Lump Sum Whole Life Insurance vs. Simply Invest

[Eric Lunsford]

All - there is some great information on here regarding utilizing a maximum overfunded whole life insurance policy to then take a loan out and invest in rental properties. One question I can't seem to answer or grasp onto is if you can open a policy with a lump sum? 

I'll give you context, I am taking about $30k equity from my personal residence. I'd like to utilize that to buy investment properties. It sounds like a benefit could be opening a whole life insurance policy to "triple play" the situation but is it possible to open a policy with a "lump sum" rather than a premium (or maybe in addition to premium.) 

What would my options be or would it be better if I just invested "normally" for now and keep the insurance policy in mind for when I have more cash flow coming in? 

Any advice from those who are knowledgable and have used the whole term policy is greatly appreciated!

Eric

[Thomas Rutkowski]

@Eric Lunsford

Don't do it. The quick explanation is that the death benefit is a function of the first year premium. The policy issue charge is a function of the death benefit. The policy issue charge is assessed annually during the surrender charge period of your policy. 

So by dropping in a lump sum instead of spreading it over 5 years, you will have a death benefit that is 5X higher. The costs will also be 5X higher and will continue long after the premium is paid. This consumes a lot of the extra cash value that you had at the beginning.

If you have a lump sum, the optimal funding period is 5 years. That keeps the fees to a minimum while allowing your cash to go to work as soon as possible. You could do 10 years and keep the costs down even more, but you'll have less cash value because you missed out on the compounding interest in the early years.