Use your own Life Insurance Policy to invest in real estate?

[Joshua Milam]

Has anyone borrowed from their life insurance policy or used it as collateral to invest? I've had a few people that said this is a great strategy and to make sure I have the policy setup correctly. Working on getting quotes now. From what I've been told, a universal life policy is the best route. Looking forward to your guy's views on this.

[Mike S.]

While there is a front loaded fee that takes a few years to absorb, on the long run (10+ years), by using a life insurance with your other investment, you will increase your return substantially.

You can do that with a whole life insurance or an index universal life insurance. As long as you maximum overfunded them, both will work. A WL will have lower but constant return (in the 3 to 5% IRR range), while a IUL will have some years at 0% and some years at 10%+ or in between. On average you can expect a long term IRR on IUL in the 4 to 8% range.

What is great with cash value life insurance is that when you take a loan collaterized by its cash value, you are not taking money out of your policy and the whole value continues to grow. Also if you use a third party lender (like a bank) and use the loan to invest, you can deduct the interest of the loan as investement expense.

Last you get a good life insurance for your family if you die early and the proceed are tax free. It is also asset protected against creditor.

Look in this forum, it has been demonstrated that you will make more money on the long run using a cash value life insurance with your other investment, than investing without it in the mix. You are making less money the first few years to absorb the front load fee, but after 7 to 10 years, you are getting ahead of a scenario where you did not use it. So it's a long term play, but well worth it.