7702 Plan for Investing

[Jason King]

Hi BPers, 

I was at my local REIA meeting last night and we got on the topic of creative financing. Someone brought up a concept I had never heard of before, 7702 plan. The way it was described is this is an insurance plan that you can buy that after 6-7 years of premium payments you can borrow against it and invest, with the profits being tax-free! You can see why my ears perked up at this point. After a quick google search, it seems that there are a lot of people advocating AGAINST this type of plan, though mostly if it is being used as a retirement vehicle. I am curious, has anyone here ever heard of, or even better, have used this as a way to creatively finance any deals? I am curious to see what people have to say about this one.

[Bryan McCloskey]

Hey Jason...

Great question. Tom is spot on with his explanation. The "7702 plan" simply refers to the tax treatment of life insurance cash values. In mainstream media, whole life insurance gets a bad rap...but when astute investors learn more about it, and recognize the benefits attributed to their dollars housed in the cash value of life insurance, they tend to perk up (kinda sounds like what happened to you at the meeting recently!)

For full disclosure...I personally use Whole Life Insurance as a house for most of my personal and investing capital...and I have used the loan privilege for both debt refinance and real estate investing purposes. Day to day, I run a successful business teaching folks how to properly apply these principles to build and use their own policy based on their investing style.

I'd agree with Tom that the guys who are talking about it certainly have wrapped their head around it...and can shed some more light on it for you.

I'd want to add that these policies are WAY more flexible that most folks think. When built correctly (incorrectly built policies have given the whole product line an unnecessary bad name) they are flexible to absorb more capital over time (like when your tenant pays rent or your investment cash flows back to you), they are flexible to require less in down years, and after a few years of moving dollars toward them, they can be "turned off" either temporarily or permanently. I also wanted to comment on your first post and add that, in a properly designed policy, you will CERTAINLY have access to a LARGE MAJORITY of your dollars in year 1....and in many cases, you can overcome the insurance costs within a few short years.

There is a cost to building an insurance policy to strategically use and house your dollars, but that cost can be well worth it when looked at as a tool to effectively build your wealth, and it can be overcome rather quickly!

If you wanted to learn more, just ask...
or, even better...check out some of the resources we have online:

Video about it:
https://www.youtube.com/watch?v=HUihEMYCHFA

A Website for more info:
http://beyourbank.com/

Podcast about it with the Real Estate Guy Radio show:
http://media.blubrry.com/wealthstandard/www.podtra...