All Forum Posts by: Thomas Rutkowski
Thomas Rutkowski has started 20 posts and replied 801 times.
Post: Infinite Banking Concept [aka Life Insurance]

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When you choose a fixed loan on an IUL, the insurance company moves the cash value into the fixed interest crediting strategy. There is no opportunity for interest rate arbitrage. Annualized IUL returns include a premium over the debt market rate of return because of the hedging going on behind the scenes. So if loan rates are based on the Moody's Corporate Bond Yield, there should be a long term arbitrage between loan rates and annualized IUL returns.
But regardless of arbitrage opportunities, the loan rate is your cost of money hurdle. As rates rise, we need to find opportunities with positive NPV.
I actually recommend using a cash value line of credit whenever you are borrowing against your policy to do The Double Play, investing in real estate by leveraging the cash value of a maximum over-funded life insurance policy. Policy loan interest is not tax deductible. Imagine making 10% on an investment and having to pay 40% taxes AND 4% interest. That would leave you with 2% net on top of whatever the cash value earned during the same period.
If the interest is tax-deductible, then your taxable income percentage on the same investment is 6%. At the same 40% tax rate, you'll net 3.6%. That is almost double the income on the outside investment PLUS the return on the cash value during the same period.
Post: Tax strategies to avoid/mitigate capital gains

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Monetizing an interest-only installment sale through a qualified intermediary.
More here:
Post: Infinite Banking Concept [aka Life Insurance]

- Financial Advisor
- Boynton Beach, FL
- Posts 819
- Votes 791
@Mike S. explained it pretty well. Just to clarify what you stated...
You are not taking a loan against 90% of your premium. The internal fees and load in even the best designed, maximum over-funded policies is about 15%. Premium minus fees equals cash value. The cash value is the asset that you can borrow against. You may see life insurance illustrations that show 90% cash value, but keep in mind that is at the end of the first year and includes a dividend payment. That dividend will not have been credited at the beginning of the year when you'll want to borrow against the cash value.
Also, 4% guarantees are a thing of the past. Congress recently changed the 7702 statutes to allow for a 2% actuarial growth rate. The new rules were effective 1/1/21. These "guaranteed" rates are really just the minimum growth rate that the insurance company needs to achieve for the contract to perform. Because interest rates in the debt markets are now well below 4%, the industry was starting to get a little nervous about all those "guarantees" they made.
Post: What Do The New 7702 Rules Mean For Over-funded Life Insurance?

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You may not have even be aware of this, but Congress changed the rules regarding Life Insurance funding late last year. In this session I am going to explain the impact (Good news!) of the new rule changes on Maximum Over-funded Life Insurance policy designs.
If you are thinking about or researching private banking strategies that leverage maximum over-funded life insurance for real estate investing, you'll want to see this webinar.
Post: How To Fund Real Estate Using Cash-Rich Life Insurance Policies

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Just to be clear, you do not "borrow from yourself". A policy loan is a loan from the insurance company that is SECURED by the cash value in the life insurance policy.
Policies should be maximum over-funded from day one, not later through later paid-up additions. A real estate investor needs the cash value optimized immediately so that they can put the most money possible to work in two places at once.
It also doesn't matter if you use Whole Life or Indexed Universal Life. Guarantees don't matter in maximum over-funded policies. You need guarantees in traditional life insurance policies were you want to pay as little in premium as possible. The cash value needs to displace the death benefit protection over the lifetime of the insured. What you want is the policy with the greatest potential for cash value accumulation. And that is an Indexed Universal Life.
The merits of this approach have been thoroughly discussed here on BP in many different threads, including this one: https://www.biggerpockets.com/...
Post: Safe investment options

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I second @Jody Sperling 's recommendation. @Dmitry doesn't understand the difference between a maximum over-funded life insurance policy and a traditional whole life. Apples and oranges. There are not the massive commissions as he contends. Expenses and commissions are held to an absolute bare minimum when the death benefit is driven out of the policy and the focus is on maximizing cash value.
Its great place to store your cash, earn a good return, and have liquidity for when deals present themselves. Not to mention that you can make a higher combined return on your cash by putting your money to work in two places at one time.
Post: Life Insurance as Financing?

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Originally posted by @Mike S.:
Originally posted by @Jerry W.:
@Karina Ruiz, I have not dealt with this in years. Many years ago I tried to get a guy to post in the thread the exact numbers for a named insurance company that I could call and verify the numbers with. He kept offering to do it offline, but never online, so I called him out on it. As I understand it the benefit is based mostly on the fact that the over funded life insurance policy will earn you like 7% interest and the life insurance company or a bank will loan you money at 2 or 3% interest to invest that money. Why would a life insurance company pay you 7% interest on 85% of your fund and then loan the money back to you at 3%. I just don't see them doing it. Why would they pay you 4% more in interest on your money while they loan it back at a lower rate? It does not seem logical. I have not done any research in the last few years to test out their claims. If it seems too good to be true it usually is.
Whole Life will get you a return in the range of 4% to 6%. Index Universal Life will get an average return of 5% to 8% but with more volatility (some years will be 0%, while some other may be up to the cap that is around 9% depending on the insurance company and the indexing method chosen).
When you get a loan out of the policy, the whole amount in your policy continues to grow as you never withdraw money from it, but instead used it as a collateral for a loan from a bank or the life insurance company. Usually a bank loan will be cheaper, but you will have to repay it. A policy loan rate may be higher but you don't have to repay it back nor pay the interest if you don't want to, as it will be payed back from the death benefit when you eventually pass away. With an IUL, some years you will have positive arbitrage with your loan, some year it will be negative depending on your indexing return. You can also get a fixed rate loan that will be at the same rate than your crediting rate, basically making it a zero fee loan, but you are also missing on potential growth.
Just to be clear, policy loans are not interest-free. If you choose not to repay a policy loan, the insurance company is loaning you the money to pay the interest and then tacking it on to your loan balance. The insurance company is willing to do this because they know that the collateral securing the loan (the cash value) is also growing at the same time. The main thing to be aware of when you choose not to repay a policy loan is that the loan balance is growing at a compounding rate... but its always offset by the cash value collateral that is also growing at a compounding rate. As long as the rates are at least equal, this can go on forever. The loan will eventually be satisfied from the death benefit proceeds.
Post: Where to stash future investment savings?

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That's not exactly how it works. You do not pay yourself back with interest. When you invest in real estate with life insurance, you are leveraging the cash value of a policy. Just as with a home equity loan, you are getting a loan secured by the cash value of the life insurance policy. As a result, you are paying the bank or the insurance company interest, not yourself.
This is a way to truly put your money to work in two places at one time. The cash value never leaves the policy and as long as you earn more than your cost of money, you are creating wealth outside of the policy as well. And, as long as the policy is a maximum over-funded policy, this should result in greater wealth accumulation than simply investing the same amount directly into real estate.
Post: Whole Life Insurance as a Foundation for Real Estate Investing

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Originally posted by @John Perrings:
@Thomas Rutkowski
I understand just fine.
The context of my post was to unclutter Dwight's understanding of whole life insurance; the incorrect assertion that WL is built on annually increasing term insurance. It's not. Simple as that
UL is. But I never said that was bad. No need for the lecture.
If anyone is coming off as confused, it's you. In one breath you try to belittle "[my] beloved whole life" insurance. Then, in the next, say that there is no material difference between the two for cash value and death benefit. Can't have it both ways.
The BP community could benefit with less posts focused on territorial infighting and more posts focused on increasing awareness and understanding of life insurance.
While it may not be called ART, that whole life policy is still facing the exact same internal cost of insurance. How do you think that gap is covered?
What I stated was totally congruent. Since a UL is really nothing but an unbundled Whole Life, we should expect that, with apples to apples assumptions, the performance should be identical.
ART is simply putting a label on the same mortality cost that exists in a whole life... which increases over time.
If I design a policy around a $50,000 annual premium and a solve for max cash value, both a WL and a UL should arrive at the same death benefit. Given that they all work off of the same mortality tables, the policies will face the same risk and cost of risk. They should perform identically. Where they differ in the real world is in their internal cost structure and the performance of their general funds. The policy with the best cash value growth is going to be the one with lower cost of insurance because it will close the gap faster. And that advantage goes to the IUL.
Post: Whole Life Insurance as a Foundation for Real Estate Investing

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I think that you need to understand that all permanent life insurance faces the same mortality risk. The guarantees have nothing to do with the cost of insurance. Whether it is UL or WL, the insurance company is liable for the gap between the cash value and the death benefit. So whether you call it "mortality cost" or ART, its the SAME COST. Under the hood of your beloved Whole Life, the insurance company must set aside the same amount as a Universal Life does with ART. And that cost gets progressively more expensive each year as the insured ages.
Understand that in both types of policies, the net amount at risk is going down at the same time that the cost of insurance is going up.
When I design a policy for maximum cash value, the cost of insurance is only about 0.25% of the cash value after I reduce the death benefit to minimum non-MEC. This is done to preserve the cash value after the owner is done making premium payments. This ratio remains relatively constant for the life of the insured.
When I lay one of my Whole Life designs alongside a Universal Life design, both the cash value and the death benefit are very similar. I can infer from this that the underlying costs are relatively the same.
A UL is really nothing but an unbundled WL.