Quote from @Khari F.:
Quote from @Michael A.:
Quote from @Khari F.:
How does insurance company qualify/underwrite you? Seasoning period?
It’s based on your age, health and financials. The better health you have the better cost of insurance. This will allow you to optimize the policy in the most efficient way. Once you know what product and amount of money to put into it: you sign an application, do a medical exam where the nurse comes to your house for 10 minutes (insurance company pays for it), then sign off on the policy and submit your check.
You can use these insurance machines for tax-free income, buying real estate, storing capital, estate Taxes, income protection, etc.
Can parent borrow against insurance policy on child whose financials are great?
@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.
