Whole Life Insurance for Wealth Building

[Dustin Somers]

Does anyone in the bigger pockets community have personal experience with a Whole Life Insurance policy or Wealth Maximization Account to help build their wealth and real-estate portfolio.

[Joe Splitrock]

Life insurance builds wealth for your family after you die. If you want to access that money before death, you are borrowing money from the insurance company that is secured against the cash value in your policy. There is a false message out there that says "be your own banker" using these policies. This is a half truth, because you are not borrowing from yourself or paying the interest to yourself, so you are not "being the banker." The insurance company is the banker and your cash value is just collateral securing the loan.

The other problem is you can't even borrow money until you have cash value built up, which takes years. Even after 5 years of paying in money, the policy usually has less accumulated than you paid in. The reason is because you are paying fees, sales commissions and premature death premiums. 

It is true that your cash value increases through investment over time. It just takes 5 to 10 years to gain momentum. The insurance company invests your money, but ironically they just put it into common investments such as the stock market, mortgage backed securities of even use investment firms to buy real estate. This leaves me questioning, why wouldn't you just invest in those things yourself, but without the fees?

The only way to actually get your money out is to either die (not ideal) or surrender the policy, which usually comes with penalties and taxes. 

No doubt these policies have their place, but more for high net worth people or estate planning (in my opinion). For an investor starting out, the policy cost can heavily burden your monthly expense. This makes it hard to save up for down payments or invest your money. 

Be aware the people who make the most money from these policies are insurance salesman or "financial advisors" as they have been rebranded. These people giving financial advice are heavily compensated to push these products, which means you are receiving biased advice. It is like going to a Ford dealership and asking the sales advisor if Toyota or Ford is a better vehicle or asking them if the warranty is a good investment. 

Get educated, but look for neutral sources instead of people selling insurance. People who profit from selling insurance will present information as educational advertisements. It is a sales person acting like a teacher, relaying their bias opinion as facts. 

Insurance is big money. The insurance lobby is second only to medical/drug lobbyist in the amount of money they spend. This buys influence to protect their industry and the massive profits they rake in.