All Forum Posts by: Matt Ruttenberg

To be fair, this information isn't accurate.  When a policy is properly designed, the commissions are brought down to a level that is more similar to term insurance.  An improperly designed policy is usually 3x(ish) that commission

Second, when properly designed, the fee (cost of insurance) is pretty level throughout the years, versus an AUM fee grows as the assets grow.  If you look at a properly designed illustration in the later years, the difference between death benefit and cash value is minimal, hence the insurance company is "on the hook" for very little, which causes the policy costs/fees to be lower.

Thirdly, I agree, the loan is much more important than most discuss.  You must have a net 0% loan, otherwise the cash value depreciates.  Even a net -1% or -2% can give you much less to use over time.

I do agree that these are not a replacement of traditional retirement accounts and investment vehicles. I also don't believe these shouldn't be the very first investment for ANYONE. It's a supplement to everything else, and a means to fund other investments (REI).

Most of the information you've mentioned are what is passed through blogs, and other media that just isn't true.  It's definitely not comparable to a straight Vanguard fund with little to no fees for self-investors, but these to have a place in the overall financial picture.  The overall tax strategy alone is enough to give it a second look.

@Xavier A. Malave
This is a fair question!

It's definitely good to contribute into the 401k as well, but I understand your question.  And for that much, you'd see some significant results.

You might even consider doing it for a short period of time, then revert back to the Roth TSP so you don't have all your eggs in one basket.

The policy needs to be designed properly, to enhance the growth of the cash value, which there are a handful of carriers that do that.  

Full disclosure, I own an agency, but Indexed Universal Life vs. Whole Life is the conversation you're looking for.  I personally lean towards IUL because of the flexibility.  It does take some time to get the policy working for you, but also depends on how you're funding it.  I would wait until you're able to contribute at least $500 a month towards it.

Also, the design of the policy needs to be optimized properly.  In short, the death benefit needs to be "squashed" in order to promote cash value growth.  Thats because the majority of the costs are based on the death benefit and could, in the long term, cost you 6-digits in lost assets to the insurance costs.

The other thing to consider is the loan provisions and how they are calculated.  You want to achieve a "net 0%" loan in order to use it's full potential.  

A few more details here, but this is a good start.

@Todd Goedeke

Ok I see which direction you’re going there… thanks for the explanation!

Question for you regarding the S Corp.  I'm a 401k administrator and yes, you can use an S Corp to fund a Solo 401k (can use Schedule C, w-2, K-1 as a partnership, or 1099 income towards a 401k...).  My question is what do you mean by saying "if you're an agent"?  I've seen folks create their own management company to convert the Schedule E income to Schedule C (or w-2 if it's an S-Corp), but how does being an agent help with that?  Always looking for strategies to help clients!

A few things on this:

1). It looks like the policy was set up properly to enhance the cash value growth.  Curious why you weren't able to use the cash value in it though?

2). I wouldn't do a direct comparison with your 401k.  The 401k is the investment that you'll most likely hold (or keep invested) for the long haul. The WL policy isn't the investment, but the catalyst to allow you to invest at scale. Yes, it earns some interest, but that's not the "final investment"... the real estate is. And we all know the power or REI is that someone else is paying down your mortgage + the capital growth of the property. So the WL policy allows you to scale that.

3). When using these policies, the idea is to use it as a form of lending, just like a fix and flip, private money, etc. The loan rate should be set up as a "wash loan", meaning the money is still invested even though be loaned against. But you should pay it off with a long term refi just like any other short term loan and pay off the loan. Wash, rinse, repeat. This allows you to scale your REI, which most likely excel beyond the 401k plan in the long haul. This is a very long term strategy.

4). I'm just noticing that this was a post from 2 years ago and curious what you ended up doing with it?

@Sterling Pompey

It’s a good long term strategy to fund deals. I think it’s important to think of this not as an alternative to investing, but as a viable way to pull funds for other investments.

The concept is to design a policy where the death benefit is “squashed” as low as possible, to promote cash value growth, and over fund it to certain maximum limits.

Once you have the cash built up, you can loan against your own policy to fund deals as cash… mostly small amounts in the beginning and larger amounts as the funds grow. Then refi out the investment property like any other private or hard money loan into a long term loan, and pay off the insurance policy loan. Wash, rinse, repeat.

In the long run, you’ll also have a tax-free retirement supplant to utilize if your diligent in paying off the policy loans.

@Jeffrey K. That shouldn’t be the case. If you want to be able to reuse the policy over and over, it’s better to.

If you don’t pay back the loan, you’ll need to make sure the policy won’t lapse down the road. An in-force illustration would help with that.

 Completely agree!  These strategies should be only used for investment purposes with buying an appreciating asset.  Thats why the dividend or rate you earn within the policy shouldn't be the primary deciding factor... the outside investment is the sole goal.

It's a great concept and if designed properly, can be very beneficial.  There two schools of thought with either a Whole Life Policy or an Indexed Universal Life policy... I'm a fan of the IUL personally because of the flexibility and a much easier design.  You can use it like a Fix n' Flip then refi out to pay off the loan... rinse, repeat.