Here's a look at one way I use @ChroniclesNate strategy like a bank (thread)
I pay $1k/mo in life insurance premiums and immediately loan the money back to myself (to pay rent etc.)
This policy has existed for 10 months so you can see my cost basis is $10k
I pay $1k/mo in life insurance premiums and immediately loan the money back to myself (to pay rent etc.)
This policy has existed for 10 months so you can see my cost basis is $10k
• "Policy Cash Values" is my *gross* cash value
• "Loan Payoff" is my outstanding loan liability
• "Net Cash Value" is my *net* cash value
Gross CV = outstanding liability + net CV
• "Loan Payoff" is my outstanding loan liability
• "Net Cash Value" is my *net* cash value
Gross CV = outstanding liability + net CV
I earn 4-5% on my GROSS cash value, regardless of how much is outstanding via loans
I'm charged 4.76% on outstanding loans
This is not an arbitrage play though
What you don't see is I have $500k in death benefit which is being used as collateral
I'm charged 4.76% on outstanding loans
This is not an arbitrage play though
What you don't see is I have $500k in death benefit which is being used as collateral
So that 4.76% I'm charged for loan interest is actually deducted from the $500k death benefit - which is only realized AFTER I die
So there's no obligation to repay the loan interest while I'm alive
So there's no obligation to repay the loan interest while I'm alive
You could do this same strategy with a loan against your house too, you would just get awful terms on the loan and you'd lose money
Having a large death benefit is a nice perk but its main function is as collateral against my loan
There's no credit check or justification needed for the loan - why? Because the insurance company has ultra-secure collateral (you are definitely going to die someday)
There's no credit check or justification needed for the loan - why? Because the insurance company has ultra-secure collateral (you are definitely going to die someday)
You're probably wondering why my cash value is $5.7k and not $10k
Answer: fees
Fees are entirely front-loaded in years 1-4 (if it weren't this way, you could hypothetically create an infinite number of policies using loans)
Answer: fees
Fees are entirely front-loaded in years 1-4 (if it weren't this way, you could hypothetically create an infinite number of policies using loans)
The math is pretty simple
• Year 1, you're charged ~40% on the dollar
• Year 2, ~30% on the dollar
• Year 3, ~20% (etc.)
You end up breaking even in your cash value in year 6 or 7
• Year 1, you're charged ~40% on the dollar
• Year 2, ~30% on the dollar
• Year 3, ~20% (etc.)
You end up breaking even in your cash value in year 6 or 7
This is the main deterrent for most people as they are incapable of thinking beyond a few years in the future
Once you get through the "j-curve" (i.e. period during which you're at a loss) your investment starts growing parabolically
Once you get through the "j-curve" (i.e. period during which you're at a loss) your investment starts growing parabolically
Rather than putting in a dollar and only getting ~60% of it back (like year 1), you get to a point where you're putting in a dollar and getting >100% back immediately
What this looks like - say in year 10 I have $120k+ gross cash value and am earning 4-5% (tax-free btw)
That means every month I contribute $1k, I get access to $1.5k immediately because of how much (gross) cash value has accumulated in prior years
That means every month I contribute $1k, I get access to $1.5k immediately because of how much (gross) cash value has accumulated in prior years
The crux of the concept is that, because of the way the loan is collateralized, the gross cash value continues growing and compounding uninterrupted while the loan interest will just be deducted from an asset you don't care so much about (the death benefit)
The beauty of this system is that it's 100% liquid at all times, guaranteed rate of return (contractually the min. return is 3%), and acts like a "bank on steroids"
I don't think of it like an "investment" because it's not, and 4-5% return doesn't move the needle much anyway
I don't think of it like an "investment" because it's not, and 4-5% return doesn't move the needle much anyway
What does move the needle is funneling $1k/mo for life into the policy and earning 5% return compounding on every dollar, even while most of the cash is outstanding via loans (meaning you're using it normally for regular expenses)
This is just a simple $1k/mo policy and by the time I'm "retirement age" it'll be well over $1M and generating $50k+ annually
Which will cover all future premium payments (which will then keep compounding!)
Which will cover all future premium payments (which will then keep compounding!)
The reason I like this strategy is because
1) It's 10x better than other retirement plans from a return perspective
2) It's liquid and I use it like a bank, it's not locked up for years
3) The ONLY downside is the fees in the first few years
1) It's 10x better than other retirement plans from a return perspective
2) It's liquid and I use it like a bank, it's not locked up for years
3) The ONLY downside is the fees in the first few years
This is tax-free, creditor protected, extremely established etc etc
You never learned this in school because Wall St and the govt wants your funds tied up in "Blackrock blue chip fund no. 12" where they can charge you 2% a year on assets indefinitely (scam) and huge tax rev
You never learned this in school because Wall St and the govt wants your funds tied up in "Blackrock blue chip fund no. 12" where they can charge you 2% a year on assets indefinitely (scam) and huge tax rev
Also, whole life insurance is a SCAM when you don't include a PUAR (paid up additions rider)
We use as much PUAR as legally allowed to avoid FEES. Without it you're at a loss for 20+ years rather than just 7.
PUAR is the secret sauce that differentiates good policy from scam
We use as much PUAR as legally allowed to avoid FEES. Without it you're at a loss for 20+ years rather than just 7.
PUAR is the secret sauce that differentiates good policy from scam
Most people think - I'll buy life insurance and it has some small investment aspect as a perk.
We think - let's maximize the investment aspect and use it like a BANK and in turn minimize the death benefit (the PUAR provides very little coverage)
We think - let's maximize the investment aspect and use it like a BANK and in turn minimize the death benefit (the PUAR provides very little coverage)
Infinite Banking is what this is called, and it is NOT a product we're selling
It's a concept, that just happens to work uniquely well with whole life insurance - all because of the way the loan is collateralized
It's not about return %, it's about leverage
Cc @thegoswicks
It's a concept, that just happens to work uniquely well with whole life insurance - all because of the way the loan is collateralized
It's not about return %, it's about leverage
Cc @thegoswicks
@paulezimmerman maybe you have a more appealing screenshot to contribute of a more mature policy
