that money. If you had your wealth in a whole life policy and took a policy loan for that 20% down payment it doesn't come from your principal in the policy so you will still earn your guarantee rate plus the dividend rate on that 20% down payment and you've made the returns from the RE investment. Doing this puts you on the right side of Interest equation, using Whole Life in this way is a savings vehicle not an investment. It becomes powerful when you use your savings in it to fund your investments. 

Quick example: You have $100,000 in cash value in you policy vs. $100,000 in an investment account both earn on average 10% a year (just for easy math) You want to buy a $500,000 property

Whole Life- Your $100,000 in cash value is credited $10,000 (Policy loan interest rate are normally 5%-8% we'll say 8% to be conservative) $8,000 Deducted                      Net total is +$2000 credited to your whole life policy first year. If the property returns 10% Cash on cash return another $10,000                                          total of $12,000 on that $100,000 cash investment with the compounding effect in future years to magnify that with no opportunity cost 

Investment Account- If you sell an investment earning 10% a year to fund the down payment you still earn the COC return of $10,000 if the property preforms, your opportunity cost is then the 10% you lose in control of the investment account or $10,000. So it's a net $0 but with tax advantages and other reasons to invest in RE over other investments, that is an argument stock investors give, not mine personally

Saving Account- Down Payment from saving would be the same as Investment Account with mush less direct opportunity cost say you get 1% again for easy math, you would earn the $10,000 COC return year 1 with an opportunity cost of $1000 for $9000 net.

Hope this long winded example helps to clear up a little on what it means to use Whole Life for investing. It's more about a better way to deploy your capital than people thinking about it as an investment it's self. 

Be very careful if some one tries to sell you using Indexed Universal Life for this function, they are two very different products and policy loans in a IUL if not fully fund and paid back are dangerous to the policy. IUL's have their place but not as banking vehicle.   

Depending where your located there are smaller Farmers Mutual Companies (this not Farmers you see on tv) that may insure that risk, some times for an additional surcharge. Ask around for references for an local independent Insurance Agent they will know your market and who insures homes like that. Know going in that the coverage will probably be very basic.  Aegis is one company that you might look into. 

A whole life policy structured properly can be a powerful tool for preserving wealth and accessing and passing it on tax free. The key words there are "Structured Properly" there are more agents out there that wouldn't know how to structure the policy correctly than there are agents who do! I found this video he does a good job of explaining how it works and why some agents might Structure them slightly the wrong way. Don't look at this as an investment more a better place to keep your savings than a bank, your starting your own bank basically. Hope this helps 

Find an independent agent in your area and discuss your plans for the property and have them quote you multiple carriers. There is a market for what your looking for, it will be insured as Home-rented to others. You current insurer may not write that kind of business but there are other companies that will and the process to get a quote for the lender is very simple and can be done quickly by a good agent. It's a good ideal to form a relationship with an good agent early they will be a valuable resource to you.  

@Bruce Woodruff A lot of carriers are leaving California because of increased regulations and fire exposure makes it hard to be profitable for them. I write with SafeCo and they are a very good company, in my area are competitive in most cases, I'm not licensed in California so I can't really speak on the rates there. Unfortunately, the cost in CA will probably be higher for those same reason the other carriers are leaving. I suggest you find an independent agent and have them quote you multiple carriers.

@DeAndre Mason, Congratulations on your potential deal! Morgantown is a great up and coming market. Good growth and proximity to WVU should make for a nice cash cow long into the future. My advice would be to charge yourself rent and run the numbers just like @Nicholas Coulter said set up a separate account for the property and don't comingle that account with your personal accounts. As your assets grow you'll want to make sure you look into an umbrella policy but if this your first and biggest asset your liability coverage on the homeowners policy should be sufficient, just make sure you sit down with an agent to make sure the policy properly covers the property for how you plan to use it.