All Forum Posts by: Thomas Rutkowski

 You are not "Borrowing it Back". The cash value is the collateral for a loan that the client can get from the insurance company or from 1 of many banks. The cash value continues to grow and earn interest/dividends. And whatever you do with the borrowed money will create value separate from that. The combined growth will be better than simply investing in real estate.

It's important to understand that there is no free lunch. You are borrowing against the cash value of the policy. That cash comes from the premiums you pay. So If you have money to get started investing, it will make sense to launder that money through a maximum over-funded policy.

My goal is simply to correct any misinformation posted about life insurance whether it comes from an agent or anyone else. If you keep posting erroneous information, I'm going to keep correcting you so that subsequent readers are armed with correct information.

The OP was asking about lump sums vs level premiums. The issue with Lump Sum premiums is the fees. A lump sum premium can double or triple the charges in a policy. This will cause the policy owner to lose much of their cash value over time. All maximum over-funded policies are funded right up to the MEC/Guideline Premium level. That is not the issue.

The problem with a lump sum has nothing to do with creating a MEC.  It's important to understand that the death benefit is a function of the first-year premium. When I design a maximum over-funded policy, I am solving for the lowest possible death benefit that still meets the definition of life insurance. When the first-year premium is 4X the subsequent premiums, you will end up with 4X the death benefit. It's also important to understand that the charges in a policy are also primarily driven by the death benefit. That means there will be 4X charges hitting the policy for the next 10 to 15 years and taking a big bite out of each of the subsequent premiums.

Determine the most you are willing to commit to for at least 5 years. That should be considered the shortest funding period for a policy. Longer is fine, just don't go shorter. 5 years is the sweet spot between minimizing the charges and getting your money working in the policy. 

The problem is that most agents are unaware of this. They will happily design a policy with a large lump-sum premium up front. They either know what they are doing or they are ignorant of it. Either way, and using my example above, they end up with a 4X larger commission, and you end up with a policy bleeding cash value for the first 10 years.

 Hey Brian,

Its important to understand that you don't need "an outfit". What I mean is that you simply need an agent who knows how to properly design a policy for you. Most infinite banking policies are not intended for real estate investing. They leave excess death benefit in the policy so that you have room to add more premium later. They sort of deceive you into thinking these paid-up additions are you paying yourself interest. You want a policy that is designed for minimum death benefit and maximum cash value from day one. These allow you to turn around and leverage the most cash value into your real estate investments.

When you look at your illustration, you should see the year 1 ratio of cash value to premum at around 85% to 90%. Any less and there is too much death benefit, and fees. Also, be aware that you should never make a lump sum premium payment up front.

 This subject has been covered extensively here on BP. This is just one of the old threads:

https://www.biggerpockets.com/...

You should also understand that unlike a typical retirement saving plan, that you can't touch until you are 59 1/2 years old, you can leverage the cash value of a maximum over-funded policy to literally put your money to work in two places at one time. Policy design is critical. It must be a maximum over-funded design in order to keep the internal costs to a minimum. You'll have a good idea that its properly designed if the cash value to premium ratio in Year 1 of your illustration is about 85-90%.

The original poster asked the community if he made a good decision. That sounds like past tense to me. YOU don't understand how life insurance works, so you really can't understand why that decision will result in more retirement income for himself. He did make a good decision. One that will result in greater retirement income than he would have had he kept his money in the 401(k) IRA.

Before you step out of your lane and comment on maximum over-funded life insurance policies, you should really take the time and effort to actually understand what they are and how they work. These policies ARE NOT high commission and high fee because the death benefit is held to the absolute legal minimum. This minimizes the fees and commissions. 

@Claire Blary

I personally don't think 4 properties in one LLC is a problem. So it really depends on your risk tolerance.

I won't comment on the tax and business structure issues, but you can easily set up an LLC online using Sunbiz.org here in FL. The articles of incorporation will just be boilerplate and you can always add your own operating agreement later. Putting the properties into a revocable trust would be another alternative to an LLC

 The company offering an IUL is absolutely spending the surplus that what would have been the dividend, had it been a whole life product, on hedging activities. Hence the use of the word "essentially" to avoid over-complicating the issue. But you knew what I meant and chose to act the fool anyway, didn't you? Stay in your lane.