All Forum Posts by: Thomas Rutkowski

For one thing, had you read the thread you would realize he's already done this and wants to know if he made a good decision. Second, you don't know what you are talking about. We are talking about Maximum Over-funded Policies. These are not the typical policy designs sold by most agents. Most of the premium goes directly to the cash value. I've only told you this about a dozen times here on BP, yet you continue to spread your misinformation. A properly-designed policy will have about 85% of the premium going straight to the cash value. So obviously MOST of the premium IS NOT going toward commissions!

I liquidated my own IRA in a similar manner and it works exactly as I described. I WILL get more retirement income than I would have had I left my money in the IRA. That 85% can also be leveraged to put the money to work in two places at one time. This will result in a higher combined growth rate.

Your statements show a lack of understanding of Indexed Life Products. Indexed Life insurance products DO NOT participate IN THE MARKET. The insurance company is essentially spending the dividend on hedging activities to buy as much movement in the market index as they can get with the money they have to spend. The goal of an IUL is not to beat the market index, it is to simply capture a premium over the debt market rate of return that they are earning on their reserves. Typically this premium is about 1.5 to 2%. So for two identically designed policies, one a whole life and one and indexed universal life, the index universal life should outperform the whole life over a long period of time. 

When you know you can earn a premium, one neat thing that some companies do is invest their reserves in safer asset classes. They do this because they know that the hedging activities will still provide a competitive return even with a lower, but safer asset base. You can see this when you look at the financial statements of companies that focus on index universal life. They have a higher percent of their assets in higher quality debt.

 It really depends on your tax bracket. As @Mike S. correctly states, the cash value of a life insurance policy can provide income at a rate of 8% relative to the cash value at the time you retire. This is twice as much income as you can get from traditional retirement planning assets. Just google "4%-rule". That 8% is contingent upon the policy being perfectly designed though. Most are not. There is a difference between "over-funded" and "Maximum over-funded". Your cash value to premium ratio needs to be about 85-90% in year 1. If its less, its not an optimal design.

So that said, it would make sense to take the money from an IRA/401K, put it into premium, and pay the taxes with a policy loan. This would still provide more income at retirement age as long as your tax bracket is less than 50% (including the penalty). And there is value to the Death Benefit protection, of course.

Well, the fact that you've never sold a cash value policy is a good indication that you don't know what you don't know. You do a disservice to the people following this thread who have properly-designed policies and know that they are growing their wealth faster by leveraging their policies than they could have just simply investing in real estate with their cash.

I also suspect that you don't understand the difference between a maximum over-funded policy and one that is minimally-funded. The latter is what 99% of agents sell because most people are looking for death benefit protection and want to get it at as low a price as they can get. If you understood what a maximum over-funded policy is, you wouldn't make a statement like "making the insurance company rich". The fees, charges, and commissions in these policies are as low as legally possible because we are designing the policies for the legal minimum death benefit for the given premium. Just google "maximum over-funded life insurance"

And to say that the insurance company keeps the cash value when you die? You clearly do not understand how life insurance works. The cash value is quite literally the policy owner saving up the death benefit over the life of the insured. The cash value is part of the death benefit. To use your example, if you have a policy with a $100,000 death benefit and you have $60,000 of cash value, then there is only $40,000 of remaining risk in the policy. Just google "net amount at risk". The death benefit payout consists of the $60,000 from the cash value and $40,000 from the mortality pool.

@Helen Fradette

That's it. If the Guideline Premium is equal to what you are paying, then your policy is what I would consider a maximum over-funded policy design. The money that you put into this policy will likely provide more after-tax retirement income, dollar for dollar, than most any other traditional retirement planning asset. And on top of that, you can leverage the cash value every day between now and the time you retire so that you can build wealth outside the policy. It's very powerful. Enjoy!

@Helen Fradette

I'll second what @Mike S. stated. The IUL will be a great way to both save for retirement income AND to leverage for your real estate investments. However, the policy needs to be designed right. You should be aware that when you are using these policies for private banking, they need to be maximum over-funded. This means that the death benefit and expenses are held to an absolute minimum so as to minimize the internal charges inside the policy. Most agents do not design policies this way. They are selling death benefit protection. 

Look inside your policy illustration for a section on taxation of life insurance contracts. You should see a number labeled "Guideline Premium" or "Guideline Level Premium". If that number is more than you are currently paying, then your policy is not maximum over-funded. You can increase your premium to that level to make it more efficient.

@Aakash Deol

This thread on BP goes into detail on the concept. 

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

Just understand that this works with any permanent life insurance. It doesn't have to be Whole Life. Indexed Universal Life works just as well if not better. The latter is what I use personally. As @Mike S. correctly states, you just need to insure that the policy is a maximum over-funded design so that you are not wasting money on death benefit if you have a cash value focus.

@Todd Goedeke

And for 30 years you probably sold minimally-funded traditional life insurance designed for maximum death benefit. Those are high commission products. But I don't think you understand the difference between policies designed for maximum death benefit and maximum cash value. The commissions are nowhere near as high as you think. 

In a properly design, maximum over-funded policy, the commissions are very low. 

@Account Closed

Usually people come out of the woodwork when this topic comes up. I'm stunned by the silence. 

There are several threads on this subject on BP. 

It does work, but its important to understand that you are not going to hit the ball out of the park. Its all about accumulating more wealth over time. 

 You are comparing apples and oranges. Real estate investors use maximum over-funded policies when they intend to leverage the cash value for real estate investing. Only a minimally-funded policy could possibly require additional premium at a later date... and that would only be because interest rates have fallen well below what was forecast and the policyowner underfunded the policy.