be your bank

[George Calbert]

I am looking to see what people know or think about beyourbank.com 

They have an elearning about whole life insurance and how that fits into a financial plan. I was wondering if anyone has went down this road and what are peoples opinion on this topic. Thanks in advance.

[Ade Adesuyi]

I have been using this strategy for the last year and I'm still at the stage where I'm building up my cash value. I was dubious at first, and was totally against whole life insurance in general. So I researched this for about 7 months before I went ahead. The only way this would work is if you setup your policy the right way and go with a company that suits this strategy. You're basically buying this policy for the life benefits, and not the death benefit. I can care less about the death benefit. You want the least amount of your premium going to the death benefit, and a good portion going to cash value. When I pay my premium I have money immediately available to borrow from in year 1, while the whole amount that I have put in already is continually growing with interest and dividends. After I started my policy I called customer service to make sure this was the case. But it's absolutely crucial you educate yourself first, so you no how the numbers are supposed to work, and so a financial advisor doesn't try to screw you over. Buying whole insurance is like buying a property; it's all about how the deal is set up in the beginning that predicts whether is a good deal or not. It takes 7-10 years buildup, and you pass the amount that you put in at that time also. I'm using this strategy for retirement, for real estate, and for an educational fund for my kids. I'm steering clear of the stock market or any conventional retirement vehicles like IRA or 401K or anything attached to the stock market, because if the bottom falls out, I'll be fine.

[George Calbert]

Thanks for the feedback. Did you use this as a way to accumulate money to get into investing into real estate or is this where you stow some of your profits? 

In your experience what are the benefits and drawbacks of this type of life insurance? 

[Ade Adesuyi]

I wanted to use it so I wouldn't have to use a bank for funds in the future.  Also, you can really make your policy snowball by taking your profits from your real estate, and feeding it right back in to the policy.  All the money I put away for future expenses on my buy and holds, I'll stash into the policy so it's not just sitting in a bank account not getting an appreciable rate of return.  If the banks close or have bank holiday, I'll always have access to cash.  The funds in the policy are pretty liquid; it takes 7-10 days to get the funds disbursed.   Other benefits are that you can use it as a retirement vehicle and pay yourself from the cash value as a policy loan (which is NOT taxable).  So, you can use the cash value and all interest accrued over time tax-free (because your taking it out as a loan).  You can also borrow from it for your kids college fund, wedding, first car, etc.  The idea is you pay yourself back and save part of the interest cost you would have paid by using a bank.  You can pay back the loan on what ever time schedule you want.  It might be 2 yrs before you make a principle payment (you just have to pay accrued interest on the loan annually).  You can use this as a legacy vehicle for the family.  Your policy is not subject to the unpredictability of the stock market; if stock market crashes, your policy will still grow at a conservative rate of return with dividends.  You can start borrowing against your cash value from month 1 of starting your policy, without affecting the rate of return of the entire amount in the policy.  You can transfer over your policy to your kids.  I believe it's not subject to lawsuits or divorce settlements. (I'll have double check).

Some of the downsides are that you have to wait 7-10 years to accumulate enough funds for it to be useful for big loans.  You'll have to educate yourself first, so you have the policy set up in the right way.  You'll have to find the right financial advisor that understands this strategy, because most never heard of it before or not a fan of it because it cuts into their profits.  You have to be relatively healthy to qualify for one of these policies.  You cannot put higher than a specified ratio of money into the cash value because you'd be in danger of reaching what is called MEC (modified endowment contract).  This is where the IRS starts taxing.  Stay below this line and you'll be fine.  The financial advisor will be able to set your maximum amount without crossing the MEC line.

[Ankur Sethi]

So I purchased a policy a few years ago as a good savings vehicle. I didn't want to buy term and invest the difference.

When I purchased it I was not thinking about real estate. It has turned out to be great for it. I went with Mass Mutual which is one of the biggest companies out there (around $500 billion in assets). Whatever the company, if you do it, go with a mutual company. That means the company is owned by the policyholders. No extra shareholders for taking profits. There are a few big mutual companies and now companies have policies which give you more cash value up front. I assume the trade off is less investment returns.

After a few years the cash value is almost what I have put in so I took a loan at 5% for the downpayment on an investment property. I can pay it back and if I don't it only reduces the payoff value. So some people use their cash value to fund interest only loans.

The 5% gets paid to the company, it is not like an IRA loan. But I have the freedom to not have to pay it back (unlike an IRA loan). I plan to pay it back and once it is replenished take another loan for another investment property.

I have used it for my refinance and this investment property. It is a great way to have your own funds available when you need it. Loan officers are fine with it, it is not common for them to see, but absolutely no issues with them. Plus loans do not affect dividends. They pay 7% (The way they pay 7% is complicated, face value plus number of years you have the policy, etc).

Anyway there are other places to put your money but I think it is has worked out for me.

[Dmitriy Fomichenko]

Generally, it is bad idea to mix life insurance and investments together. If you need insurance - buy enough coverage using term policy, but don't give your savings to the insurance company, the returns are low and the fees to keep it up are high, plus chunk of your money is going to pay the commissions of the salesperson who sold you the policy.

There are plenty of investment options available where you can be in control, not the insurance company. One of them of course is a real estate. If you wish to be passive - you should investigate trust deeds, I like those a lot because it give me the opportunity to passively earn 9-12% on my money.

[Victoria S.]

Originally posted by @Ade Adesuyi:

I wanted to use it so I wouldn't have to use a bank for funds in the future.  Also, you can really make your policy snowball by taking your profits from your real estate, and feeding it right back in to the policy.  All the money I put away for future expenses on my buy and holds, I'll stash into the policy so it's not just sitting in a bank account not getting an appreciable rate of return.  If the banks close or have bank holiday, I'll always have access to cash.  The funds in the policy are pretty liquid; it takes 7-10 days to get the funds disbursed.   Other benefits are that you can use it as a retirement vehicle and pay yourself from the cash value as a policy loan (which is NOT taxable).  So, you can use the cash value and all interest accrued over time tax-free (because your taking it out as a loan).  You can also borrow from it for your kids college fund, wedding, first car, etc.  The idea is you pay yourself back and save part of the interest cost you would have paid by using a bank.  You can pay back the loan on what ever time schedule you want.  It might be 2 yrs before you make a principle payment (you just have to pay accrued interest on the loan annually).  You can use this as a legacy vehicle for the family.  Your policy is not subject to the unpredictability of the stock market; if stock market crashes, your policy will still grow at a conservative rate of return with dividends.  You can start borrowing against your cash value from month 1 of starting your policy, without affecting the rate of return of the entire amount in the policy.  You can transfer over your policy to your kids.  I believe it's not subject to lawsuits or divorce settlements. (I'll have double check).

Some of the downsides are that you have to wait 7-10 years to accumulate enough funds for it to be useful for big loans.  You'll have to educate yourself first, so you have the policy set up in the right way.  You'll have to find the right financial advisor that understands this strategy, because most never heard of it before or not a fan of it because it cuts into their profits.  You have to be relatively healthy to qualify for one of these policies.  You cannot put higher than a specified ratio of money into the cash value because you'd be in danger of reaching what is called MEC (modified endowment contract).  This is where the IRS starts taxing.  Stay below this line and you'll be fine.  The financial advisor will be able to set your maximum amount without crossing the MEC line.

 Thanks so much for this detailed rundown! Can you or anyone offer some actual numbers - for example how much did those 7 to 10 years of accumulation time cost you ? Opportunity cost is a huge factor when considering this type of arrangement.

Going with a 45 year old healthy person - what are premiums - how much do you stand to gain in short an long term given some hard number assumptions?

Very appreciative of this discussion!

[Olivia C.]

Search on Google using the words Nelson Nash and Infinite Banking.  Do the same on YouTube.

You'll learn lots.  Look for examples of how the numbers work on YouTube.  I was very impressed.

I also liked the book Bank on Yourself.

This strategy of using whole life insurance with specific riders is a powerful tool.  And like all powerful tools, it must be used carefully.

[Thomas Rutkowski]

Originally posted by @Victoria S.:

 Thanks so much for this detailed rundown! Can you or anyone offer some actual numbers - for example how much did those 7 to 10 years of accumulation time cost you ? Opportunity cost is a huge factor when considering this type of arrangement.

Going with a 45 year old healthy person - what are premiums - how much do you stand to gain in short an long term given some hard number assumptions?

Very appreciative of this discussion!

Hi Victoria,

You can check out some numerical examples of how this strategy can be used in one of my old blog posts.

https://www.biggerpockets.com/blogs/7595/47651-are...

The answer to your question depends on one big question: Do you already have money that you are using for real estate investing? If the answer is yes, then you can easily begin to migrate it over into a high cash value policy that you can leverage immediately. You concern about opportunity cost is moot because your money can be working in two places at one time. You will be making more than if you took your cash and invested it only in real estate. 

If you don't have money, then, like everyone, you must begin a savings plan. A high cash value life insurance policy is as good a place as any to put your savings. 

Be wary of Infinite Banking and Bank on Yourself. Their practitioners don't design policies optimized for cash value. They leave room under the "MEC" ceiling for you to "pay interest to yourself". What this really means is "pay more premium into the policy". If there was room under the MEC limit to put more premium into the policy, it should have been done up front.

Policy loans are loans against the cash value. As such the loan is from the insurance company, not your own cash value. You are paying them back, not yourself. Thus, if you don't properly fund your policy with the maximum cash allowed, you don't have as much money working in two places at one time. You want to buy as little life insurance death benefit as possible for your premium.

To illustrate what I mean... If 80 cents of every dollar of premium in one of my policy designs is going to the cash value, then you essentially have 80 cents earning interest/dividends and a credit line of 80 cents. If you take a loan and invest it, you technically have $1.60 working and earning interest. (Very similar to BRRR strategy). But in a poorly designed policy maybe just 60 cents of every dollar is going to the cash value. If you borrow against this and invest it, you only have $1.20 working and earning interest.

I hope this makes sense. You have to have a pretty firm grasp of how life insurance works to understand this.

[Jay Dimacali]

Hi @Ade Adesuyi  It's been a couple of years and I wanted to know how it went with your plan.  Were you able to borrow the money and use it to invest?  How was it dealing with the insurance company and getting your money out?  I'm thinking of using this myself and I wanted to know your experiences.  Thanks.

Jay