Using whole life dividend paying life insurance arbitrage

[Stoney Pitzer]

Looking back I see this topic was discussed about 10 years ago.

Recently it has come up in some podcast I have listen to. I'm curious if anyone has truly vetted these policies. The idea of creating a investment arbitrage is intriguing.

Any new opinions?

[Thomas Rutkowski]

Its not the policy you need to vet. This will work with any permanent life insurance policy, not just whole life. 

The concept is very simple: if you can put your money into an asset that will grow at 6-8%, and you can get a credit line against that asset at Prime, then anything you do with that credit line is adding value on top of the original asset. YOU create the arbitrage by making sure your investment return will be greater than your cost of money. Its the same as when you use bank financing to buy an investment property.

What you need to worry about is whether or not your policy is properly designed to maximize the cash value. The cash value to premium ratio based on the first year premium should be about 85%. And never pay a lump sum premium in the first year, you're shooting yourself in the foot.