All Forum Posts by: David Lewis

If anyone is still confused about the numbers, and they have honest questions or are genuinely confused and interested, I started a Q&A thread here, detailing the numbers and how it all works out: https://www.biggerpockets.com/forums/61/topics/274...

Hopefully that thread stays "clean" and I (or someone else) can answer your questions related to the analysis. 

Thanks!

Look. I don't think you're insecure. I don't think you're dumb. I think you just don't like or trust whole life insurance. It's OK. Don't buy it. Not sure what else to say about that.

I don't want to comment a lot on the other stuff regarding my business since it's not relevant here. The short version is, the new business is trademarkable whereas the old was not. Different business model. yada yada. 

And, you're starting to cross a legal line accusing someone of being a scammer when that isn't the truth.

This conversation is over.

Do you want to know more about whole life insurance, and how it compares to other investment/savings strategies? Want to see if whole life insurance makes sense IN ADDITION to real estate investing? Have questions about all of this?

This thread is for you. 

Lots of people have asked to see numbers and details about whole life insurance in other threads. No one has done a "deep dive" into whole life insurance, so I thought I'd do it. 

This information is extracted from a larger analysis I did on the topic. Some additional details:

Total annual outlay in both scenarios starts with $12,037 (this is from my own personal policy which is why the numbers are not exact. In other words, this is a real life example, not a hypothetical). 

Whole life insurance consists of base whole life + term insurance blend. Maximum additional paid up life insurance elected at policy issue. Custom report generated showing internal costs on whole life insurance, including annual costs and cost per $1,000 of insurance + CV. IRR on CV and DB also included:

Buy Term and invest the difference, with calculated annual costs and equivalent cost per $1,000 term + savings/investment. I adjusted the tabular values below to reflect a tax-deductible/pretax contribution, pushing the total outlay higher on this analysis. 

Average retirement account costs are pulled from the 401(k) Averages Book. The compounding interest rate mirrors the dividend interest rate for the illustrated whole life policy above. IRR on BTID CV + DB also included:

Calculated income:

Tax-free income draw from whole life insurance policy at age 65, 70, and age 75. Annuitization of cash value, reduced paid up insurance to keep policy in-force:

@ Age 65: $5,032/month

@ Age 70: $8,033/month

@Age 75: $13,085/month


Now for the BTID (BTSD) strategy:

@ Age 65: $5,155/month

@ Age 70: $7,861/month

@Age 75: $10,179/month

The maximum income from the whole life policy and BTID/BTSD strategy is about the same at age 65, but the whole life plan absolutely crushes the amount I could have withdrawn from a qualified retirement plan, like a 401(k) or IRA at age 70 and beyond. Also, I adjusted these figures to account for the RMD withdrawals at age 70 1/2.

*****

Infinite Banking/Circle of Wealth/Bank On Yourself/etc.

Some people want to know about the effect of taking loans against whole life insurance and repaying them with interest, thus creating your own personal financing system, which goes by a variety of different marketing names. 

I did not include a loan example in this analysis. However, the math isn't difficult. Any loan you want to take against the whole life policy is secured with the policy values, which are restored when the loan is paid off.

In other words, it's a secured loan at a very low rate of interest. 

The loan is given by the insurer at a current rate of 5%, and the cash value continues to grow as though no loan is taken against the policy. As interest is repaid on the loan, the insurer turns around and credits part of this to the policy's cash value. Dividends are paid as normal.

This analysis used a policy I own which allows non-direct recognition of policy loans.

When repaying policy loans, there is some additional "wiggle room" to allocate part of the repayment towards the purchase of additional paid up insurance, thus increasing policy values beyond these illustrated rates.

This is the "banking" aspect of this strategy. It is done because banks and brokerage firms do not offer these types of loan deals or terms.

*****

Hope this helps. The full analysis, and more details, are available on my website, which I am apparently not allowed to post here. But, if you're savvy, you'll find it somehow if you really need more information. :)

Thanks, and post up your questions below!

P.S. Trolls will be ignored.

Not correct on the insurance costs. In fact, I think I JUST WROTE that you can tighten up the costs.

No, I'm comparing a $200,000 home plus $1.5 million term (which is $1.7 million total) to $1.7 million in whole life. Since you're not getting a home with the whole life example, you get more total DB on that side. The outlay and total asset/DB are the same. 

Why are you assuming you put $200,000 into a whole life policy/UL policy and not get $1.7 million db? You do realize you can vary the DB and tighten the costs using term blending and other methods, right?

Explain actuarial science as if you were a 5 year old. Right. I'll get right on that. :)

Let me get this straight: you can't be bothered to read through the very detailed posts already posted, so you want one of us to keep posting the same thing over and over so that someone else can just complain, in essence, tl;dr. 

Let me preface what about to say with this: forget about whole life Adam. It's too complicated for you. I'm serious. Do not buy whole life insurance. This would be a very bad move for you.

The 5 year old verion (as a story only): Once upon a time, you bought a whole life policy, paid $50,000 in premium, total. You were in good health and had a good risk rating from the insurer, so your costs were low. In maybe 4 or 5 years, maybe 6, the premiums you paid in equaled the net CV in the policy. From there on out, the CV grew at a positive rate of return forever (or for as long as you held onto the policy). You worked it out that the IRR was somewhere between 4% and 6%, based on the non-guaranteed dividends and guaranteed interest rate from the insurer.

One day, you wanted money. So you borrowed it from the insurer, up to the total amount you had available as cash value. 

The insurer secured your loan with the policy and gave you a sweet interest rate for it.

You paid it back at whatever the interest rate was set by the insurer. The insurer then turned around and credited the interest back to you based on whatever their interest rate formula was. But, in addition to this, the insurer gave you the option of buying paid up additional insurance as part of the loan repayment. So, you paid interest to the insurer, in addition to buying additional paid up life insurance, which generated its own CV and dividend payments - forever. 

So, you got all or most of the interest on the loan back, depending on the specific policy contract terms of that particular insurer, plus additional monies that you could borrow against in the future. Rinse. Repeat.

Why did you do this? Because no bank or brokerage house gave you those terms and every dollar you earned (in whole life insurance) was guaranteed by the insurer forever and ever. 

The end.

@Mark Ferguson, forgive me if this sounds a little rude, but are you serious? This is going on and on, and you're making this way too complicated. At every step you invent problems and apply this weird sort of gorilla math because...I dunno...you have an axe to grind?

You buy a $200,000 home with cash. You have a $200,000 asset. 

PLUS, a term policy which you stated was $1.5 million. Combined, your total is $1.7 million for both assets. In other words, assume you died immediately upon purchasing both. Your heirs would get a home worth $200,000 and a term policy worth $1.5 million. Total cash in the bank/assets on hand would be $1.7 million.

Let me put it yet another way: If you tried to claim $1.5 million with the IRS under this scenario, how far would you get?

You don't have to be a life insurance salesman to figure that out. 

Now, assume you didn't buy the home and JUST bought the $1.5 million whole life policy. How much do you have? I'll tell you because you seem to be having trouble with addition: $1.5 million.

In the first scenario you are saying you have $1.5 million but you really have $1.7 million. 

Now, in the second scenario you have $1.5 million.

Everything after that was math applied to 2 uneven scenarios. So, naturally, you get two different answers. 

When you adjust the whole life scenario to equal the term plus a home, everything is equal aside from the fact that the probability of term insurance payouts is <1%.

So, you have a 1% chance of getting the $1.5 million with your home and term policy. Not the brightest move in the world, but definitely better than 0%. 

As long as you hold onto the whole life policy, your probability of payout is 100%. 

Now, do you want to persist with this nonsense or do you want to have an honest discussion about whole life insurance?

This is so bizarre.

Why are you setting up the example with uneven asset levels ($1.7 million for the house + term, $1.5 million for the life insurance only) and then inventing a $50,000 loss on the life insurance side? 

If you're doing an apples-to-apples comparison, you actually have $1.55 million at your death on the cash value life insurance side.