Using Whole Life Insurance Policies to Finance Properties

[Gregory Stewart]

My first post into the bigger pockets forum. New/aspiring Investor doing my homework interacting with the forum each day. I thought this was perfect question to be my first post. Has anyone used a whole life insurance policy to help finance or pay for costs on investment properties. Has it worked for you or someone you know? Would you recommend a specific mutual policy?

[Mike S.]

I am using Index Universal Life to fund my real estate investments. It is a way to have your money work at two places at the same time, and on top of it you get financial protection for your family.

If you use a third party lender, you can get arbitrage on the loan rate vs the policy rate, and you can also deduct the cost of the interest as investment expenses.

It is a long term play, as the front loaded fee will need four to six years before you get ahead of investing without the use of a maximum overfunded permanent life insurance.

For whole life insurance, there are mainly four companies that I would recommend. Some other may appear better on paper, but they don't have enough history to back it up. You can expect an IRR of 3 to 5% with very little variation.

For IUL, I like 5 companies. A conservative IRR of 5 to 7% is very reasonable but there will be wide variation years after years of the yearly yield. The good point about IUL is the worst you can get one year is 0. There is no negative yield like in the stock market. And if you spread your indexing over different crediting methods you can insure that there will never be a 0 either.

These products are complex and need a good agent who knows how to optimize your policy to minimize the fee (and his/her commission) and maximize your return. Depending on your goals and funding scenario there are different ways to set it up. The best being to put the same amount of premium for at least 5 years. The more confident you are in your funding scenario, the better the optimization can be done. Even with a set funding, there is still a lot of flexibility.

Permanent life insurance seems to be a very heated subject with some people saying that it is the worse thing on the market, while other like me and a lot of high net worth individuals and banks are using it as a very powerful tool to increase their return while gaining a lot of tax, asset protection and estate planning advantages.