Don’t know if this has been discussed in the past.
I’m an insurance agent originally, so I know more of the inner workings of this strategy than most.
I’ve read a number of books on it as well. I would recommend 3 of Bryan Bloom’s books on the topic if you want to learn more.
The strategy, in a nut shell, is you purchase a max funded cash value life insurance policy.
Could be an Indexed Universal or Whole Life product (IUL or WL).
But they need to be designed specifically for this strategy.
Basically, the least amount of life insurance and the most amount of cash value accumulation along with purchasing Paid Up Additions (PUA) to the policy each year.
This allows you to grow the death benefit, thus allowing for greater amounts of Cash Value accumulation.
Once your Cash Value (CV) has enough accumulation, you can borrow from the policy in the form of loans.
The loans are usually around 5.5-6%. The internal rate of return is around 5-5%.
The greatest benefit is that loans against the policy do not lower what you’ve actually accumulated. (Assuming you don’t take it to $0 and the policy lapses).
So, if you have $100,000 in CV and take out a $50,000 loan, you are still earning interest as if you had $100,000 in the policy.
So you’d be paying 6% on the $50,000 loan, but still earning 5.5% on the $100,000.
Allows for capital deployment without losing future compound interest.
You become your own bank by lending the money to yourself vs taking out a loan from a bank. Pay it back on whatever schedule you want.
All loans are paid in arrears. All you have to pay is the interest (so the CV doesn’t get to $0 and the policy lapses).
Any outstanding loans would be paid out from the death benefit if you don’t pay them back.
So you can use the CV for capital deployment or for retirement.
While the IRR is low, because you would be taking out loans as “income” they are tax free.
The death benefit is also tax free.
I have a $3M WL policy that I pay $3000/mo for.
I started it at 40. At 65, I could pull out $150,000 tax free for life.
That was not my reason for getting it.
I’m using it as a savings account with life insurance and a way to deploy capital without trading future compound interest to a 3rd party (a bank).
I will likely let it accumulate until death and pass on $7-10M to my children.
Thoughts? Concerns?
Dave Ramsey hates them, so that’s a plus for me.
It beats the buy term and invest the difference strategy.
But if used for retirement, it can still be deemed a live poor die rich strategy.
I’m an insurance agent originally, so I know more of the inner workings of this strategy than most.
I’ve read a number of books on it as well. I would recommend 3 of Bryan Bloom’s books on the topic if you want to learn more.
The strategy, in a nut shell, is you purchase a max funded cash value life insurance policy.
Could be an Indexed Universal or Whole Life product (IUL or WL).
But they need to be designed specifically for this strategy.
Basically, the least amount of life insurance and the most amount of cash value accumulation along with purchasing Paid Up Additions (PUA) to the policy each year.
This allows you to grow the death benefit, thus allowing for greater amounts of Cash Value accumulation.
Once your Cash Value (CV) has enough accumulation, you can borrow from the policy in the form of loans.
The loans are usually around 5.5-6%. The internal rate of return is around 5-5%.
The greatest benefit is that loans against the policy do not lower what you’ve actually accumulated. (Assuming you don’t take it to $0 and the policy lapses).
So, if you have $100,000 in CV and take out a $50,000 loan, you are still earning interest as if you had $100,000 in the policy.
So you’d be paying 6% on the $50,000 loan, but still earning 5.5% on the $100,000.
Allows for capital deployment without losing future compound interest.
You become your own bank by lending the money to yourself vs taking out a loan from a bank. Pay it back on whatever schedule you want.
All loans are paid in arrears. All you have to pay is the interest (so the CV doesn’t get to $0 and the policy lapses).
Any outstanding loans would be paid out from the death benefit if you don’t pay them back.
So you can use the CV for capital deployment or for retirement.
While the IRR is low, because you would be taking out loans as “income” they are tax free.
The death benefit is also tax free.
I have a $3M WL policy that I pay $3000/mo for.
I started it at 40. At 65, I could pull out $150,000 tax free for life.
That was not my reason for getting it.
I’m using it as a savings account with life insurance and a way to deploy capital without trading future compound interest to a 3rd party (a bank).
I will likely let it accumulate until death and pass on $7-10M to my children.
Thoughts? Concerns?
Dave Ramsey hates them, so that’s a plus for me.
It beats the buy term and invest the difference strategy.
But if used for retirement, it can still be deemed a live poor die rich strategy.
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