By Dr. Jim Dahle, WCI Founder
I recently wrote about how whole life insurance is a crappy way to get a permanent death benefit or decent investment returns. In recent years, there has been a push to use a whole life insurance policy for a different reason- for “banking.” It has been popularized as the “Infinite Banking Concept” or “Bank On Yourself.” There is a great deal of marketing and hype involved, and even some scams, but the basic scheme itself is pretty interesting.
Bank On Yourself by Using Life Insurance Policy
Instead of borrowing money from a bank to buy your next car or other large expense, you borrow it from your life insurance policy. You can pay it back whenever you like. But you actually never have to pay it back if you don't want to. Even for those, like me, who say “I don't borrow to buy cars, I just save up the money,” advocates like to point out that you may be able to save up the money more profitably inside the life insurance policy than inside the bank account (especially given current interest rates.) They say it's like getting interest free loans with an added death benefit.
Non-Direct Recognition
The key to making this all work is to get a “non-direct recognition” whole life policy. With a “direct recognition” policy, when you borrow money from your policy the insurance company first subtracts the amount of the loan from the cash value, then calculates the dividend on the lesser amount. With an “indirect-recognition” policy, the insurance company doesn't. Cool huh. If you have $100K in there, they'll let you borrow about $90K, but still pay you dividends as though there were $100K in the policy.
Paid Up Additions
The problem with most whole life insurance policies is that it takes forever to get any decent cash value in there. For example, a policy provided to me by a WCI life insurance agent as the “best” $1 Million non-recognition policy he could find [MassMutual Whole Life Legacy 100] for a healthy 30 year old male in New York, demonstrates that the cash value doesn't equal the premiums paid until year 12. I'll need another car before then! That's a pretty lousy way to “bank.” So we have to figure out a way to get the cash into the policy sooner.The way you do this is with Paid Up Additions, meaning you dump more than you have to into the policy, ostensibly because you want a higher death benefit, but in reality because you want more cash growing in the policy so you can “bank” with it.
Borrowing Money from Life Insurance Policy
After 3 or 4 years of paying premiums and buying healthy paid up additions, you've got a tidy sum of money in the contract. Now you can borrow it tax-free at a certain interest rate, say 5%. Now that 5% doesn't go toward your cash value, it goes to the insurance company, but since this is a non-direct recognition policy, the insurance company is still paying dividends, say 5%, on the money you borrowed, so it's a wash to you. You've got yourself an interest free loan. Kind of cool huh. Of course, borrowing money from your bank account is also an interest free loan, but proponents of Bank on Yourself like to point out your bank account isn't paying 5% interest. If you kick the bucket during this process, your heirs still get the death benefit (minus the loan amount of course). The insurance company doesn't guarantee death benefit increases each year, but they generally do.
Tax and Asset Protection Benefits
Insurance policies have four main tax benefits. First, you can borrow from the policy tax-free. You have to pay interest on it, but you don't have to pay taxes on it. That's of course no different than “borrowing” from your bank account or from the bank itself, but it is different from cashing out of an investment with capital gains. Second, money compounds in a tax-free manner within the policy; there's no annual capital gains or dividend taxes on growth. Third, the death benefit is income tax-free to your heirs. Fourth, if you cash out, your basis is determined by the entire premiums paid, not just the portion that went to “the investment part.”
In many states, cash value in your insurance policy is protected from creditors up to a certain amount. Those of us constantly concerned about being sued see that as a benefit. The money isn't FDIC insured like a bank account, but states generally guarantee up to a certain amount from insurance company insolvency.
The Downsides of Using Life Insurance to Bank On Yourself
You can understand why at this point people are often pretty excited about this whole concept. Higher banking returns and tax-free growth all combined with a “free” death benefit. There's got to be a catch, right? Of course there is. Let's talk about catches.
The “Load”
When you put $10K into your bank account, the next morning there's $10K there. When you pay a premium into a life insurance policy or buy a PUA, the whole premium doesn't go into the policy. Like with a loaded mutual fund, a small percentage of that money goes toward the costs of the policy and toward the commission of the salesman. If the policy is paying 5% a year, and the “load” is 10%, it'll take 2 years just to break even.
Loan Rate vs Interest Rate on Whole Life Insurance
In my scenario above, I used 5% for both the loan rate and the interest rate. It's quite possible that the dividend rate can be higher than the loan rate or vice versa. Obviously borrowing at 5% and earning 2% is a losing proposition. In the policy discussed above the loan rate is variable, currently set at 4%. The current dividend rate is below 6%. It's easy to envision a scenario where those numbers reverse.
You Still Have to Pay the Life Insurance Premiums
MEC Calculations Are Complicated
The point at which the contract becomes an MEC is influenced by the amount borrowed and the current dividend rate. With all these moving parts, it's not that hard to accidentally make the proceeds of your policy taxable. The insurance company and agent are supposed to ensure this doesn't happen, but there may be times when you may be required to unexpectedly pay back a loan or contribute more money into the policy to prevent it.
Source of Funds
You have to take the money from somewhere in order to dump it into a life insurance policy. Proponents often recommend pulling it out of your 401K, IRA, house (via refinancing or a home equity loan) etc. When it's pointed out that there are serious opportunity costs, interest costs, or tax costs to doing this, they finally settle down to “put your emergency fund and/or short term savings in it.” But for a doctor, how much money is that really? $10-50K? Maybe $100K if you're doing really well? Making an extra 4% on $20K is only $800 a year. Not exactly the difference between poverty and financial bliss for a doctor. It especially bothers me to see people recommending you stop contributing to a retirement account that provides tax protection, asset protection, and solid returns in order to buy more life insurance, that has nowhere near the same tax benefits, asset protection, or estate planning benefits. Risking your house to invest in life insurance seems even more stupid.
Takes Time to Get Money from Life Insurance Policy
Loans from an insurance policy are a bit less liquid than what I think an emergency fund should be. I've never borrowed from one, but I understand it's a matter of days to weeks to get your money from the company. That's not the place for an emergency fund. Perhaps if you know a big purchase is coming a few weeks early it could work.
Additional Complexity Borrowing from Life Insurance Policy
Everywhere else in the financial world additional layers of complexity favor salesmen and the companies they represent. Why would this be any different? In fact, as you search the internet, you quickly realize that any discussion of these comments quickly breaks down into the proponents who suggest you need their expertise to understand it, and the detractors, who don't seem to completely understand it. I couldn't find anything anywhere that seemed to be a straightforward, unbiased analysis. The sales methods and opaque nature all screams “SCAM” to me. That doesn't necessarily mean it is, but as a general rule good financial products are bought, not sold. If an extensive sales process is required, or if I can't explain it to my wife in less than 2 minutes, I try not to have anything to do with it. There's a lot of people in this world smarter than the average insurance agent and it doesn't seem to me that very many of them are banking on themselves. I can't believe it's simply a matter of bias or the word simply “not getting out.” Good ideas don't stay hidden long.
Purpose
The books and websites that most push this concept like to talk about buying cars, as if saving up to buy a car vs taking out a car loan is the biggest financial concern in the world. Most doctors can buy a decent used car out of last month's paycheck. Maybe save up for 3 months if you want a new one. You've got to think about what you're actually going to borrow money for. If you're going to borrow it to pay off credit cards, don't you think it might be smarter to pay off credit cards at a guaranteed “investment” rate of 15-30% than to buy a whole life policy? When is the last time you went car shopping? All the signs and ads I see are advertising 0% APR car loans. Why bother dealing with an insurance policy when the car dealer will give you 0% right now? A mortgage? Why pay “myself” 5% when I can pay a bank a tax-deductible 2.75%? It just doesn't pass the sniff test. I don't really finance much anyway, why do I need a “new, innovative” way to do so?
Ongoing Interest Payments on Life Insurance Loan
Let's say you want to take some money out of the policy and NOT pay it back. You still have to make the interest payments each year. My goal is to minimize my fixed expenses, especially the closer I get to retirement. If you don't make enough payments, not only does the policy risk collapsing, but that death benefit starts decreasing too.
I'm obviously not running down to the local whole life salesman to start banking on myself. I don't think you'll benefit much from it either. In my opinion, the downsides outweigh some significant positives. You're better off not mixing investing and insurance.
What do you think? Do you have a whole life policy you use for “banking?” Do you still feel like it's a good idea? Comment below.
Here is perhaps the most balanced analysis I have seen on this (by three professors at Lamar University)
EQUITY INDEX UNIVERSAL LIFE INSURANCE: REVEALING ITS HIDDEN ADVANTAGES IN VOLATILE MARKETS https://www.cis.wtamu.edu/home/index.php/swer/article/view/12/5
They conclude that the return by investing in an S&P index directly and also by purchasing term insurance and investing the difference in an S&P index would return more money than the Indexed Universal Life policy. But I find a few things interesting in their study. First, I’m not sure why they bother to look at average returns as opposed to actual with the S&P. They almost reluctantly admit that the real returns were lower. Second, they don’t consider the capital gains tax hit of 23.8% (probably higher in the future) that would eat at the S&P index investment. That makes the performance difference about 2% over that 30 year period. Third, I don’t believe they take into account the death benefit as a return. That to me is the potential game changer, especially when they compare term insurance. If it is a 30 year term policy and you die in year 31, it reverses the results completely, going from a death benefit of $199,000 for the term and $100,000 for the IUL policy, to zero for the term and $100,000 for the IUL policy. Finally, even though they cite sources from 2009, they only include market returns in their analysis through 2007. Doesn’t that load the deck in favor of the other two options? Their numbers are from September 1, 1977 to September 4, 2007. I don’t have access to the numbers if you adjusted that by 1 year (from September 1978 to September 2008), but I can compare (using the moneychimp.com link I provided above) 01/01/78 to 12/31/07 with 01/01/79 to 12/31/08. By just changing that 12 months, the S&P index return goes from 13.01% actual return and $1 growing to $39.19 to an 11.01% actual return and $1 growing to $23.12. By excluding the most recent major market correction, their analysis (with the tax hit) has the S&P investment winning by about 2% (which is remarkable since it doesn’t consider the loan and tax-free benefits discussed above). If you include market performance from 2008, I suspect their conclusions would have been that the IUL option wins.
The devil is in the details. If you have a contract/policy you wish to discuss, link to the prospectus. If not, then it’s all hypothetical.
Some ways the return is reduced include:
1) Not counting dividends. This is actually pretty routine. It’s only changes to the “index” that matter.
2) Sometimes the “participation rate” is less than 100%. So if the index goes up 10%, you might only get 6 or 8%.
3) There is often a cap. So if the stock market goes up 32% (like last year), you only get 10%.
At the end of the day, even with relatively routine stock market returns, your returns resemble those available with whole life insurance. It probably won’t be zero over the very long term, but it will be very different from that available for taking the risk of investing directly.
Also keep in mind it is possible to invest very tax-efficiently in a taxable account. You can tax loss harvest, donate appreciated shares to charity or leave them to heirs, etc.
After reading many of these ignorant comments on taxes, it makes me wonder if these people are purposely acting stupid about marginal tax rates to confuse other readers. looking at tax rates now, it’s humorous to read comments about taxes going up with certainty. I wonder who are the people withdrawing 500k+ from investments during retirement to be in the 20% LTCG tax bracket.
I highly doubt that the current tax structure will hold very long, it isn’t sustainable. The deficit, which was already ridiculous, will just accelerate its growth. Taxes will have to go up within a few years, as soon as the dream of skyrocketing economic growth fizzles like it has done every time the GOP has implemented a major tax cut and the next guy has to come in to clean up the mess.
Yes, taxes go both ways don’t they?
I just wanted to make 1 quick comment about this “salesman” issue.
I hear it all around and even on these comments that you can’t trust an insurance salesman.
Aren’t they the professionals here? Aren’t they the ones who actually study this stuff?
And if you say they are going to sell you something, so they have something to gain from you believing what they say, then the same thing has to go for any salesman, right? Or anyone that is gaining any type of monetary reward for their opinion?
Am I wrong on this?
If the salesman was paid a flat fee for advice (say $100 an hour) that would be one thing. But if they are successful in selling you a policy with an annual premium of $50K, they’re paid $50K. That’s the issue. You’re only paid if someone buys, and you’re paid a heckuva lot only when someone buys. It just introduces this massive conflict of interest.
Wow, I didn’t know how poorly I was being compensated by the insurance companies. 100%!!!! That would be awesome in comparison to Reality. [Personal insults to the WCI deleted.]
Perhaps you are being compensated poorly. This insurance agent, who writes a blog for his fellow agents, writes this:
https://theinsuranceproblog.com/061-life-insurance-commission-expose/
Other agents have used the same figures. Perhaps you’d like to take up your argument with them.
The next paragraph from the blog you posted says that an agent gets paid 2.5-3% for the portion that goes to Paid Up Additions. Now if a policy is designed like we do 60-70% will go towards paid up additions. This is dramatically different than 100% paid out in commisions.
Now for an economics lesson and a rant. The so what of this topic is irrelevant. If I bring in a $1, like most businesses in America 60% will go to Overhead and 40% will be income. Focusing on the gross revenue of any business means nothing. Furthermore markets will determine the value of any product and service. So if I bring no value or I steer people the wrong way the market will compensate for that and reduce the commisions that are paid out. That’s the way free market/enterprise works. You might not believe that since unfortunately your profession has decided to hand over the reigns to a Socialized Government which now compensates you as a physician on a rating system. This before long will move you out a job and replace you with a nurse practitioner who can read a chart and follow guidelines sent down from the board writing this all up at a much lower cost. Because isn’t everything based on cost?!!!! However I pray you and your collegues put your foot in the ground and say NO to all this but you better start now. Maybe you could focus your blog towards that, and I would be more an advocate for you in that pursuit.
It’s great that you have an opinion and I have a very large opinion too. However make sure not to confuse opinion with FACT. The next time you sit down and diagnose a persons financial position and get paid to do it let me know. Until then I will keep doing my job as a Certified Financial Planner Professional and you can continue as a Medical Doctor.
So, are you suggesting that commissions of 50-110% (or heck, let’s humor you and call them 20%) don’t create a massive financial conflict of interest from the salesman?
What if you went to a doctor, and instead of paying the $100 office visit fee, the doctor was paid 50% of the cost of any tests he ordered? Would you be concerned that maybe, just maybe, he might be ordering more tests than you actually need? This is such a bad idea it’s actually illegal in medicine. But it isn’t in financial advising.
If the vast majority of financial professionals would do their job (give great advice at a fair price) there would be no need for a blog like this one. Instead, firms advertise for “financial advisors” much like yours does (and I reference the page on your site describing the “typical candidate profile” for your job):
In career transition
Women
Sales representatives
Marketing professionals
Coaches/Athletes
Recent College Grads
Your firm wants people that are “coachable, competitive, and achievement oriented.” There’s nothing listed about, you know, financial expertise, desire to help others etc. It’s about sales. To make matters worse, your firm’s fees aren’t listed on the website. In my experience, that’s because they’re too high. Feel free to post the link to your firm’s fees if I’m wrong.
Thanks for researching our firm we are very proud of our 40 year history. By the way Integrity was at the top of the list for traits of an ideal candidate, you accidentally left that one off. We didn’t accidentally leave off financial expertise, it was on purpose. Unlearning is much harder than learning. This is obvious through the number of times you have gone back to the well of traditional investing that doesn’t work. If it did why are some many people having to leave “Retirement” and go back to work.
We are in a sales profession. Do you want me to say that again, we are in a Sales Profession. Why do you assume that is a bad thing? This is what makes are country great, if there wasn’t a need for things, there would be no need to sell them. This is why every Socialized country has failed. When you don’t know what people want through free market purchasing you don’t know what to produce more or less of. Try reading Biblical Economics by R.C. Sproul JR. it tackles this perfectly.
In response to how much someone is paid let me go back to my previous post. Free market/enterprise will determine the value of everything. The market will compensate for bad practitioners by eliminating them and the good practitioners will be rewarded. Consierge medicine is on the rise, why? It’s definitely not cheap. Why else would patients pay for this? People want to seek people who are highly qualified and they will pay to receive high quality. How much can they charge for this conseirge service?……As much as the market will pay!!! Is this bad? NO. If you think you are not being paid what you worth, then you are incorrect. The market says you are being paid what you are worth.
So if an insurance agent makes 500% than that is what the market says it is worth to do that job. You can argue against this as much as you want too but it will not change the fact that it is true.
While a salesman may be a noble profession, I prefer to get my financial advice from a different profession and recommend others do the same.
That’s what makes Free Enterprise so great! Thanks for the lively discussion.
You are missing a key point.
Let’s say someone puts in 10k every year into a life insurance policy.
And the commission is 60%. That doesn’t mean that you get paid 60% of 10k, it means you get paid 60% of the base insurance.
A whole life policy built for cash value has a base and a term rider. This is adjustable by the agent but if you want a good policy you are looking at, most likely 50-60%, of the policy being base.
That’s what it means to get 60% commission. It’s not 60% of total money it’s 60% of base insurance. That means on a 10k policy the agent gets paid $3,600 one time.
You will continue to put in 10k every year of which the agent will get a small residual but it’s nowhere near the first year payout. The first year is where the agent makes his money.
It may seem like a hefty chunk the first year but if you look at it overtime it isn’t that much. You are putting in 10k every year.
If you did that with a planner charging 1.5% a year you would be paying that 1.5% every year as your balance gets higher and higher (you put in 10k every year).
A fee based planner will charge you, let’s say, $150 an hour? So you get a few years of planning in until you hit the $3,600 dollar mark? Eventually, in both cases, you are going to be much much more than $3,600 for their services.
But the real point is that your fee is actually going to buy life insurance. In all other cases you are just paying some guy to watch your money. With whole life you get insurance and growth, your fee is actually going towards something that has value on top of your policy growth.
Are you suggesting that the money the insurance company uses to pay your commission is actually being invested for my benefit? I disagree. Look at the cash value after 1 year. It’s pretty much the amount you invested minus the cost of the insurance minus the cost of the commission. There’s no magic in there.
Your argument fails because you’re assuming there is no value in the advice given by the fee-based planner. “A few years of planning” is a valuable service to many people.
At any rate, the only guys I know who think the commission-based model is a good one to use for financial planning and investment management are those who make money on commissions. That’s a salesman model and, in my view, the worst possible model for getting your financial advice.
In fairness, there are doctors who recommend procedures for patients that have only marginal benefits or not needed, which allows them to collect money from insurance. Your argument is that the difference is that this is considered fraud in the medical world, and while I agree, I simply want to point out that there are unscrupulous medical practitioners out there so it’s important to get a second opinion and manage your own healthcare in the same way you would manage your money.
In the financial world, it’s best to have a CPA, a registered investment advisor, and an attorney assisting you. This gives you a number of different opinions.
Agree with White coat investor. Unfortunately, most industries are based on commissions so its hard to distinguish the good professional for the one who is doing it mainly for th money. To White Coat Investor: to they really get that much of a sales commission–1 years worth on the policy? Wow!
A minimum of 50% of the first year’s premium, yeah. I’ve been given ranges of 50-110%.
Maybe in some companies, but as a new producer with a company that has developed a policy designed for IBC, your numbers are wrong.
The commission is 100% of the base, NOT 100% of the 1st year’s premiums. For example, my first client’s policy starts with a $204k death benefit, plus a $25k term rider for 5 years to bump up the death benefit for a few years. Since it’s less expensive to pay annually, we’re going with $10k for each of the first 4 years, then it drops to about $4.1k/year, paid up at 90 (individual is male, 49 non-tobacco user).
The commission equals the base ~$4k one time, after that 2% of the base in years 2-10 before ending.
After the first premium is paid, the policyowner will have access to just under $6k immediately. Year two and three, after their premiums are paid he will have immediate access to roughly another $7.3k and $9k respectively. After 4 years ($40k in premiums) he will have guaranteed values to borrow against of just under $33k, and non-guaranteed CSV of about $33.5k with using dividends to buy PUAs each year. Of course the non guaranteed numbers are estimates and dividends are not guaranteed, but the company I work with has paid dividends every year since being founded in 1904. Of course they also have paid the guaranteed interest rate too…
Anyways, enjoying reading back through your blog and seeing other opinions. Being a working class guy and a vet, rather than wearing a lab coat gives me a different perspective than you and obviously some of your commenters, but I do appreciate the free exchange of opinions. Learning about the multitude of problems with the Keynesian economics we got taught in school, then learning about Austrian economics has certainly opened my eyes. Wish it would have happened 25 years ago though, when I was a much younger man! Cheers! 😉
Yes, the lower your commission the higher the return. If you’re to do IBC, minimize the commission by putting as little into the base and as much into the PUAs as possible. Discussed many times already in the 514 comments above.
I read the blog link published by White Coat. It seems that if an agent designed a whole life policy that supports a “life benefit” and in turn generates a higher internal rate of return, as compared to favoring a death benefit, the agent would get a much lower commission. I think this is true because I asked an agent from Paradigm Life how much he was getting from my whole life and he said it was closer to 15-20%. I have no proof if that’s correct but that’s what he told me.
Hopefully my insurance guy will structure my policy in my best interest.
Any examples of IBC/BOY on insurance company marketing material? They have compliance departments, lawyers & regulators to make sure materials are relatively ok. That the ‘educational’ materials on the concept do not appear on Mass Mutual, Prudential, etc paper raise a red flag for me but I haven’t done a complete survey. I’d also expect to see just about every tax preparer market this if it was legit (vs a liability).
Chris,
You are right there aren’t any insurance companies advertising IBC/BOY to the public. This is typical protocol for insurance companies. They promote their strength and diversity of products to the public, and they promote ideas of how to sell their products to advisors and agents. Also you won’t find many “tax preparers” marketing a concept they know nothing about. You must consider their jobs are Preparing Tax Returns and not being Tax Planners. That’s ok too b/c I don’t think most of us really want our accountants to be CREATIVE.
Here’s some resources on the topic if you are interested:
Blog on 401k’s and some things you might not have thought about before.
https://blog.fireyourbankertoday.com/is-your-401k-someone-elses-brilliant-business-plan
Article written by an economist on IBC who spent two years with insurance companies to determine the viability of the concept
https://consultingbyrpm.com/blog/2014/02/my-history-with-ibc-infinite-banking-concept.html
Podcasts in June and July with two different CPA’s discussing their history with IBC
https://fireyourbankertoday.com/infinite-banking-resources
Hi
After weighing the merits of whole life insurance I just purchased a policy earlier this year. I’m a doctor that has no relationship to the financialplanning industry. I will hopefully give you an update on the policy next year.
Please send regular updates. It will be fun to follow along. Want to submit a guest post? I can help with the writing/editing and we could do an update on it each year showing how it performed compared to the original projections. https://www.whitecoatinvestor.com/contact/guest-post-policy/
Wow! I can’t say I fully understood everything(in not in the finance industry) but I tried. What do you think about a whole life policy for your child. My thought process is, true it has a low return but it’s garuanteed. So if when my child was born I opened a policy(it’s cheaper cuz she’s so young) and put money in for the next 20 yrs, I would have a decent college fund for her. Now this may be better then an ESA, because if the market isn’t doing well when she goes to college, I have money that I could count on despite the fact that there are lower returns. Thoughts???
Thank you very much!
I think whole life insurance as a college savings fund is a terrible idea. First, you’re paying for insurance you don’t need. Second, you get the low returns (partly as a result of paying for that.) Third, you’re passing up the opportunity to get significant tax breaks from using a 529 and/or an ESA. Fourth, if you surrender the policy to get the cash value, all gains are fully taxable at marginal rate. If you borrow from it to keep them tax-free, you pay interest. Fifth, the guarantees on a whole life policy are quite low, usually less than inflation, especially over the 10-20 years most people save for college.
Does all this mean you should cancel your policy? Not necessarily. Unfortunately, the low returns and high costs are heavily front-loaded, so at a certain point, these may be worth keeping.
Something else to consider… a WL policy on your kids will be much less than on you, but still more than term. Kids are pretty cheap to insure… but, IF they ever develop something like diabetes, heart disease, cancer, etc. they may become un-insurable. If they already have even a small policy that parents or grandparents took out on them as a kid, they can’t be cancelled for getting sick. Just make sure it doesn’t lapse… and it should have flat rates for life.
I think buying insurance on kids is generally a bad idea, even if you love the idea of banking on yourself/infinite banking.
https://www.whitecoatinvestor.com/6-reasons-not-to-buy-life-insurance-for-your-children/
I can’t tell you how many readers have insurance purchased by their parents that they wish had been invested in a different manner.
Is that a joke? A 10,000 policy maybe. I bought a $350,000 policy on both of my son’s as soon as they got socials. I’m a cancer survivor and at 22 when I needed it I couldn’t get it. Sure would have been nice if my parents had bought a decent policy for me when I was young.
Each of their policies is $225/mo – $95 going to insurance and the rest cash. It was right on the MEC line. After 18 years I will have paid ~48k for them and their guaranteed cash values are 71k, non guaranteed is 76. They can use it for college or as a down payment on a house, or I can take the cash out if needed. Either way I made money by guaranteeing their insurability. Best financial decision I’ve ever made.
No joke here. You’re clearly a believer in whole life insurance as an awesome financial instrument. I disagree with you on that point but I’m happy that you are happy with what you have purchased. I really hate running in to people who are unhappy with what they’ve bought once they realize how it works.
You seem to be taking something bad that happened to you (becoming uninsurable) and rather than applying your effort and resources toward that problem, redirecting them toward an ineffective attempt to make sure the same thing doesn’t happen to those you care about. That sounds harsh, so let me explain.
First, there is no tragedy/financial catastrophe in just becoming uninsurable. The only tragedy/financial catastrophe is if you become uninsurable AND die while someone else is depending on your income. Buying insurance on your kids doesn’t prevent that “second half” from happening to you. What does? Well, getting to the point where no one else depends on you financially. That means a high savings rate and aggressive investing. Whole life insurance, of course, is not aggressive investing. In fact, saving on insurance premiums actually speeds your way to financial independence if that money is invested.
Second, even $350K on a kid isn’t going to do much, particularly for the typical reader of this site. When the typical reader of this site actually has a need for life insurance, not only is it best filled with term insurance (as it will be for a limited time period) but it will be for far more than $350K. More like $1-5M. In fact, by the time your kids get to the point where they have someone else depending on their income, that $350K will be more like $200K in today’s dollars. It just isn’t enough to actually meet their insurance needs should they become uninsurable. I mean, it’s better than the $20-100K I often see people buy on their kids for the same reason, but still not really enough to do the job you’re hoping it will do.
So in my view, you’re slowing your pathway to financial independence (which corrects the real problem) without actually preventing this problem from happening to someone else!
So while I don’t think IBC is insane, even if I’m not a big fan, I do think buying insurance on kids without an insurance need isn’t a great idea. Remember that on average an insurance company must be coming out ahead, so on average, insurance is a losing proposition. So the general rule is don’t buy insurance you don’t need.
But hey, if you’re already financially independent and you’d rather buy whole life insurance on your kids than a boat or a second house or whatever, knock yourself out. It’s your money.
My kids are uninsured and I will be soon too.
I feel sorry for you. My kids are my life and I will do anything in my power to protect them. Guaranteeing they never are put in the position I found myself in is more than enough reason to buy them their own policies. And please don’t confuse your readers, 350k is the first year benefit. It’s well over 1m by age 40. If they are still healthy they can buy more if they need to, if they aren’t at least I had the foresight to protect them and their children.
It’s a product, like anything else. Don’t financial advisors make a commission selling stocks, setting up 401k plans, ROTH, etc etc etc? I bought a product and i expect to pay for it. The difference here is I’m taking over the banking function in my life so instead of paying a company like Bank of America interest on my cars or home loan I’ll keep it myself. Banking is the most profitable business in the world, why wouldn’t I own one for my family?
I’m not sure why you feel sorry for me or my kids. We’re all doing just fine. We have appropriate amounts of insurance in place to protect against financial catastrophe. I hardly think a parent who avoids buying a financial product that makes no sense in their situation is somehow saying to their children that they don’t love them. That kind of an emotional argument is a frequent tool of whole life salesmen, but it isn’t rational.
Again, $1M in 30-40 years is just a few hundred thousand in today’s dollars, so while better than nothing, probably still not enough to meet a real insurance need for a high earner. It’s not that I’m anti-life insurance. I own two policies myself. But a big fat short term policy meets the needs of most (including me) much better than a smaller life long policy.
No, real financial advisors don’t make commissions. They’re paid for their advice.
Now you’re switching back to the bank on yourself/IBC thing, which I’m fine with people doing if they understand how it works and feel the upsides are worth the downsides. Your situation demonstrates well one of the downsides- you have to either be insurable to do it or buy insurance policies that don’t make sense (like policies on your kids.)
At any rate, if your IBC policies are a couple of $350K face value policies on your kids, than this either isn’t a big part of your financial life or you’re nowhere near financial independence. If the first is true, then it really doesn’t matter as I mentioned earlier- it’s your money, do what your want with it. If it’s the second, why in the world would anyone take your opinion about how to build/manage wealth over mine? (i.e. IBC clearly hasn’t made you wealthy.)
At any rate, you may wish to rethink why you’re posting on this 6 year old thread. There are very few people following it by email and very few who will read 500+ comments on a blog post. If your goal is to somehow convince me that you’re right, you’re likely wasting your time. If your goal is to convince someone else, you’re likely wasting your time too. If you want help, I’ll try to help you, but I think you know what you bought, you like it, you’re happy with it, and you don’t plan to change. So I wish you the best of luck with it. Just because I don’t agree with every decision you’ve made doesn’t mean you won’t be financially successful eventually. Many roads to Dublin and all that.
Thank you for taking the time to answer my question.
What about if I’m not sure if I want to use this money for education or something else(like a wedding or travel abroad), does that change the equation? Also if I need this money to be a garenteed amount, does that outweigh the potential tax breaks? What If when we need the money the markets in a downturn, even if it will recoup in a few yrs. it won’t help me pay. Thanx for your time.
Kevin:
I will have a rather long winded response, but may make things clearer. I, too, am a doctor. I have a patient that is in the financial industry. Yes, he is on commissions. No, I do not use him for my financial estate, but we always talk about finances when he comes to the office because he knows I “geek out” on stats and am probably more educated than 95% of anyone in the financial industry. He said my having a WL insurance policy set up this way gives so much flexibility for the future that I don’t realize how smart it was that I started one. He always has to run the numbers because every situation is different, but it is occurring on a more frequent basis with this clients that these hidden nickel-and-dime taxes will hit people much harder than they realize in disposable cash flow during the retirement years. Having the capability of tax free withdrawals via policy loans is a great “insurance” plan (bad pun).
If you are going to do this for grandchildren or great-grandchildren, the smarter move may be to an IUL policy. I have had conversations with Mark Orr, but never did a policy for my kids because I went through a divorce and it would have created a huge mess. These types of insurance policies follow different stock market indexes. there is a cap and a floor. Because it follows the price of the stock market (you do not get the added return of dividends, only the price movement), over an extended period of time you should do 2-3%/year better than a WL policy. And the expenses are shown up front versus hidden in the annual premium of a WL policy. Starting with a seven year old, if someone lived to the average age of 80, the expense of the policy would average to roughly 1% / year. And you get the flexibility of policy loans like a WL policy. Mr. Orr favored Allianz to set up these types of policies.
So, my policy. The good? I will be at premium = cash value at the anniversary of this upcoming year, which would be 4 years old. The bad? I tried to extrapolate how much are the annual fees/year to keep this policy active. As best as I could figure it, I estimate by holding until death it will cost about 2%/year to keep active. So, was this the best “investment”? No. But what it did do is be my bond substitute that will keep up with or slightly beat inflation, be there for my life, have a tax-free income via policy loans if I need it, and pass on to heirs estate-tax free if I didn’t.
Hope this helped
4 years actually isn’t bad to break even. I assume there were some paid up additions
It may be closer to 96% but I know it’s not far off. It was the second policy we did. My ex has the less favorable structure. Mine being second, he threw me a deal. Yes, it’s a lot of PUAs. Even from Year 1, going up to the MEC line, it was about 77-80% cash value compared to premiums paid. So, yes, it is possible to structure these favorably. Part of it is the agent, the other part is how the insurance companies interpret the MEC definitions. There can be a lot of leeway in that interpretation depending on the insurance company.
Understanding more of the nuances, there are ways of using direct recognition policies to look like non-direct recognition policies so you get the higher dividend credit each year. That’s an advanced course, and not for this thread but it always goes back to how it is first structured.
Kevin,
You are asking the right questions and as several have responded already there isn’t a one size fits all strategy. My wife (dentist) and I decided that we want to keep savings and investing separate. 529 plans use mutual funds which are investments and as you mentioned can lose money, up to 100% of your investment. Whole Life (not Equity Indexed UL) is a savings vehicle. Savings is somewhere you store money for a future event or expense and expect 100% of it to be there when you need it. This is 1 of 5 reasons I chose WL over 529 plans. If you care to read the other reasons here’s a link.
https://blog.fireyourbankertoday.com/5-reasons-i-chose-cash-value-life-insurance-over-the-529-plan
There’s a great case study if you like to read in a book called A Path to Financial Peace of Mind by Dwayne Burnell, MBA
I’ll go record a video doing a mathematical comparison and re-post here to shine more light on the two.
I don’t buy the saving vs investing argument. That’s just sales technique. For instance, the Utah 529 has a guaranteed option. It currently earns something like 0.5%, but no risk of loss.
Found it interesting, but not surprised that our government is wanting to go back and change the rules on these 529 plans. https://www.washingtonpost.com/business/economy/critics-pounce-on-obamas-plan-to-cut-the-tax-benefits-of-529-college-savings-plans/2015/01/23/43ea75bc-a2a8-11e4-903f-9f2faf7cd9fe_story.html
It is evident that the goal is to control everything we do and I know you see this in healthcare. Just another reason I don’t want to play their game. I know you know this but I will remind your readers who don’t. The insurance companies we are using are over 100 years old and predate the tax code and are not a creation of our GOV.
Let’s check back in two years and see which Republican controlled house of Congress implemented Obama’s idea to tax 529s. You seem to think Congress can’t change insurance laws as easily as 401(k) or 529 laws.
Thanks for the insight on the guaranteed fund I wasn’t aware of that. So it sounds like if you want to SAVE money into a 529 plan then that would be the only option. I’ll be glad to compare that in the video I’m recording later today to the guaranteed option in the WL policy.
I hope WL comes out way ahead, even the guaranteed option, at least for any time period longer than 5 years. My beef with your terminology is that (using your terminology) if your expense lies 15-20 years in the future, you should be investing toward it, not saving toward it. Let the portfolio do some of the heavy lifting so it isn’t all brute force saving.
I suggest you read the book (Infinite Banking Concept by Nash,it has a free PDF version on the net) twice and read it with an open mind, no biases (that’s a tough sell hahaha). Read the grocery store example more than two times and not just read but internalize it with an open mind.
“You finance everything that you buy. It’s either you take a loan and pay the interest to someone else or if you pay in cash then you give up the interest you could have earned otherwise”
I’ve read it. I don’t buy the argument that buying an insurance policy I don’t need in order to save up for expensive stuff is a good idea. Especially for people who climb rocks. Looked at the price of life insurance for rock climbers lately? But as I mentioned to you yesterday, if you want to Bank on Yourself or Infinitely Bank, knock yourself out. My path to wealth (make a lot, carve out a big chunk of it to build wealth, and invest it in a reasonable manner) seems to be working just fine without it. When I need $20K to buy a car or something (which seems to be the whole point of these schemes), I can cash flow it out of recent earnings. I’m not putting my emergency fund into whole life insurance, and everything else I’ve got I invest into assets with a higher expected return than whole life insurance.
WCI wrote:
I’ve read it. I don’t buy the argument that buying an insurance policy I don’t need in order to save up for expensive stuff is a good idea. Especially for people who climb rocks. Looked at the price of life insurance for rock climbers lately? But as I mentioned to you yesterday, if you want to Bank on Yourself or Infinitely Bank, knock yourself out(I am in a coma right now) . My path to wealth (make a lot, carve out a big chunk of it to build wealth, and invest it in a reasonable manner) seems to be working just fine without it. When I need $20K to buy a car or something (which seems to be the whole point of these schemes), I can cash flow it out of recent earnings
Vince wrote:
then you give up the interest and paid out of pocket
WCI wrote:
I’m not putting my emergency fund into whole life insurance
Vince wrote: financial planning 101: emergency fund needs be in a savings account for ready immediate cash during times of emergency that’s why its called emergency fund, I actually think emergency fund is the only money you should have in a bank considering the low interest on deposits and the way banks are earning through commercial loans on your deposits! Banking is a process!
WCI wrote: and everything else I’ve got I invest into assets with a higher expected return than whole life insurance.
Vince wrote: As written in the book you have read “When first exposed to the rationale of The Infinite Banking Concept a person will almost always think— and often voice the thought, “but I can get a higher rate of return by investing in _________.” Unfortunately that person has not understood the message! We are not addressing the yield of an investment—we are discussing how you finance anything that you buy. It is always better to finance it through your bank than out of your pocket.
[Edited for clarity]
I understand you think Infinite Banking is awesome. I disagree. I understand it just fine. BTW, it’s really, really hard to follow your comments because they’re composed 3/4 of my comments.
thanks for the edit, doc!
Good evening.
I have been using this system for about 6 years.
I haven’t looked at the returns recently, so I’ll do that, and get back to you. Maybe even a guest post if I find the time.
One problem with IBC is that it is SOLD, by well meaning individuals who don’t understand just how powerful the system can be, then used inefficiently, for things like irresponsible consumer spending, New cars, etc.
Whole life is the vehicle, not the investment.
WCI, do you own your home? Market value, less any mortgage? Humor me, and I’m guessing I’ll have you looking to get in the “dividend paying whole life” game as your New Year’s resolution.
Cheers!
Have you tried buying whole life insurance as a rock climber? It’s highly unlikely I’ll be buying any more life insurance in my life. I simply don’t have a need for it. If you like it, it’s not the worst thing in the world if done well, but it’s hardly a key element in a good financial plan.
Hope it works out well for you.
I didn’t think I needed Bluetooth in my car until I had it!
I will strongly disagree, and leave it at that. [Ad hominem attack deleted.]
All the best.
John The Pharmacist. Please, for the sake of those following the post, continue down your line of reasoning as to where you convince W.C.I. to make “dividend paying life” a New Years Resolution.
Cheers
He’s off calculating his returns. Despite the fact that he is convinced that banking on himself is an awesome idea, he has apparently never done that.
A reader sent me this link via email:
https://www.mypersonalfinancejourney.com/2013/04/infinite-banking-concept-whole-life-insurance.html
This is a big write-up by a blogger about “infinite banking.” He spent over 100 hours researching it before writing it up. Far more than most obviously. At any rate, he arrived at the same conclusion I did:
I highly recommend you read his post if you are seriously considering doing this.
This IS a great blog post. One that was one of the turning points for me to BUY whole life. One thing is that the author drastically underestimates his need for life insurance. 446,000. Like that is all the money his family will need if he dies before sixty?? C’mon, like half a million dollars is all the earning potential that he would ever have if his life is cut short.
But again, a great article that really digs in deep into the intricacies of Whole life and cash flow banking.
I don’t know the author’s circumstances, but I agree $446K is a pretty low amount of life insurance unless he’s got a 7 figure portfolio somewhere. But if he’s having an issue affording enough term, buying whole life isn’t the solution.
I propose a challenge to any/all of the whole life agents who are following this post. For the benefit of those who doubt the efficiency of a whole life policy, including those already following and for all those in the future: Can an infinite banking expert articulately and succinctly explain how borrowing from your whole life policy at a higher rate of interest than the policy dividend is currently returning you is economically advantageous? Thank You
I’m not an expert, but I’d be happy to try. Email me at [email protected] and we can start a conversation.
Why not have the conversation on this public forum?
Chris:
I agree. Have the discussion here, so I’ll try and start as I have mentioned in earlier posts why I have it. I have no bias nor any commission to worry about.
Instead of thinking of the absolute rate, there are two other points to consider: The flexibility of payments and the spread (the spread just like a bank looks at it to be profitable). I’ll deal with the spread part first. The concept is if you can get a loan at SIMPLE interest for 5% and compound your cash value at 4.5%, over time the compound interest wins. In my example, about three years your compounding wins over simple interest. But that is only half the story. The half which is left out is if I can get that car loan at 1.9%, why would I want a loan at 5%? I wouldn’t. That’s dumb UNLESS you have difficulty getting that excellent rate. You have your “bank” as your backup to make loans to yourself.
The real key, if you don’t have the diligence or the evenness of cash flow, is the flexibility of payments. Let’s go back to the car example. $10,000 loan from your policy at 5% simple interest. At the end of one year, your new loan value is $10,500. You could have driven the car for one year and not had to make a single payment. Then on day 365, write a $10500 check and you are done. Want to wait 24 months? No problem if you have the cash value to support the loan – they’ll float another 5% on the $10,500. Want to wait until you sell the car 5 years later? Fine, it will still accrue but the life insurance company doesn’t care. Why? Why are they not concerned? Because if you die before the loan is paid back, they reduce the death benefit by the corresponding loan amount.
I believe right now that with my policy the loan rate and the dividend rate were both 5%. Exactly equal. Why? I have no idea. I currently don’t have any loans outstanding with the life insurance so it’s not part of my current equation of life. But it’s there if I need it.
Hope that starts things.
I guess if finding $10K to buy a car represents a big deal in your life, then this might be relevant. If I need $10K to buy a car, I wait until my next paycheck, carve out part of the amount that would have gone toward investments, and buy a car with it. For there to be an amount that I could take a loan that would really affect me, I would need cash value in the hundreds of thousands (to buy rental property), and I’m simply not willing to pay for that much insurance I don’t need in order to have a bank.
WCI:
I am trying to answer a question. It’s great that you make somewhere between $350-400K/year as given by your smart answer, but you know what? Most people don’t. The average doctor doesn’t and I’ll guess the average person reading this thread doesn’t either. Chris wanted to start the conversation, so I tried and used as an example of an even number of $10,000 to put numbers to the theory. Go back through my messages and you can see this is way down the list from an investment perspective, but can still be a useful asset tool. As long as people have a better education about a tool, do whatever you want, but being a pompous jerk stating, “I just need to wait two weeks to save 10 grand,” thanks, but I don’t care.
No, that’s exactly my point. If you’re making $200K instead of $400K, it’s the same issue. In order to have sufficient cash value that it is meaningful to borrow some of it out, you’ve got to have a policy that involves buying much more permanent insurance than you probably ought to be buying. That and I dislike the focus that the Bank on Yourself crowd has on spending. If people could get rid of that focus, they would find they didn’t need to borrow money, from themselves, a bank, or anyone else, in order to purchase what they want.
Instead of buying a whole life insurance policy to buy an RV, just buy the RV. If you can’t do that with cash in a reasonable period of time, perhaps you shouldn’t be buying it anyway. The only exception I can think of would be real estate; but in that sphere, it’s relatively easy to beat the rates on life insurance with a simple mortgage from a conventional lender. I suppose if a lender won’t lend to you, that would be one thing. But if a lender isn’t going to lend you money for a real estate project, you’ve got to wonder if maybe it isn’t such a smart project in the first place.
I agree with WCI that we shouldn’t be spending money to just spend money. Contrary to Keynesian belief you cannot spend your way into prosperity.
I think the point that is being overlooked is that our money must be stored somewhere whether temporary or for long periods of time. If you list out the characteristics of what you want in the perfect place to store money for that period of time you will probably include the following: safe, liquid, tax advantaged, competitive return, creditor proof, etc.
If we are investing our dollars they typically flowing from a savings account or money market to those investments and back when we sell those investments to capture the profit (typically) prior to being reinvested.
Compare your savings and money market accounts against the criteria listed above and they don’t meet many of the ideal criteria. This is why as a financial professional I use and recommend the use of a properly structured whole life policy (in the right situations, it’s not a one-size fits all) to be this core foundational tool in someone’s portfolio.
It’s not Mutual funds, stock’s, real estate (for those willing to except the risk) of OR Whole Life Insurance, it’s AND Whole Life Insurance
Too bad you are not in or near Birmingham, AL this week. There’s going to be a great demonstration of this being given by Robert Murphy Ph.D, Carlos Lara, & Nelson Nash. https://conta.cc/1x9Ogbp
I don’t need Nelson Nash or anyone else to explain the concept. I understand how it works just fine. I just don’t buy it as some magic elixir for my finances. If it all works out perfectly, then I may be slightly better off than I would be otherwise. If it doesn’t I’ll probably come out behind. Your characteristics for a perfect place to store money are different from mine. I also include such things as 1) No negative return for the first few years, 2) No need to deal with a life insurance agent, 3) No need to answer pesky questions about risky activities, 4) No need to have a physical, 5) No need to ask an insurance company or pay interest in order to get my money etc etc. And it’s not creditor proof in every state. And competitive return? Depends on what it’s competing with I suppose. Liquid means I can get my money within a day or two. Not wait a week or two for the insurance company to process my surrender or loan. But hey, if that’s what you find attractive, “bank on yourself” with a whole life policy.
I realize you have a strong dislike/distrust of whole life insurance, however I feel some of your arguments against it are kind of soft, so I’m wondering if there is a something you aren’t telling us…
Here are your arguments: No negative return – Have you ever had a negative return in the stock market? Most investments have some risk, you have identified one of the main “risk” of WL, the “negative return” for a few years…
Dealing with Life agents – Life insurance agents are just people. You deal with them every day. You are the customer. Don’t let them sell you. Buy the product that will help you achieve your unique goals.
Risky activities – I’m sure you will pay some additional premium for climbing rocks. Have you ever looked into what that would be?
Physical – don’t you do this to other people all day long? You pee in the cup, they take some blood. Ten minutes later, you are back climbing rocks.
Ask insurance company for YOUR money – I send a fax, i get a check in 3-4 days. My bookie is always real understanding with the process, so my kneecaps are still intact. This shouldn’t be your emergency fund, just another place to park money once all of the other priorities are in place.
Interest – you pay interest, but it goes into Your policy, so it’s a wash.
You mentioned real estate investing in another comment, which is what I use my policies to invest in. You don’t need the entire amount. My wife and I just borrowed the downpayment from the policy, and got a mortgage on the properties. The rent pays the mortgage and pays back the loan to the policy. It’s kind of freaking sweet, really. The differences are marginal at first – our first policy loan on a rental property put $3000 of interest back into our policy the first year. Also, my rental company deducted that interest, because interest is a deductible expense for a business, which saved us another $1500 or so in taxes. So we’re $4500 to the positive in year one as a result. That was in 2010, and we have picked up a few more properties, gradually increasing in value, using cash from the policy for downpayments as needed, and repaying those loans from the rental income, while taking full advantage of all of the tax benefits along the way, deducting depreciation, interest expense (including what we pay into our policy!), etc.
This isn’t going to work for everyone, but for most people with enough discretionary income, it is going to work very well when structured correctly and carried out diligently.
I was a little put off by your response to some of my previous comments, which i took to be disrespectful. I had not previously (and still have not) calculated what my actual returns are as a result of using this system. What returns would I count? Certainly the actual dollars inside the policy, and probably also the tax savings for interest paid by the company back to my policy. How about the depreciation? Rental income? I shared my comments on your site because I believe that for the right person, this can be invaluable. I sometimes hesitate to share, because I do fear that if even 1 percent of the population was doing this WELL, congress would make it illegal overnight. Fortunately for me, most people don’t have the discipline to follow through, and very few people will ever use this to its full potential, and as such will likely fly under the radar for many more decades.
I have a policy for my first daughter (and need to find time to set one up for my 2nd daughter) which we plan to use to teach them these valuable lessons about money. I’m hopeful that they will have their own little investment projects using their policies as a tax-advantaged funding source before they are out of high school, but we’ll have to wait and see. I’m using this as a vehicle for college savings instead of a 529 because a 529 will directly reduce the amount of financial aid she will qualify to receive. The WL policy won’t even show up on the FAFSA.
That’s how I’m using life insurance. It will work for some, and won’t for others. Hope this helps someone.
I’m not sure what you think I’m not telling you. I don’t have a dog in this fight. I don’t make more money if a reader buys life insurance nor if they don’t.
Yes, I have looked into the additional premium, not for a BOY/IB policy, but for a term policy. It more than quadrupled the cost.
If you’re not sure how to calculate your returns, I would recommend you learn how to use the XIRR function with Excel: https://www.whitecoatinvestor.com/how-to-calculate-your-return-the-excel-xirr-function/
I’m interested to see how much need-based financial aid your children receive given your income as a pharmacist and all these rental properties you own.
Are you making the assumption that because your quote for term life was 4x higher, that a WL policy will also be 4x higher premium because you climb rocks? It does seem that many of your arguments are based on feelings and assumptions, not facts… Do you NOT have term life because the premium is too high? (rhetorical) How much of your money for your term policy will you get back? (don’t get me started on the idiocy of return of premium riders!) The answer in most cases is $0.00. The argument could be made, and would be true in many cases, that term life is more expensive that WL, as every penny you pay in is gone – certainly for you as the insured! Also, something like 7% of term policies lapse due to non-payment every year, so those won’t pay out either. What percent of policies actually pay out during the term? I can’t find a solid number, but I’ve seen estimates of about 1 percent. So you are essentially paying for an “option” that has a 1 percent chance of expiring “in the money”. Not a very good endorsement for a cheap product, is it?
How much need-based financial aid will my daughters qualify for? ALL of it, based on the current guidelines (here: https://www.finaid.org/fafsa/smallbusiness.phtml ) anyway. We’ll see what happens in the future. The good news is that I have about 14 years to plan for the first one, and 16 to plan for the second. I’m planning on not having any W-2 income by the time the first one is in college.
The fact that term life doesn’t pay out means it’s a bad thing to buy is a myth.
The insurance component of whole life is generally more expensive than the insurance component of term. I doubt the WL premium would be four times as high, but I suspect the insurance component of the premium would be at least that high.
Every penny you pay in insurance costs for any type of policy is “gone”. That’s the cost of insurance. The goal is to lose as little as possible while maintaining needed coverage. Whole life simply obscures things by combining the insurance policy you need with one you don’t plus an investment.
I’m glad your kids will get significant need-based financial aid. Mine, like those of most high income/high net worth folks, probably will not. Mostly because they won’t need it, but also because most need based financial aid is loans and I’m going to make sure they don’t get those. Not to mention they are highly likely to qualify for merit-based aid and will likely attend an inexpensive college anyway. Investing in whole life to minimize assets reported on the FAFSA is a bit of a myth anyway, since retirement accounts don’t count toward that anyway.
You do realize that rental property income and assets count on the FAFSA, right? Were you planning on selling those when the kids get into college and buying more life insurance?
I didn’t say it was a bad thing, I simply make the point that very few of them pay out, so in reality 99% of term premiums are wasted; a complete loss.
You state that every penny you pay in insurance is “gone”. This contradicts what you say regarding my wife’s policy. After X years, her policy will have a Y% return. That is different than your term policy, right? Your return on “investment” is always a negative number, today and every day in the future (unless you die, but the odds are less than 1%, as stated above) and YOU don’t get to enjoy those returns!
My kids should be able to qualify to take out loans in their names, as a result of our planning, just like their mother and I did. While I think it is great that you are going to pay for your childrens’ education (after their scholarships, of course), and I sometimes wish that my parents would have done that for me. However, I think my kids will benefit from taking responsibility for their education and the funding thereof.
Whole life is never reported as an asset on your Fafsa. While 401k account balances are not reported, the amounts that both parents and the student contribute to a retirement plan are counted as income in that year. 529 accounts however will directly reduce the amount of aid that a student will qualify for. That and the limited number of options for that money is why I feel it is a suboptimal vehicle for most people.
Why do you think that my rental income and assets will count on my kids’ FAFSA? Did you read the situations where they do NOT count on the FAFSA? Assume that one of situations applies here, as that is the case.
I may sell them and buy more life insurance, as life insurance is a great estate planning vehicle as well, but at this time the plan is to let them cash flow and build our wealth, while paying for themselves and generating tax deductions, and possibly do a 1031 into larger or more productive properties, if that makes sense at the time.
It’s not a complete loss. If a 30 year term policy expires without me dying I received insurance for 30 years. That’s hardly a loss. And besides, it is also lost with whole life. The part that is not lost with whole life is the premium that pays for the insurance that covers the death benefit AFTER 30 years and the premium that pays for the cash value. Same loss either way. I ought to add that to my myths of whole life series. You sure you don’t sell this stuff? You’d be pretty good at it.
How wonderful that your children will be able to get student loans. Sounds like a great solution to college planning. If that works for your family wonderful. I had assumed that you were going to use your whole life policy or all your real estate investments to pay for that, but I guess not. Your goal was apparently just to hide your assets so your kids could get loans. I’m not sure that’s really a big issue worth doing any financial gymnastics for. It’s not like you’re required to pay for your kids’ college. They’re just required to report your assets and income on the FAFSA.
Why is it such a bad thing that 529 accounts will reduce how many LOANS they can get. Isn’t the whole point of a 529 to reduce how many loans they have to get? I guess if by limited options you mean they can only invest in thousands of mutual funds and individual securities then I guess that’s limited I suppose. Seems like that isn’t a big deal though. If you don’t want to invest in publicly traded securities, then invest outside a 529 as you are. It’s a free country.
John, can you explain how the loan repayment on your rental property “put 3,000 dollars of interest back into your policy”? Was that above what your loan value was? what was the rate that you borrowed it at? What was the rate that you put it back in at? This is a concept that I am still struggling to grasp fully. Thank You
This is the basic way that infinite banking works. You borrow from it, you pay it back, with the appropriate amount of interest. Is your insurance agent helping you with this process, or do you have a good CPA who understands this type of system? While you can do well without either, I feel that having both of those pieces in place will contribute to your success with this type of system.
Believe it or not, some agents use this type of marketing to sell policies, without making sure they will fit the clients’ needs.
In my policy, I was able to borrow the cash value as soon as the policy was written. We literally waited for the policy to go live, and sent the loan request in shortly thereafter.
Here is a link to my wife’s policy illustration: https://docs.google.com/document/d/1i7HclNSscE-pyLi5H81Jx40YJ8tmoMMme0FcAIcmXgk/edit?usp=sharing
Being male, mine is slightly less efficient, but hers is the first one I found, and it’s after midnight. I’m happy to share mine after I dig it up.
If your policy isn’t this efficient (or at least close), you might want to look for a new insurance agent.
And don’t forget to subtract the cost of the otherwise unneeded CPA from your returns when you calculate them.
Your wife’s policy shows a negative return until year 8, when it is 0.43% per year on the guaranteed scale and a negative return until year 6 on the projected scale. At year the return on that scale is 2.3%. I guess if you find those types of returns exciting, then great, buy lots of whole life. But those are pretty similar to most of the better whole life policies I look at. At 25 years, those returns improve to 2.67% guaranteed (pretty good actually, lots of these I look at are closer to 2%) and 4.66% (that one’s about average for policies I look at.) If those are acceptable returns to you for tying your money up for decades, then buy as much as you like. They’re not for me, not to mention my personal returns would be lower due to the additional cost of insurance I would face. It wasn’t very long ago that I was getting 5.25% in a money market fund.
How is that money market looking for you today? I used to get 7% in my savings account – in 1982. You could probably have gotten a 10 % return in a WL policy back then too.
I’m not following you on the CPA… My CPA doesn’t charge anything extra for helping me with this, if that is what you are getting at? YMMV, of course.
This is a system that will work in any economic environment. It isn’t for everyone.
You have repeatedly stated that “your money is tied up” – that is not true. I am using my money exactly the way I choose, outside of my policy, using the cash value from the policy.
You state that your personal returns would be lower due to the additional costs of insurance, but you are ASSUMING that, as you have not actually looked, per your previous posts. It’s okay to guess, but please don’t state it like it is a fact.
I understand that you aren’t interested, and these posts are really for the benefit of your readers that are interested. I really do enjoy lively discussions with intelligent people, so I’m happy to attempt to refute any argument you would like to continue to make.
I have no need to continue to comment on a post I wrote over two years ago. While I might find a discussion lively for a day or two, dragging it out over 26 months isn’t particularly interesting to me. After 195 posts on this thread, I think those who want to bank on themselves will do so, while most will find this to be an idea that isn’t particularly helpful in their financial lives. I’m glad it works out well for you. If you promise not to post again on this thread, I promise not to reply to your post.
I’m not sure why you think it would be worth my time to get an official quote including a physical on an insurance policy I would not purchase even if I qualified for the lowest cost of insurance available. It seems unethical to me to waste the salesman’s time. If the insurance industry wanted to give me a sweet deal on an awesome whole life policy, they should have done that the first time around. What I’m doing now is clearly working (I’m a millionaire 8 years out of residency with a half paid off house who is now financially independent of medicine and on track to be financially independent of any type of work by my mid 40s) and the arguments being made by you and the other proponents has failed to convince me that I’m missing out on anything particularly beneficial to me. If one of my readers thinks buying a whole life policy is going to help them reach their financial goals, then more power to them.
If this thread is still alive after 26 months and 195 comments, that would probably make it one of your most popular, yeah?
Why do you think that is? People want to LEARN about this, and there are precious few resources out there. Many of the reviews are written exactly like yours, and the other person that you quoted above who spent “over 100 hours” researching this. Frankly, that is about enough research time to just scratch the surface. My wife and I spent a few months, and probably 200 hours researching, reading, re-reading, scouring the web, meeting with ins agents, talking to others that are doing this, etc.
Not all insurance agents are the same! Neither are all insurance companies – some have policies that work well for this and MOST do not! Insurance guys are used to giving quotes, and any that I have talked with have been very cordial – I spoke with 4 before deciding which company to go with, and 1 of the last 3 told me (when he saw my first illustration) that he wouldn’t waste MY time, because his company couldn’t even come close to what the first one would do!
The insurance industry is made up of all different types of company – the only kind that you would even need to consider for infinite banking are the Mutual companies (owned by policyholders) that offer participating WHOLE LIFE policies (no VUL, IUL, etc) that are designed to work with infinite banking.
Insurance agents have to eat too, and unfortunately many of them will take advantage of high income individuals (because they feel you can afford it?) and won’t give them the best policy for cash value. This is why no one should be SOLD a policy – they should BUY the policy that works for them.
Again, my goal is not to convince you – but to provide information for others that are interested. This is clearly an interesting topic to many – I’ve seen a few other blogs that mirror yours – lots of posts on the Infinite Banking reviews!
I am DOING this, not just talking about it, and I think I have good information to share with interested parties. IF you would prefer that I do not do that on your blog page, I can respect that, and I would invite them to email me if those are your wishes.
I’m not sure why it took you 200 hours to understand Bank on Yourself. It’s not that complicated. If you think it’s awesome, do it. As I’ve said before, it’s not the stupidest thing in the world to do. But I hardly think it’s some revolutionary path to wealth. As I’ve said 100 times before, if you love whole life and think it is the solution to all your financial woes, buy as much of it as you like. I promise not to stop you. If you just like to argue with someone on the internet, well,
find somebody else.
I find your evangelical fervor on this subject interesting. You actually feel so strongly about this awesome financial opportunity that you want people to email you and talk to you about it. Forgive my skepticism, but that seems like a lot of unpaid work for someone to want to do voluntarily…..unless…..maybe it’s not unpaid…..
And no, 196 comments over 2 years is not particularly popular. Most of the posts published this month already have over 100. It’s just that any thread mentioning whole life becomes a magnet to insurance agents who can’t seem to resist leaving comments for years. You feel so passionately about this subject, why not start your own website about it?
I actually own a policy and it works just like they say it does. I have also written about it here https://www.jamiesmoneyadvice.com/2014/06/15/the-bank-on-yourself-concept-turned-upside-down/
I am an IAR. I don’t use WL all that much. But the whole idea of IBC or BOY actually works. But ONLY if you save up money that you would have spent on something today, and instead finance the purchase.
But here’s the thing Insurance companies won’t tell you. —> You don’t have to do it with Life insurance.
Example. Save up $30k to buy a car.
Invest $30K into a relatively safe investment. (Let’s say in a bond ladder or something similar for long term – let’s just say 5% over 30 years.)
Finance car at bank for 2% and pay off over 3-5 years. Your investment will fluctuate but if you can handle the payments it won’t hurt your lifestyle much. (which is key, living within means is paramount to make this work)
Then finance new car after using old car value for down payment. $30k still invested.
$30K invested for 30 years grows to $134,032!
Tadah! You just made money that you wouldn’t have had if you paid cash for all your vehicles.
With BOY they just do it with life insurance. But you don’t have to. No tax benefits really, but it’s still a way to capture your future wealth.
When people sit with me I show them both options. But I still think the idea of capturing every possible amount of interest you can is very important.
2 cents. Life insurance is good and bad. Risk averse people will love it. And people that can ride out the market won’t. Why is this such a hard concept to understand?
Darren, if you are doing infinite banking, you should be doing it in a way that is tax-favored.
If you have $5000, and $5000 only, to invest in the stock market, would you invest it in an IRA or in an account that is not tax-favored?
You are essentially suggesting that one should use the outside account, where each transaction has tax consequences, rather than using it in the most efficient way when you talk about life insurance.
Infinite Banking is powerful if you are disciplined and willing to learn how to use it.
A little knowledge can be dangerous.
Just stumbled on this thread. Appreciate the wealth of information. I have an existing NYL WL policy I purchased (for better or worse) 25 yrs ago And now wondering if I can take advantage of the policy by adding substantially to my PUA and get a decent safe return. I’m already fully invested in my 401k and IRA accounts along with significant market risk. Looking for a place to store cash besides a paltry savings account. This IB strategy sounds like it might be a good thing for me. Must admit I still haven’t grasped why I’d choose to use the loan option if I can pay with cash. Thanks for letting the thread continue its a good read.
JW:
It would be great if you could get the IRR on the policy so people have at least one example of a good in-standing policy and possible expectations. NYL should be able to provide that.
I’ll take a stab about the PUAs. My guess is you cannot. With the insurance company I am using, if you don’t put in any PUAs that year, and I think the lowest is $150 in PUAs, then you are locked out moving forward. The way the policy is designed from the start is crucial in having the maximum effectiveness.
I have always said this is option #5 or 6 in terms of an estate plan. If you keep enough disposable cash at hand to buy whatever you want, then it doesn’t make sense to take a loan, UNLESS you can do a positive leverage event like John the Pharmacist has been doing with real estate. It has not been necessary for me to take any loans, but it is that emergency stash which is compounding faster than a money market and compounding tax-free. And by taking policy loans later in life, it will be tax-free money withdrawn (which reduces the cash value which reduces the death benefit to the heirs who should be happy to receive anything). If you have a variable paying job, like in sales on commission, then having that safety net can be a good thing PROVIDED you pay the loans back in the early years.
My .02 cents.
JW, here’s a video I did on cash vs borrowing from a life policy.
https://www.youtube.com/watch?v=ZYcyoSWsWiU#action=share
NYL is anti-IBC. They actually just send out a thing to all their agents letting them know if they use the term or marketing strategy they will be terminated. So it might not be a topic your agent will want to address.
Banking regulators are squeezing down on this b/c of the term Bank and how people are misrepresenting the living benefits of life insurance as saying you have your own bank. A few insurance companies like NYL have decided it’s not worth the hassle.
I think using life insurance as a foundation for other investing makes a ton of sense b/c of the safety, liquidity, steady growth, and tax advantages afforded properly structured policies. It’s not a magic elixir, it’s not get rich quick, but let’s be real nothing is. However it’s also not a Gov’t. Tax Qualified Plan and I see that as a HUGE +.
I wish you well in your pursuit.
Thanks Russ, interesting point on the NYL stance on this practice. Especially after just talking to the agent who said it’s OK and is going to run some numbers for me. Maybe they have to permit it if the policy doesn’t specifically forbid it, as opposed to openly marketing the idea? Anyway I’m anxious to see how this plays out.
That’s great news that you can add PUA’s to the policy. You might have to do some sort of medical underwriting but no big deal. You are right you can do anything with the policy that you want that doesn’t violate the contract. Using the living benefits from cash value life insurance isn’t what is being attacked, it’s just the verbiage.
Thanks Howard I’ll post once I’ve reviewed with the agent. I take your point on the loans later in life that wouldn’t need to be repaid, a nice feature. Of course at that point the cash value can also be accessed tax free up to the accumulated premium payments – if I understand what I’ve been reading correctly?
JW:
You are correct and something I forgot about until you wrote it. Your beginning “loan” should be done as a return of premium. The advantage is that there is no interest accumulation until you remove that premium put in. You are still removing the cash value which will ultimately reduce the death benefit, but because it is not technically a loan until that premium is completely extracted, you at least delay that for a period of time.
If you are doing a loan – do a LOAN, not a partial surrender.
Loans will reduce death benefit by amount of loan, plus interest if applicable.
A partial surrender will decrease your benefit by more than than amount of the loan.
Howard, I’m not sure what you mean by “it is not technically a loan until that premium is completely extracted” – perhaps you mean that one can do a partial surrender up to the basis without any tax consequence? That is true.
But you can take LOANS for any amount above your basis, and have no tax consequence, because the IRS does not consider proceeds from a loan to be taxable, including loans from life insurance policies.
JW – talk to you agent, but remember the agent might be bringing bias to the table. If you have a CPA, this would be worth sending him/her an email about.
John:
I’ll worry about loan vs surrender hopefully many years from now, but I know you can extract your basis without penalty (is probably the best way to put it).
To follow up with Russ’ comment, I don’t know what NYL is saying to the agents, I am hoping (without issue) that JW can get an IRR so we have some reality of numbers versus theory. Yes, it’s only one policy, but we have to start somewhere.
John,
I have seen a lot of these policies that are 10,20 & even 60 years old. If and that’s a big IF they paid premiums the whole time and didn’t use the dividend to reduce the premium. The IRR at 20-25 years has been anywhere from 3%-5.5% depending on the age of it. Unfortunately b/c of bad advice most have used the dividend to reduce the premium and don’t have a whole lot of cash earning that rate. Secondly Paid Up Riders didn’t come on the scene until about 15 years ago. It’s been in the last 5-10 years that most agents have become aware of these and why they should use them. Our founding partner has been in the business for 40 years and until 2009 didn’t know you could use a Paid-up Rider until we were introduced to Nelson Nash.
That’s not very encouraging news. Whole life policies purchased in the 80s at a time of very high interest rates have done quite well by current standards. Here’s a “success story” of someone that got 7%. Don’t expect that buying today though.
https://www.whitecoatinvestor.com/a-whole-life-insurance-success-story-the-friday-qa-series/
Unless the surrender value is still less than the basis…
Pulled my last policy statement. My cash value is 42k after 25 years of 1038 premium payments. Believe that puts the return right around 3.75%. Nothing to write home about but I was buying insurance, not so much investing at the time. The policy was 100k.
Remember what you are comparing to. Insurance companies invest not in the stock market, but in bonds. So you need to compare your return to a bond fund. So here is one from Fidelity which started close to the same time you started:
https://fundresearch.fidelity.com/mutual-funds/performance-and-risk/315911107
Since this money is after-tax you put in to the life insurance, it’s best to look at the after taxes on distributions and we see for the life of the fund the CAGR was 4.34%. So you purchased your policy for 0.6%/yr is how I see it, with access to the money as loans if needed.
Now I know it’s not exactly correct because a $1000 was put in every year. I couldn’t find a link online that would help accurately calculate that, but it’s a start. Thanks for sharing.
That return seems particularly terrible for a policy bought in 1990. Probably due to the relatively small size of the policy. I had a similar issue with mine.
WCI:
I agree. It’s not the greatest and my guess is for two reasons. First, as you said, it’s a small policy so the admin expenses can’t be absorbed over a larger pool. Second, no PUAs. Just a base policy if I understood JW correctly.
WCI, Howard,
Talked to the agent today and he confirmed that I will be able to add PUA to the policy. I guess looking at this as an investment in the future, it will be interesting to see what limitations exist on those PUA’s, and what impact the additions will have on the future interest earned. Got to say if I can get 3.75% on the additions I’ll be pretty satisfied in putting a portion of my cash in play. I’ll get the details next week.
“When you put $10K into your bank account, the next morning there’s $10K there.”
Wrong. Fractional Reserve banking ensures that at most 10% of your deposit is there, and more then likely it is around 1%. I worked in a bank, the accounts say there is still the amount there, but it is only a promise to pay. When you put money into a bank you are their lender. When you put money into an insurance company they are your trustee, especially with a mutual company.
Honest, 100% banking, would show your account get drawn down whenever loans are made. Fractional Reserve banking allows them to use your money as base money upon which they can make loans up to 10x your deposit. Your money is not there, it is lent. This becomes evident when there are bank runs as in the old days or bank bailouts as are the fashion today. The bank does not have nearly enough money to meet it’s obligations. This contrasts completely with insurance companies which are 100% institutions at minimum. In fact, most insurance companies start to trigger regulatory action when they get down around 200% reserves. Banks operate on a 1-2% reserve after figuring the pyramid effect of banking.
I would recommend “The Mystery of Banking” by Dr. Murray N. Rothbard for a full analysis.
It’s a promise to pay backed up by the government with the strongest military in the world and the capacity to print its own money. I guess if that’s not good enough for you, you can send your money to an insurance company instead and have most of your first year’s premium disappear into your agent’s pocket. Isn’t it great to live in a free country where you can choose whatever you want!
Setting aside the moral implications of what your saying. Of the vast American state, it’s costs, it’s far flung military and the blood and treasure lost on such an empire. Ignoring all that entails, on the practical side alone the costs of such a government and the inflation that results from a state that prints it’s own money, which is technically not true since The Federal Reserve is the banking cartel that prints the money and the government borrows said dollars from it. The costs of all of this are far and away beyond the commissions to an agent, who after all is simply selling a free market product that predates the Republic itself due to it’s financial soundness. So if my choice is dollar hegemony and all the imperial costs associated with it or pay a financial professional a commission on a product I chose to save with, the I choose to pay a man for his efforts every day of the week. Sounds to me like you would prefer to turn the US into the British Empire to simply avoid paying an insurance agent a commission on a policy. Benjamin Franklin himself started one of the earliest mutual insurance companies in America precisely with the idea in mind that the people did not need the state in order for them to help themselves in times of trouble. Americans used to believe in independence and liberty, some of us still do. I suggest you pick new priorities for all our sakes.
Yes, that’s definitely it. I am so against paying commissions that I have actually contacted the Queen and asked her to invade. I suspect a veritable minuteman army of whole life salesmen will be there to oppose the landing.
WCI not to argue with you but MassMutual does have a policy called HECV which produces about 85% of your premium in CV the 1st year and this falls under the guaranteed column. Some companies claim to be able to get you 90% and I have seen Ohio give you about 50%. Just depends on the structure of the policy. But it is does exist.
Uh….85% is a 15% loss. It takes quite few years at 4-7% to make up for that sort of thing.
this is true. I would believe anybody that sells a WL policy with the idea that its an overnight success would be doing a true disservice to the customer. I was just commenting on your statement “most of your first years premium disappear into your agents pocket”. There are ways to structure it where you have immediate access is all I was getting at.
If you look at the history of a company like Mass, the rule of thumb is after 10 years you have what you put in, at 20 years you have what you put in plus half. And yes Mass has preformed this well through 12 recessions and the great depression…that cannot be argued.
I tend to agree with the majority of what you say but knowing what I do know about the subject and not being completely bias ( i have thought about discontinuing my term life production and going fee only insurance advisor) I believe you leave some elements out. Do the non guaranteed numbers look good? Yes. Do the guaranteed numbers look horrible? Yes. Is it ethical for an agent to sell someone on presumptions? Not at all.
My point is even if I sold vacuum cleaners for a living I would like to think i can look at the history of something and make my own presumptions. I understand the guarantee is about as useless as my nipples ( im a dude by the way) and if I were to feel comfortable with the risk that the company is going to perform like it has over the past 100 years then I would either go with the product or not.
You know it’s interesting. I’ve had a lot of agents call me out on that statement- “Most of the first year’s premium goes to commmisions/insurance costs etc” by pointing out there are some policies where that percentage is much smaller (especially with PUAs.) But I keep running into doctors who have been sold policies whose main features are that they maximize the commission to the agent.
Im not saying you are wrong. I really cant comment on that. All I can say is what I stand by. There are too many people in this profession that simply do not know what they are doing. Like every profession the Life industry has its crooks, but I truly believe that is a minority. I simply believe that it’s a lack of education. The retention rate in the Life industry is horrendous and people never truly get a chance to learn. The ones that stick it out for 3 or 4 years have a chance and they are generally the ones who become very successful.
I can say this…I do have a colleague/competitor on the p&C side of things who is also a big WL guy (MDRT the last 18 years) He has been the past president of our NAIFA chapter and for our State. Great guy. To a guy making about 1 million a year on property and casualty insurance it does him no good to sell someone a WL policy and screw them for a bigger commission…It just does not make sense. I think that is the key. Most life guys live off those commissions and a little bit of renewals but not much. The P&C guys know what they are making each year and any production in the Life area is just bonus. That being said if he had a bad reputation for screwing people over for a high commission then it could and would affect his P&C business. When you can find a guy like that (who is also a CFP btw) I feel like you can work with them without feeling like they are just looking to pad their wallets. These are the same guys that dont care if you buy a policy or not they understand they are not going to retire off of anything you or I do with them. The avg life agent, especially the newbies, are starving and everyone has to become a customer.
BTW I believe him when he tells me that after 20 years he has not had one person come back to him and tell him “i hate you for selling me that WL policy.” He claims that most people end up with more CV than they have anywheres else. Sadly I think this is a true statement.
You’re preaching to the choir.
Just curious. Have you ever gotten your hands on the Taming a Bear market brochure from MassMutual. It actually shows a great case study on a Dr. from the 1980s i believe. I hate to keep bringing them up like I am married to them or something. I have a broker contract with them as well as about 4 other companies so I am not married to just 1 company although the majority of what I write is through Ohio because of their term prices.
My overall thought is along the lines of yours. WL is never going to get the majority of people where they want to go in life. It has its places. Is it the worst thing out there? No. It got a bad name over the years because companies kept trying to make life insurance look like investments. Thats like putting a driver head cover on your putter and calling it a driver. Why not just call it a putter? It is what it is. How many balls have you ever lost with a putter vs the driver? Regardless, the one area that I do believe it can help people is providing an extra bucket of money that is off the radar of the IRS which takes me back to the Taming a Bear market brochure. Basically like you have said in all the posts I have taken the time to read, its not for you and its not for everyone. My problem is with the companies who bring guys in get them licensed and have them go peddle this stuff when they have no clue what they are doing. Speaking of not knowing what they are doing, do you have any idea of how many Agents I saw while I was captive that did not truly understand how CV works? And these are yahoos from the biggest Insurance company in North America. If you really want to know some shaddy things outside of this message board I can tell you how they qualify for trips and bonuses via Life insurance. It will really make your stomach turn.
It might make my stomach turn, but it won’t surprise me.
WCI I truly appreciate you writing this blog post. It’s now 2 years old and it continues to bring awareness to a better way to managing cash savings as well as that not every guy who holds an insurance license is an expert in IBC.
Fredbull, I have 12 WL policies. I don’t have 12 b/c I like to diversify my money, I have 12 policies to hold the extra cash flow that is created by financing and refinancing. I have taken loans against my insurance policies to take over debts (business loans), make new purchases (real estate & business equipment), and to invest (private lending & rental real estate).
That cash flow has to go back somewhere so I started new polices each time when I had too. An insurance policy is an insurance policy. It’s the use of it and the results from those uses that make the difference.
Our friend WCI likes paying cash and that’s great. I prefer using others money in the pool at the insurance company.
I like the idea of sharing in a like minded group. It’s why I don’t do Health Insurance but participate in Health Sharing. I encourage you to visit https://samaritanministries.org/ to find out more about it.
Thank you again WCI, Russ
And I don’t know if that particular MassMutual policy does the other things you want a BOY/IB policy to do. The agents who are really into this stuff only use a handful of different policies based on their characteristics.
You have missed the point entirely. I hope it is not lost on others.
I’m sure it won’t be, especially 223 comments down the page of a blog post written 3 years ago and only subscribed/followed by a dozen other insurance agents.