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and BTID/BTSD strategy is about the same at age 65, but the whole life plan absolutely crushes the amount I could have withdrawn from a qualified retirement plan, like a 401(k) or IRA at age 70 and beyond.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.
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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.
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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.
