Have you ever heard of using IULs to fund your BRRRR?

Question

There is this guy on IG @mr_brrrr and he makes a lot of content talking about using whole life insurance policies to fund a BRRRR strategy. Has anyone ever heard of doing the same thing with Indexed Universal Life insurance policies?

Mike S. · Answer

In my view Index Universal Life insurance are better suited than whole life when used in conjunction with real estate investment. Personally I am using exclusively IUL for that.

Of course you need a properly set up Whole Life or IUL for maximum cash value.

On the long run, a IUL will have a better IRR than a Whole Life. However the IUL will have much more volatility and some years you can have a 0% gain while other years you can have double digits gains. If you are using the infinite banking concept for regular consumption purchase, you need a policy with steady return as you can not absorb the volatility, so a Whole Life is much more suited for that than an IUL. When you are using high cash value permanent life insurance collateral for investment purpose like real estate, the volatility can be absorbed much easier as you are producing cash flow with your investment. The gain of your life insurance is just the ice on the cake, so you want to maximize the long term IRR. The long term IRR of a properly set up Whole Life policy is in the 3 to 5% range, while you can expect 5 to 8% IRR with an IUL.

Thomas Rutkowski · Answer

@David Wilhite

Despite all the hype about Whole life vs IUL, they really are very much the same. They are both permanent life insurance. They use the same actuarial tables. The insurance companies invest in the same types of assets (mostly bonds). Same cost of insurance. The biggest difference comes down to the way the dividends are credited.

In all policies, the insurance company invests all the premiums into their general fund. The general fund is invested into bonds, preferred stock, mortgage-backed securities, etc. Nice conservative interest-bearing securities. The net returns from this are allocated to each policy as a dividend. In the case of an IUL, what would have been the dividend is spent on hedging. The goal of the hedging is to try and capture a premium over what their bond portfolio earned. The hedging is the reason that an IUL has a cap and a floor... they use options to protect downside and capture upside movement in an index.

When it comes to The Double Play i.e. leveraging the cash value of a maximum over-funded policy to invest in real estate, the higher return potential of an IUL improves the overall performance of the business model. A universal life policy also allows for much greater flexibility to increase and decrease the death benefit to allow more premium in the policy.

David Wilhite · Answer

@Thomas Rutkowski

🤯🤯🤯 Ok wow thanks! That is some great context and a very well informed opinion. I like that there is even a name for the strategy/business model: double play.

I'm reading into Doug Andrew and the LASER banking method. It's all very fascinating to me, I can see real estate investors among others being able to really benefit from ideas like these.

Matt Ruttenberg · Answer

IULs are a more versatile design than the Whole Life and is a bit more flexible.  Whole Life is a fixed ROR, where the IUL has more potential for a higher ROR because of the caps.  The floor is usually 0% and usually has a cap of around 10% these days.  Think of WL as a more conservative option.

You're not looking to beat the markets with these either way... it's to fund other investments like RE or other businesses.

The basic concept is to "squash" the death benefit as much as possible with certain design options.  The IUL is technically a bunch of 1 year renewable term policies over your life time.  The Whole Life uses a term insurance rider to help with the design to keep it "tax-free" (it can get a bit complicated here).

At the end of the day, these are what you need to look for in either option:

1). Low death benefit - Cash Value is the priority... death benefit is second.  Mainly becuase the goal is just use the platform for the versatility and tax status.  Think of the death benefit as a bonus.

2). Loan provisions - needs to be a net 0% loan, or have a decent "working loan" where your cash value is still earning interest while you're using it to purchase more REI.

3) Strength of the company - very important to make sure they maintain their rate caps, loan provisions, etc.

There are a few other smaller things to look for, but it narrows down the companies to maybe 3 that are worth looking at, but this is the basic concept.

David Wilhite · Answer

@Matt Ruttenberg thank you very much this is excellent input!

I've been reading into infinite banking, velocity banking, and just recently laser banking. Seems like basically the same concept but with different vehicles.

I *just* got my insurance license so I'm exploring how to combine REI in order to offer investors a different look on wealth building and retirement planning.

David Wilhite · Answer

My guy this is GOLD!! Thank you for your input.

Have you ever heard of using IULs to fund your BRRRR?

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