All Forum Posts by: Thomas Rutkowski

@Kristopher Kyzar The slight volatility in IUL is the price you pay for the opportunity to earn a higher annualized return than with a Whole Life. When you are leveraging the cash value of a policy, the volatility really doesn't play any role. If the cash value earns zero one year, so what? You still leveraged the cash value and put it to work in an alternative, right? And more than likely it will come back even stronger in subsequent years and will more than make up for it. Remember, the downside is zero, so you're not losing any of your cash value. The upside is much higher than a Whole Life. And again, the annualized return will almost certainly be higher than any Whole Life.

Understand that under the hood, the insurance company is essentially taking the dividend that they would have paid you and using it to hedge the market index with options. The movement in the market that they can capture is the "Cap". If the market index goes down, the option expires worthless (zero floor) and all you lose is the dividend that you would have earned. The underlying insurance company assets are exactly the same, as is the cost of insurance.

The Double Play is a long term strategy. 

Originally posted by @Steve H.:

is this infinite banking concept available internationally ? (outside usa for non-US citizens / residents) 

The concept of leveraging the cash value of permanent life insurance can be done anywhere. It actually works even better for foreign nationals because there is no such thing as a modified endowment contract. That is based on US law. The products that I have available for foreign nationals allow for much greater cash value per dollar of premium. 

@Michael Johnson

This subject has been discussed in ridiculous detail in many different threads here on BP. Check this one out for a starter...

https://www.biggerpockets.com/forums/519/topics/245380-paradigm-life-infinite-banking-whole-life-insurance?page=3

7% might be pushing it. Whole life dividend rates are dropping because interest rates are dropping. Indexed Universal Life earns a premium over the debt market return, so falling rates have reduced the cap rates on IULs. 

Loan rates are below 4% right now. A cash value line of credit can be found at Prime rate.

The Double Play works. It allows you to put your money to work in two places at once. The combined growth allows for you to build more wealth over time. Enough to make up for the higher fees in the insurance contract.

Originally posted by @Dwight Kimball:

@Justin Schreibeis

A bank account is much simpler

Would you ever pay your bank %to use your own $

And you can always set the bank account up so it goes to your loved ones without going to probate.

If you die the insurance company keeps your CASH VALUE..... That is why it is not called a savings accounts.

Although Life Insurance Agents live to sell them as investments

Quick question how many people do you ever hear say ya I'm retiring because my whole life insurance investment has made me lots of money.

Doesn't Happen

When you borrow your own $$ from whole life

It reduces your death benefit and you need to pay it back ...... How is this Beneficial????

Wow! There are so many untruths and myths in here that I don't even know where to start. If you don't understand how life insurance works, please keep your comments to yourself. This is exactly the problem with forums like this.

1. You are not paying to use your own money. A policy loan is a loan from the insurance company. They are loaning you THEIR money. The cash value of the policy is the collateral that is securing the loan. This is no different than getting a cash out refi on a home. The home is the collateral securing the loan. Your cash value remains in the policy. Thus, if you take that borrowed money and invest in real estate with it, any profits you make ARE IN ADDITION TO the growth of the cash value. You will earn a higher combined rate of growth and build more wealth over time.

2. The insurance company does not keep the cash value. The cash value is quite literally the policy owner saving up the death benefit over the insured's natural lifetime. It is part of the death benefit and goes to the beneficiary when the insured passes.

3. Millions of people are using life insurance policies as retirement plans. These are not your typical whole life policies. They are maximum over-funded policies just like we are discussing in this thread. There is a big difference and it might pay to inform yourself.

4. Taking a policy loan does not "Reduce" the death benefit. Since the policy owner is borrowing from the insurance company, they must pay the insurance company back. If there is a loan outstanding when the insured passes away, that loan is satisfied from the proceeds of the death benefit.

Recording of Presentation: https://bit.ly/2JFQlPL

If you've been researching life insurance for real estate investing, you've more than likely come across the misconception that the rising cost of insurance is going to cause an Indexed Universal Life to lapse as the insured ages. How would someone even get this idea? In this session we are going to discuss the misinformation put out by agencies and people selling against IUL. Sign up now to learn how both Whole Life and IUL deal with the rising cost of insurance.

Originally posted by @Jody Sperling:

This is an odd ask on a primarily real estate forum, and I'll bite. I'd set up high-cash-value life insurance policy for 40k with a gross 5-year outlay of 200k.

I'd borrow the cash value from the first year immediately, place it in an index fund along with the remaining 30k. On 70/20 split, that would have 65k in the market. Assuming average returns, I'd have enough to repay the loan and pay second-year premiums with the cash value increase.

Third year, I would use a loan against the policy and the dividend to pay the premium on a one-year repayment plan. 

Fourth and fifth year, I'd use the funds from my HELOC.

At the end of five years I'd have tax free access to $197,000 collateralized loans at a >1% interest rate to invest any way I chose with an $80,000 loan owed on the policy. 

I'd pull the remaining $197k loan, invest in VTSAX (assume 7% interest) and repay my loan as a 30-year mortgage. By retirement age, if I never invested another dollar (that would be stupid, but I can't buy real estate in this game) in the life insurance account I'd have $700k with a death benefit of 2 million and an annual dividend of $50,000 (based on over 100years of historical performance). In the index fund investments I'd have 1.7 million.

Not Warren Buffet, but pretty good for a guy who spent just under 350k of his own money

 That is a very high risk approach! What happens if the stock market collapses? I'm not sure if you noticed, but the market doesnt go up every year. My entire business revolves around designing maximum over-funded life insurance policies for people who intend to leverage the cash value. I would NEVER recommend someone use borrowed money to invest in a volatile asset.

If you want to stick to the life insurance approach, it would be much, much safer to fund the $40,000 initial premium as you suggest. But put the other $30K someplace safe and liquid so that it will be there in 12 months. Understand that a properly-designed, maximum over-funded policy should have about 85% cash value to premium. This means that a $40,000 premium should yield a policy with about $34,000 of cash value immediately. Then, at the end of the year, you could borrow against the policy's cash value (~$34K) and kick in an additional $6,000 from the outside assets to make the 2nd year premium. (The first year dividend will not be paid in time to help with the premium.)

At the end of year 2, you would repeat the process by taking another loan against the unsecured portion of the cash value and kicking in cash from outside the policy to make the Year 3 $40,000 premium. The amount needed from outside will be reduced by the dividend paid at the end of year 1, so instead of $6,000, it will be something less. 

This can be repeated for at least 5 years but for long as it takes to put all of the money to work. 

Here's the beauty of this approach: 

Understand that the insurance company will have funded the vast majority of the premium payments. Because most of the premium has been paid with borrowed money, the client shouldn't finance any more than they can afford in recurring interest payments. When you think about it, this is much like real estate in the sense that you are using leverage to maximize your ROR, but unlike real estate, you cannot use the policy's dividends to pay the loan interest.

Consider that while the Client will be paying simple interest on an approximately $150,000 loan, the resulting cash value will be growing at a compounding rate. Hopefully you comprehend that the delta between the cash value and the loan balance will be getting wider with every passing year... just like a loan on an investment property. The loan balance stays the same, but the house continues to appreciate in value. The owner captures all of the equity.

While this may seem complicated, you can also try to visualize a flat annual expense against an asset growing at an exponential rate.

The goal in a partnership buy/sell agreement is to buy out the partner's interest so that you don't have to deal with their spouse/children, etc. The amount needs to cover the value of their share of ownership. Each partner agrees to the amounts in the legal agreement. That way the spouses can't dispute the amount/settlement. The amounts should be updated periodically if the value of the business increases.

Per the terms of the agreement, each partner must buy out a deceased partner's interest. Life insurance is simply the best mechanism to make a partnership buy/sell agreement work. Each partner buys a policy on the life of every other partner. They themselves are the beneficiary. The death benefit provides the money to complete the agreement.

Also think about disability insurance.

Hope this helps!

@Jessica Flint

You can look into an intermediary installment sale transaction. I know there is a minimum deal size though.

More info here:

https://www.biggerpockets.com/forums/51/topics/569293-can-i-use-100-bonus-depreciation-as-alternative-to-1031-exchange?highlight_post=3455810&page=1#p3455810

Originally posted by @Daniel McNulty:

@Stephen Lyons

There are a couple of options. Utilizing Opportunity Zones will allow your to defer the gains and eliminate part. The downside is that it is complicated to qualify and may be more head ache than it’s worth trying to own direct real estate such as a single family home. Most people opt for a syndication or real estate fund that has navigated the legal and tax complexities of an Opportunity Zone. You would just invest passively.

Another option is to use something like a deferred sales trust, which is essentially just a creative way to do an installment sale.

Neither option is cheap or easy to accomplish alone.

Depending on how large the tax bill might be, it may be easier to just pay a little tax to have the flexibility to do what you want. Especially if these fall into LT capital gain rates.

I don't THINK a deferred sales trust will work for this because you can't sell securities on an installment sale. I believe there is an exception for appreciated assets that can be sold on a public exchange.