All Forum Posts by: Mike S.

I have been using loans secured by the cash value of permanent life insurances to invest in real estate. I mostly have IUL, and you can borrow from it immediately. If you are using the loans to invest, you should use a third party lender instead of a build-in policy loan so you can deduct the interest payed as investment expense. 

I am using the cash value of my life insurance constantly for investments. I am taking a loan from a bank, that is secured by the cash value. As it is a third party lender, I can even deduct the interest of the loan as an investment expense.

There are few lenders specialized in Cash Value Line of Credit (CVLOC). Some will work with only certain type of permanent life insurance and specific insurance carrier, some will work with many.

If you have an ITIN, then you are not allowed to work in the US. If you can't legally work in the US, how do you expect to get a real estate license that is an authorization to work as real estate agent or broker?

If you have a valid work authorization as a non citizen, I believe that you are supposed to get an SSN with it.

Most of third party lenders that I know of are lending in a range of prime +-.50%. So it is usually lower than through the insurance company.

The pro of using a third party lender:

- better rate

- interest only payment

- avoid the limitations of insurance company loan (recognition vs non-recoginition; limitations on type of crediting available, etc...)

- possibility of deducting the interest as expenses if the proceed is used for investment

The pro of using a built in insurance company loan:

- easier and faster to obtain

- access to almost all of the cash value

- no minimum payment or schedule

@David New

Also by using a third party lender and not the insurance company, you should be able to deduct the loan interest as investment expense.

What type of life insurance do you have and from which company? Do a search on cash value life insurance line of credit (CVLOC) and you should get already some lenders. Some will only loan on certain type of policy and from certain insurance company while others will be more diverse. Shop around for the best term and rate.

A quick Google search would have given you the answer:

http://myfloridalicense.custhe...

If you don't want even to read it:

No you don't need to be a citizen to have a real estate license in Florida, however you need to be authorized to have a lawful employment in the State (have a social security number valid for employment).

It is a state tax, not a county one, so it is state wide. The doc stamp for a transfer of property is $.70 per $100. The doc stamp for note is $.35 per $100 of the value of the note.

Miami-Dade has an additional county tax on top of it.

https://floridarevenue.com/tax...

So to answer the OP question, yes you will have to pay a 0.35% doc stamp on the max value of the HELOC. This will be part of your closing cost for the HELOC. Some banks will pay for it, some will debit it to you.

All my free cash flow goes to the life insurance. When I need some back for investment, I take a loan out from a third party lender (not from the insurance company) so I can deduct the interest as investment expense. Most of the time the arbitrage between the loan interest and the interest gained in the life insurance is positive. On the long run I love putting my money to work at two places at the same time, and get a 'free' life insurance on top of it.

There are some differences:

A brokerage account can go lower and then you get a margin call and you need to liquidate everything and lose your shirt. So many people have been bankrupted with margin loans.

In a Whole Life or an Universal Index Life, your cash value can not go lower (except for the insurance fee portion that is known). In a Whole Life it will go up every year by at least the guaranteed rate plus some variable dividend. In an Index Universal Life, some year you will get no growth (when the underlying index is negative), or you will get a growth that can be up to the cap of your underlying indexing.

A margin loan will only give you up to 25 to 60% of your brokerage account value.

As there is no risk of loss, you can get a loan up to more than 90% of your life insurance cash value. It is a very secure collateral for the lender and they can give you better rate too.

A better and safer comparison would be a mortgage refinance. You get equity out of your home while the value of the house continue to grow. But again, as we have seen with the real estate market crash, when the value goes down, you may get in trouble.

My view on the key points of properly setup maximum overfunded life insurance policies (whole life or Index Universal Life) is:

- The cash that you put in the policy grows at approximately 4-6% IRR in a Whole Life, or 5-8% IRR in a IUL, but it takes at least 7 to 15 years to reach these IRR as the first year you start with a negative IRR.

- The cash value available in your policy will be approximately 75 to 85% of your total premium the first year and it will take 5 to 7 years to have a cash value higher than your total premium.

- You can use the cash value as a collateral for a loan (either from the insurance company or from a third party lender). Depending on the lender you can get loan from 2.75% to 6% APR. But as you never touched your cash value, the full amount continues to grow while you are using the money for other investment at the same time. So even with the cost of the loan, your investments are making more money due to the fact that the same money grows at two places at the same time. If you use a third party lender you may also deduct the interest paid as investment expense.

- You can also withdraw money from the policy, but then your cash value will shrink and this vehicle become no better than a 401k. If you withdraw more than your premium paid your gain is taxed. It is better to take a loan from the policy tax free, at a rate that is the same or lower than the cash value growth. During retirement that is a great strategy. A maximum overfunded life insurance policy growth is probably a little bit lower than a Roth 401k or IRA, but during the disbursement phase in retirement, you can take money, in form of a loan, from your insurance policy at a yearly rate of 7 to 8% up to age 120, while in a IRA or 401k you do not want to withdraw more than 4% a year to make it last 30 years.

- When you die, the death benefit will pay back all your outstanding loans and the rest will go to your heirs tax free. If you die young or very old, your heirs will get a lot more money than if you were using other vehicles.

- In a maximum overfunded life policy, there is no risk of the policy imploding due to the overfunding.

- To minimize the cost of the policy, you want to pay the same amount of premium every year for at least 5 years. By doing so, your policy can be set up to buy the minimum amount of death benefit while getting the maximum cash value. It does not mean than in case of hardship one year, if you don't pay the full premium your policy will implode. The minimum premium that you need to pay may be only a few percent of your planned premium, but you would want to catch up the following year as it will hurt your growth.

- Some people will argue that by having only access to 75 to 85% of your money the first year, it is better to invest directly in other vehicles instead of using a maximum overfunded life insurance. It is true than during the first 7 to 15 years you will be ahead doing so
due to the "cost of money", however after that time, the use of a properly setup maximum overfunded life insurance is way ahead. Also, you gain a life insurance that will give your family a death benefit if you die early, protecting them from hardship.

- Life insurance usually is not an asset counted for financial aid.

- Life insurance is an asset protected against creditor.