All Forum Posts by: Mike S.

You can also start a policy with $100k a year, there will be more to borrow... :-)

As I explained, if you compare investing directly to an outside investment or putting the money first into an overfunded life insurance and borrowing what is available to reinvest in the same outside investment, you will earn less total return in the first 8 to 15 years. But when the cross over happens, your returns will be then a few percent higher for the rest of your life, and its compounding. On top of it you also get a life insurance that will give tax free money to your family. So yes it is a long term game, you accept lower return for a few years, knowing that if you stay the course you will eventually be in much better shape later on.

I strongly disagree with that statement.

While Infinite Banking (TM) is based on WL and is overtly against IUL, overfunded IUL like overfunded WL work very well for this. Some policies lapse (WL and IUL) when the owner is not paying the premium he was supposed to pay. The cost of insurance on the full life of the insured is the same for IUL and WL, it is just spread differently. Both are using the same mortality table. While the WL will have the same cost every year, IUL start with a lower cost early and increase when you get older. However what you failed to mention, is that because you overfund the policy, the risk for the insurance company is lower because the gap between the death benefit and the cash value is shrinking, so the cost of insurance is also shrinking too.

There as been a lot of false fear mongering about IUL spread by the Infinite Banking people. I don't know if it is because they see it a threat to their business because they have contractually, as an Infinite Banking practitioner, to sell exclusively WL, even when IUL today make more sense. I would suggest that you educate yourself on that product by reaching out to an agent who sells both overfunded WL and IUL. Both WL and IUL are perfectly fine and can fit different needs. I strongly believe that IUL is a better fit most of the time, but there are some cases when WL should be preferred.

There is a handful of lenders that are specialized in cash value line of credit (CVLOC). Most of them are only lending against a Whole Life insurance policy, some are now accepting Index Universal Life insurance policies and their number is growing as IUL is now becoming more prevalent. Some lenders will have a minimum loan amount requirement ($25k~$100k for certain lenders), some will only work with some insurance carriers and not other. You would need to shop for the lender that will match your needs.

In addition to usually having a lower interest rate, third party loans are also necessary if you want to write of the interest as an investment expense in your tax return as I don't believe that you can claim the interest from an internal policy loan, even when using the proceeds of the loan for investment purpose.

Current reasonable yield in a WL is in the 3~5% range. An average yield on a IUL would be in the 5~7% with some years at 0 and some at 10%+.

Policy loans are dependent on the carrier, and you can find fixed loan in the 5~8% range, indexed loan in the 4~6% range. Policy loan repayments are flexible usually, and you can pay back nothing, interest only, or principal and interest as you wish and when you wish. Most of the carriers have also a neutral arbitrage loan options where the rate of the loan is the same as the return.

Third party loans, secured by the cash value, are currently around 2.75 to 4% depending on the lender and amount of the loan. Most of these loans are interest only.

So with a third party loan, positive rate arbitrage is the average norm, but some years it could be negative (especially with the IUL volatility).

Regarding the initial cash value in the first years, it depends on the way your policy is set up. You can have a policy that will give you around 75%~85% of all the premium you paid available as cash and surrender value from year one with an additional rider. Or you can have policies that will show the same cash value, but the surrender value will be much lower in the first few years, limiting your ability to borrow from it until the surrender value catch up. Depending on how you expect to use your policy, an experienced agent can tell you which option would be best for your situation.

In your example of a $10,000 yearly premium, here is an example of a typical IUL illustration for the first 10 years for a non-smoking 35 year old female in good health. In this first example there is no rider to enhance the surrender value early.

And the same policy with a rider to get access to the full cash value early, but as you see there is cost for it as now it takes 9 years instead of 6 to absorb the fee.

@David M.

Do not use a quit claim deed. Use a warranty or special warranty deed instead.

@Carl Kallgren IV

I have seen the opposite where a CPA suggested the wrong structure that had to be scrapped by the real estate attorney.

What you want is team of experts in real estate, tax, asset protection and estate planning who are working together to get a comprehensive plan for you. Often, each of these professionals are working insulated from each other and are excellent in their job but don’t understand the other professionals’ concerns.

So I would look for professionals in these fields who are investors themselves so at least they have experience in that matter, or find a firm that has under the same roof all these expertises.

There are a few companies that cater to real estate investors that are often mentioned in this forum.

@Chris Talle

It is not a cap on loan against retirement account, it is a limit on a loan from the retirement account. When you take a loan from it, the value of your retirement account is lowered by the amount you take and you pay back into the account with interest. That means that your retirement account growth is impacted.

By using a life insurance cash value instead for a third party loan secured by it as collateral, the full cash value would continue to grow while you can use the loan to invest at the same time. The interest will go back to the lender however, but you can deduct it as an investment expense on your tax return.

@Joe Splitrock

I should have probably better explained that my example was after a few years when you caught up with the fee.

From the IUL policies I have studied, it will take approximately 4 to 8 years to earn more by using the policy than investing directly without it.

If you take into account the cost opportunity. The cross over when the total return from using the policy is higher than investing directly is around 12 to 15 years. After that the policy is way above the investment alone.

So yes it is a long term game, but it is worth it in my opinion.

@Patrick Davenport

On the contrary, on the long term IUL have way higher IRR than WL.

Short term however, WL have much less volatility and can surpass IUL in the bad years when the IUL would stop at the floor if you had put all your bet on the wrong index.

Yes there are heavy upfront fees that will take usually 5 years to absorb. But the fee ratio is very similar if your policy premium is $5k a year or $500k a year. Of course, with a $5k a year your death benefit may be only $100k, while with a $500k a year you may have a DB of $10M. But the rate at which the cash value in your policy grows is quite similar. So it does not really matter what amount of wealth you have. As I wrote, in my view, you just need to have enough consistent cash flow to pay the premium for at least 5 to 7 years to get the best optimized policy.