Mark is a Certified Financial Planner and the owner of Lake Growth Financial Services based in Chicago, Illinois. His firm works with clients all over the country and includes real estate investors, families, and business owners wanting to grow their wealth. He is also a best selling author. In this episode, Mark shares with us his revolutionary strategy that lets you access a pool of funds without going through a bank.
The infinite banking concept or the bank on yourself concept helps people build true wealth outside of any kind of investment. It also builds a liquid contingency pool for opportunities and emergencies. With this concept, you become your own line of credit.
The strategy works by using dividend-paying whole life insurance as a chassis which is then paired with real estate.
Whole life insurance is different from term insurance. Term insurance does not build up any cash and has no equity. You pay a premium that increases year by year, but your death benefits stay flat.
Whole life insurance allows you to build equity. You also get living benefits, increasing cash value, increasing death benefits, and uninterrupted compound growth. With whole life insurance, you have a cash balance reserve where you can invest more. Even if the stock market crashes, you get a guaranteed minimum of growth every year.
The cash equivalent returns of whole life insurance are better than what you get from bond funds and certificates of deposit (CDs). Plus, if designed correctly, you can get all that money out completely tax-free. It’s tax-free because technically you’re taking out a loan on the insurance policy.
It’s similar to the buy, borrow, die strategy applied directly to real estate buying without the glitches that come with it.
First, it’s important to find a competent advisor who knows what he or she is doing. Buy a policy and design it with your advisor to squeeze as much commission out of the policy. This lets you put more wealth and cash into your policy.
Then borrow against the life insurance to make smart choices like real estate investing. You have access to both principal and gains completely tax-free. When you die, your family gets the death benefits which would have significantly increased over your contributions.
You can access money multiple times. It can be done online with the money directly deposited into your account. You don’t need to qualify for the loan, and nobody will be checking your credit history.
There is also no required repayment plan. If you die with an outstanding loan, it will just get deducted from the death benefits.
Another benefit is that the policy will continue to pay interest and dividends even after you took out the loan. As you pay the loan off, your cash continues to grow.
While home values can go up or down, the cash value is guaranteed to grow.
It’s better to use a line of credit against your life insurance with a company where you’re considered a co-owner. Borrowing from a bank or taking a home equity line of credit (HELOC) means that you are not co-owner, have no control, and have no guarantee.
You have to pay interest on the money you took out from the policy, but it still benefits you as co-owner and with the 2% annual percentage rate (APR), you still get positive arbitrage.
Around 80-90% of your cash value can get accessed through the loan. If you take out 100%, it will close the policy.
From history, insurance companies tend to be more resilient. During the 2008 recession, a total of 498 banks went bankrupt in the U.S. Compare this with insurance companies where only one insurance company in Texas went bankrupt.
When Lincoln Memorial went bankrupt, the Department of Insurance in Texas took over its policies and the general fund. They ran it in the interest of the policyholders until all the policies were sold to a more well-run insurance company, Banner Life.
Basically, the insurance policyholders only experienced a change of logo in their dividend statements.
Investing In Whole Life Insurance
There’s no limit to how much money you want to put in every year. It all depends on your goals.
But life insurance companies will put a cap on how much you can get on yourself. They will look at your income, net worth, age, health issues, and if you have existing policies.
You can choose to be the owner of a policy that isn’t necessarily insuring your own life. You can get one for your partner, kids, or even real estate business partner.
Depending on your situation, you can either keep your existing policy or replace it. You can do a 1035 Exchange and transfer your policy’s cash value over to a new life insurance policy.
For others, they may have reached an age that they’re no longer insurable, so it may be better to just keep the policy. It’s best to consult with someone early and get the correctly designed policy.
Young people don’t have to wait until they’re debt-free before they invest in whole life insurance as they can take out a loan from their insurance policy to pay their debt.
Older people can decide to pay the lump sum payment and get access to all of that amount as a line of credit for their real estate business.
Borrowing money from your insurance policy can be used in many ways. You can use it to pay your property taxes or home insurance. Use it to become your own escrow. You can use it to make the downpayment for a property or use it for a full 100% cash property purchases.
For anyone interested in learning more, they have a financial podcast, and they do webinars on how the strategy works for the real estate business.
People who are unable to save or are looking for instant, double-digit returns are not a good fit for this strategy.
It acts more like a parking lot for your money between your deals, so it isn’t for someone looking for an investment.
Keep learning and keep reading. Do your own due diligence and take a moment to discern where the advice you’re getting is coming from.
Clint Coons is one of the founders of Anderson Business Advisors, a firm that specializes in creating asset protection entities…
Justin is a real estate investor who has done almost 2000 deals across the nation and in this episode, he’ll…
David is a real estate investor and a real estate coach. He has been investing in properties for almost 20…
Andrew, a real estate investment developer, is the owner of IronGall Investments, an Austin, Texas-based real estate development company. They…
Chris is the President and CEO of Smart Growth Inc., a California-based real estate and development firm. They are focused…
Rafael is a real estate coach and an organizational psychologist based in Miracle Valley, Arizona. He owns several real estate…