All Forum Posts by: Thomas Rutkowski

Quote from @Joshua Milam:

Has anyone borrowed from their life insurance policy or used it as collateral to invest? I've had a few people that said this is a great strategy and to make sure I have the policy setup correctly. Working on getting quotes now. From what I've been told, a universal life policy is the best route. Looking forward to your guy's views on this.

Hi Joshua. A customized Whole Life policy with a PUA rider is best for the infinite banking strategy. An Index Universal Life could also be used but has more risks. If you want to do infinite banking, I would recommend a dividend paying whole life structured properly. If you’re looking to create tax-free retirement income then IUL would be better. I work with real estate investors who use these policies and I take pride in structuring them properly. Feel free to reach out and I can help answer any questions you have. 

Hey, @Joshua Milam. This is an extremely polarizing topic.

Full disclaimer, I am no expert, but here's my two cents.

I personally love the idea, but conventional wisdom is a hard "no". Many people believe, and rightfully so in most respects, that Whole or Universal Life policies are a huge waste of money. These people will tell you to get a Term Life policy for much less out-of-pocket and invest the difference in a traditional brokerage account, which will earn you more money in the short term, but they do typically balance out over time.

The big proponents of the idea buy into the "Infinite Banking" concept and there are a bunch of posts about it on the BP Forums. Find more info here in this Millennial Investor Podcast interview with Chris Naugle, or read "Becoming Your Own Banker" by Nelson Nash.

The big things to note are:

1) If you don't already have a Whole Life Policy, it will take years to build up a high enough cash value to take a meaningful loan. At least 5 years, if not 10+
2) These loans are much better-suited to cover down-payments and renovations than to replace a mortgage
3) Make sure you are working with an experienced Insurance expert who knows what they are doing and how to maximize your policy for cash value vs death benefit

If you already have a whole or universal life policy that is not maximized for this, find an insurance expert and roll it into a better policy. (I use a Variable Universal Life policy with Ameriprise.) If you don't already have a Whole or Universal Life policy and want to use this method, consider instead taking out a loan against your stock portfolio (assuming you have one). These loans against your stock portfolio essentially serve the same purpose and carry similar interest rates. Note that you typically will need to have your portfolio managed by a Licensed Financial Advisor and have at least $100k in the portfolio to be able to do this. Again, consult with an expert as not all of these loans are the same and you want to make sure you're in the best one. Good luck!

Hey @Matthew Schellberg, speak with your life insurance agent or the policy provider to determine if you are nearing a point of 0% interest policy loans. It's common on a few different policy types, and a feature I look for when clients desire to use life policies to fund real estate. 

I suggest calling several local credit unions for HELOCs, and also looking into the national providers to find the best rate for you. Just be transparent with them when you outline your goals and use of funds. If you have a taxable investment portfolio, then I strongly recommend looking into using a Margin Loan against it first, before you go with a HELOC. Rates currently start at 5.67%-6.33% which is much better than any HELOC on the market.

Quote from @Caroline Gerardo:

HELOC for investment property is expensive and 80% of total value less what you owe. Rates start around 8 cap at 22% okay for short term investment that you intend to pay it in full in 12 months or less. HELOC costs anywhere from $500- $1400 to set up. FEW lenders doing investment HELOC so no big box bank will touch them. You have to qualify full documentation soooo the whole novel.

Life insurance loan, need the exact rate, number of months, and terms. Five percent for how long? What is needed to be approved?

No matter which way you go if you are using a loan you have to provide proof of the payment, term, and funds. 

 There are no payback terms on a life insurance policy loan. It's all collateralized by the death benefit. Rates vary by carrier and variable vs. fixed, but variable rates are around 6% right now.

@Thomas Rutkowski

Great points here but the example taken here is for someone in the 40% tax bracket, is IB still relevant for someone in the 24% tax bracket?

especially given when other conventional banks are already offering 4% in savings account interest (risk free)and even 5% in CDs and the treasuries and munis are also good tax shelters.

I researched this concept over 10 years ago and did not find any merit in doing it. Sounds good on paper but many variables.  If you are going to do it you better start young since it takes years to get benefit even if you front load it (first you have to make enough to offset your fees).  I'm not going to put cash into an account where the investments are not controlled by me.  Rather I will spend my time, energy and money in getting double digit returns by investing in what I control like mortgage notes, private landing, rentals, syndications, etc.

@Jeffrey K. That shouldn’t be the case. If you want to be able to reuse the policy over and over, it’s better to.

If you don’t pay back the loan, you’ll need to make sure the policy won’t lapse down the road. An in-force illustration would help with that.

Hey Everyone,

To piggyback on the discussion here, I started an IUL policy with the intention of borrowing against it in the future. However, my understanding of my policy is that the loan needs to be repaid within the same calendar year to avoid reducing the cash accrual. Is this the case for all policies or just mine?

Thanks!

@Dee Dee Huey  These policies are only available through agents who are "licensed" to sell them.  

However just because someone is licensed to sell it doesn't mean that they have the knowledge, education, or training to set these up in a way that they will grow and be usable.  according to people in the industry that I trust, less than 5% of agents who are licensed to sell life insurance possess the knowledge and understanding to set up Cash Value policies that are truly a benefit to the owner.  

My current favorite IUL is through North American, and I have 2 companies that I am using for whole life Lafayette and Mass Mutual.  But remember these change constantly.  Right now my agency has access to over 60 carriers all of them "fighting" for top spot.  

These policies are definitely long term strategies, they are not fast but they are extremely safe and they offer other protections for the money that you invest in them  I use the word invest, but these are not investments.  

Yes they offer available cash value on day 1 but it is a percentage of the money that is put into them.  If you need to have access to the majority of your cash on day 1 then the policy isn't going to perform as well. These policies should be funded with money that you don't "need" access to.  If you need the access maybe a different strategy is better. 

Remember if you are putting in $10K/ year it isn't going to grow over $10k in year 1. Then in year 2 another $10K goes in you aren't going to have access to $20K.  From the standard 10pay policies that I have seen which are set up for the Infinite Banking Concepts the "breakeven" isn't until year 11 in most cases.  Which mean that if you have paid $10,000/year for 10 years, that $100,000.  You wont have access to the full $100K you have put in until year 11.  This is what these policies are illustrating and what is most likely.  If they grow faster than that, that is fantastic, but don't plan on it. 

You will have access to a portion of the money that you put in each year but it will not be all of the money. 

This illustration is for learning purposes only and not a direct representation of an actual policy.  This is only for educational purposes and all that other liability jargon.

Anyone who is showing you illustrations over about 5.5% growth is just trying to get your money, and you should always run from something that sounds too good to be true.  

I don't want my whole post to sound too negative, there are a few threads on BP where Be Your Own Bank and Infinite Banking are discussed and there are lots of people who have a very disgusted taste in their mouths.  I love my cash value policies, they have helped me with a few different investments that I have and they will continue to perform for me through the rest of my life and set my kids and my grandkids up after I am gone.