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Whole Life, Infinite Banking (IBC), Cash Flow
Posted on 6/5/18 at 9:45 pm
Posted on 6/5/18 at 9:45 pm
Does anyone here have experience with using a Whole Life insurance policy to essentially “bank on yourself”. Benefit from compounding growth with money built up in cash value while borrowing from the collateral and death benefit to fund other things, like inventory and other cash flow inconsistencies.
Probably putting in 100k per year for 15 years to build the cash value around year 4 to use for my other businesses, both cash flow/inventory management and to fund future growth.
What I like is that I can receive the loan within days and not have to deal with banks, and more importantly, it’s unstructured so I can pay it back on my terms... all with simple interest... And without disturbing the real cash value compounding growth.
It’s a longer play than tradition LOC or traditional loan, but I kind of dig the control once you build up the cash value... I value the control more than the hard ROI of underlying cash premiums.
It’s like a secure by deposit loan backed with collateral of CD, brokerage, or savings account money market, but without the banks and their nuances/ and strict repayment guidelines.
If anyone with experience could chime in... even whole life salespeople... I really would value your input as I’m probably a couple of weeks away from signing. So far I really like the deal but want to hear from real people and real applications of the same thing first.
Probably putting in 100k per year for 15 years to build the cash value around year 4 to use for my other businesses, both cash flow/inventory management and to fund future growth.
What I like is that I can receive the loan within days and not have to deal with banks, and more importantly, it’s unstructured so I can pay it back on my terms... all with simple interest... And without disturbing the real cash value compounding growth.
It’s a longer play than tradition LOC or traditional loan, but I kind of dig the control once you build up the cash value... I value the control more than the hard ROI of underlying cash premiums.
It’s like a secure by deposit loan backed with collateral of CD, brokerage, or savings account money market, but without the banks and their nuances/ and strict repayment guidelines.
If anyone with experience could chime in... even whole life salespeople... I really would value your input as I’m probably a couple of weeks away from signing. So far I really like the deal but want to hear from real people and real applications of the same thing first.
6
Posted on 6/5/18 at 9:54 pm to IglooTiger
And yes. I know the salesperson will get a phat trip to the bahamas plus a shite load of commission for selling it, but I still think it’s worth it.
Posted on 6/5/18 at 10:02 pm to IglooTiger
It only works if you need the life insurance, too. There is a cost to pay for the death benefit. There is a built in annual cost to pay for maintaining the policy. And obviously, there is the initial cost to pay the commission for the origination.
You'd be better just investing in Muni's or something else tax deferred with a small penalty for early withdrawal on the chance that you don't really need the life insurance.
If you need both (life insurance and cash value), shop about 4 different options. Ask a lot of questions (fees involved to process your request for funds? Surrender charges against your funds? Tax ramifications for your cpa if you surrender the policy with an outstanding loan)
You'd be better just investing in Muni's or something else tax deferred with a small penalty for early withdrawal on the chance that you don't really need the life insurance.
If you need both (life insurance and cash value), shop about 4 different options. Ask a lot of questions (fees involved to process your request for funds? Surrender charges against your funds? Tax ramifications for your cpa if you surrender the policy with an outstanding loan)
Posted on 6/5/18 at 10:17 pm to meansonny
Thanks, sir. I get the part about cost of death benefit... and I’m all ears to another tool that can provide the same “business cash flow control” benefits (unstructured loan against a compounding investment, repayment flexibility) that does not have death benefit implications.
I just haven’t seen it. Tell me where it is and then I can compare.
So far the only competitor is the ancient secured by deposit CD, Savings which puts the bank in control of both use of money and repayment terms.
I’m sick of the banks.
I just haven’t seen it. Tell me where it is and then I can compare.
So far the only competitor is the ancient secured by deposit CD, Savings which puts the bank in control of both use of money and repayment terms.
I’m sick of the banks.
Posted on 6/5/18 at 10:29 pm to meansonny
quote:
There is a cost to pay for the death benefit.
This is basically the cost of term insurance, correct?
Good point to bring up as it’s not only interest expense you are evaluating but the cost of death benefit insurance. Term is cheap depending on the person. Hopefully no issue there, but will definitely get some term quotes to evaluate the monthly
expense I’m giving up there in lieu.
Posted on 6/5/18 at 10:46 pm to IglooTiger
Every life insurance policy adheres to a Cost of Insurance. The healthier and younger you are, the lower the cost.
For cash value policies, all of the costs (cost of insurance, policy maintenance fees, etc..) are withheld by the insurance company and the remainder is typically your cash value.
You keep talking about loans. Unless you are dead set about leveraging, you don't have to use a loan to get access to funds. There are bonds paying 5% tax deferred. There are penalties for early withdrawals, but those penalties may be lower than the fees (and commissions) in a life insurance policy. Once you buy the life insurance policy, you are kissing away that money. Any change of plans is like an expensive divorce. That is the downside for the whole life option that you are considering.
For cash value policies, all of the costs (cost of insurance, policy maintenance fees, etc..) are withheld by the insurance company and the remainder is typically your cash value.
You keep talking about loans. Unless you are dead set about leveraging, you don't have to use a loan to get access to funds. There are bonds paying 5% tax deferred. There are penalties for early withdrawals, but those penalties may be lower than the fees (and commissions) in a life insurance policy. Once you buy the life insurance policy, you are kissing away that money. Any change of plans is like an expensive divorce. That is the downside for the whole life option that you are considering.
Posted on 6/5/18 at 10:52 pm to meansonny
If your big attraction to the life insurance is the cash value, then you may be better off with universal life insurance.
ULs generally grow your money faster and give you a lot more options towards overfunding or underfunding the cash value.
They are the luxury car of the cash value life insurance.
The upside to whole life is that it gives more guarantees (more of a guaranteed death benefit). The downside is a lack of flexibility and often a slower growth in exchange for the guarantees.
The upside to the universal life is that you can way over fund those policies growing the cash value faster. They generally pay a higher rate of return than whole life. The downside is that borrowing the funds could jeopardize the permanancy of the death benefit (if the concept of a return of premium term insurance interests you, than a universal life insurance policy could be the way to go).
ULs generally grow your money faster and give you a lot more options towards overfunding or underfunding the cash value.
They are the luxury car of the cash value life insurance.
The upside to whole life is that it gives more guarantees (more of a guaranteed death benefit). The downside is a lack of flexibility and often a slower growth in exchange for the guarantees.
The upside to the universal life is that you can way over fund those policies growing the cash value faster. They generally pay a higher rate of return than whole life. The downside is that borrowing the funds could jeopardize the permanancy of the death benefit (if the concept of a return of premium term insurance interests you, than a universal life insurance policy could be the way to go).
Posted on 6/5/18 at 10:55 pm to IglooTiger
Save $100k to your own taxable account and utilize a security collateral loan.
$300k after 3 years could get you $175-250k of release value and keeping the cost of investing low.
Universal life may be just fine, and nothing wrong with it at all if used properly, but as mentioned; buy it primarily for the life insurance component.
$300k after 3 years could get you $175-250k of release value and keeping the cost of investing low.
Universal life may be just fine, and nothing wrong with it at all if used properly, but as mentioned; buy it primarily for the life insurance component.
Posted on 6/5/18 at 10:59 pm to meansonny
quote:
You keep talking about loans. Unless you are dead set about leveraging, you don't have to use a loan to get access to funds. There are bonds paying 5% tax deferred
Yes, I’m absolutely looking for leverage. This is not an investment vehicle for me. I don’t give a hoot about the difference of 5% muni or 7% mutual fund. I want the ability get credit without question and payback without question, all while leaving the underlying compounding premium untouched.
Am I being bamboozled or does this seem right for my application?
Posted on 6/5/18 at 11:04 pm to IglooTiger
quote:can you create unstructured loans and flexible repayment plans using this as collateral? Can you get access to that loan without scrutiny?
There are bonds paying 5% tax deferred
Posted on 6/5/18 at 11:11 pm to IglooTiger
quote:
I want the ability get credit without question and payback without question, all while leaving the underlying compounding premium untouched.
The cash value life insurance won't continue to grow with the loan. It is cheap access to funds. But funds borrowed wont continue to accrue interest with outstanding loans.
If some is offering that, don't believe them until they can show you a policy jacket with it in writing. Cash which hasn't been borrowed against will not be suspended from growth. And future payments into the life insurance will continue to further the cash value. But you won't be permitted the low cost loan with growing interest on top of it.
Posted on 6/5/18 at 11:12 pm to LSUcam7
quote:this is my instinct but man in my past it has taken so much of my time, and even then sometimes it’s not granted or some other delay on decision. Lots of paperwork and questioning. And then you have to payback on their terms and not your own cash flow requirements.
Save $100k to your own taxable account and utilize a security collateral loan.
When the iron is hot, you have to strike. I have missed out on so many opportunities because I was waiting on credit sources to materialize, or lacked confidence that I could find the credit to fund the initiative in time.
This post was edited on 6/5/18 at 11:17 pm
Posted on 6/5/18 at 11:14 pm to IglooTiger
quote:
can you create unstructured loans and flexible repayment plans using this as collateral? Can you get access to that loan without scrutiny?
The bonds themselves will not do that. You are going back to some institution who will grant a secured loan against the collateral which is not what you want.
For me (not you obviously), just withdrawing funds is superior to a loan when I have not forfeited my rights to any funds (i.e. cost of insurance and commissions on life insurance origination). You never need to ask permission or apply for a withdrawal of your own money.
We can agree to be different.
Posted on 6/6/18 at 12:04 am to meansonny
Thanks for this. Based on what you are saying, I agree this could be the better policy, will look into it. The folks I’m talking to like whole life for this concept but I will certainly question it,
Posted on 6/6/18 at 6:29 am to IglooTiger
Whole life has better guarantees.
Guaranteed payment.
Guaranteed death benefit.
If you make your payments and pay the interest on the loans, then you are guaranted to have the death benefit minus the loans regardless of your age.
To get those guarantees, you are giving up the return on the cash value. And you are giving up the opportunity to "overfund" the policy that escalates the cash value much quicker. With the payments that you are referencing, you are excited about the possibility of over funding a policy (this means that you would be able to purchase a smaller life insurance policy which would have a lower cost of insurance which means that the same payment on your whole life would put substantially more money in your cash account). More of your payments in the cash value with the tax deferred compound growth and quick/easy loans is the enticement of the universal life policy.
Good luck.
Guaranteed payment.
Guaranteed death benefit.
If you make your payments and pay the interest on the loans, then you are guaranted to have the death benefit minus the loans regardless of your age.
To get those guarantees, you are giving up the return on the cash value. And you are giving up the opportunity to "overfund" the policy that escalates the cash value much quicker. With the payments that you are referencing, you are excited about the possibility of over funding a policy (this means that you would be able to purchase a smaller life insurance policy which would have a lower cost of insurance which means that the same payment on your whole life would put substantially more money in your cash account). More of your payments in the cash value with the tax deferred compound growth and quick/easy loans is the enticement of the universal life policy.
Good luck.
Posted on 6/6/18 at 8:45 am to meansonny
I have a whole life and UL through MassMutual. I've borrowed from both policies. I noticed when I borrowed from my WL it reduced my cash value by the amount of the loan. I don't think that was the case with the UL. Does that mean my UL continued to grow at full cash value and my WL did not?
Posted on 6/6/18 at 9:50 am to BurlesonCountyAg
Technically, the death benefit never changes. But the payout on a death benefit is minus the loans taken against it.
There are 3 different options for UL policies. One option increases your death benefit in step with the cash value. So you buy a $1M policy. But the death benefit increases with each payment as your cash value increases. Does that sound familiar? In this scenario, if you borrow $150,000 cash value it reduces the death benefit from $1,150,000 down to $1M.
The other popular option is where the death benefit doesn't increase until the cash value almost touches the death benefit amount and then there is a small "corridor" of cushion that will always remain. With a loan, technically the death benefit never changes. It is still the original $1m. But a payout on the death benefit will be less the loan.
Any funds not loaned against will earn interest.
Any future payments should still add value to the cash value even with loans outstanding.
But the funds in the cash value with a loan against it will not accrue interest.
There are 3 different options for UL policies. One option increases your death benefit in step with the cash value. So you buy a $1M policy. But the death benefit increases with each payment as your cash value increases. Does that sound familiar? In this scenario, if you borrow $150,000 cash value it reduces the death benefit from $1,150,000 down to $1M.
The other popular option is where the death benefit doesn't increase until the cash value almost touches the death benefit amount and then there is a small "corridor" of cushion that will always remain. With a loan, technically the death benefit never changes. It is still the original $1m. But a payout on the death benefit will be less the loan.
Any funds not loaned against will earn interest.
Any future payments should still add value to the cash value even with loans outstanding.
But the funds in the cash value with a loan against it will not accrue interest.
Posted on 6/6/18 at 11:23 am to IglooTiger
If you decide to go with a whole life contract and plan on making loans at various times throughout the policy, do your full research on the company and the contract. One thing that stands out to me is the Direct Recognition vs Non-Direct Recognition of Dividends.
I would go with a company that has non-direct recognition. Here is a link that touches on the subject LINK
I am not a fan of the UL as much as others. Although there is flexibility in the payments that is attractive, your cost of insurance increases each year you get older whereas the whole life generally has a level cost of insurance each year. So if Death Benefit is a priority and you plan on keeping the policy for your entire life keep that in mind.
If you want to dive even further into dividends as to who may pay the most and the better track record to continue to do so, I would take your top 2 or 3 companies and see what makes up their dividend each year.
What percentage of their dividend is tied to their investment portfolio?
Have they increased or decreased their dividend payment in recent years?
What are their credit ratings? (Obviously go with top rated companies with a long history)
I would go with a company that has non-direct recognition. Here is a link that touches on the subject LINK
I am not a fan of the UL as much as others. Although there is flexibility in the payments that is attractive, your cost of insurance increases each year you get older whereas the whole life generally has a level cost of insurance each year. So if Death Benefit is a priority and you plan on keeping the policy for your entire life keep that in mind.
If you want to dive even further into dividends as to who may pay the most and the better track record to continue to do so, I would take your top 2 or 3 companies and see what makes up their dividend each year.
What percentage of their dividend is tied to their investment portfolio?
Have they increased or decreased their dividend payment in recent years?
What are their credit ratings? (Obviously go with top rated companies with a long history)
Posted on 6/6/18 at 12:30 pm to IglooTiger
quote:
This is basically the cost of term insurance, correct?
It depends on how the policy is structured. Typically, with whole life, the mortality cost is structured to be consistent throughout your lifetime
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