“Infinite Banking” and Real Estate Investing

If you are reading this, I just want you to know that you have come to the right place! This is the home of information on investing in Real Estate with Life Insurance.

If you are thinking of getting an “Infinite Banking” policy, it’s important to understand that Life Insurance Policies for Real Estate Investing NEED to be Maximum Over-funded. The problem is that most “infinite banking” policies ARE NOT Maximum Over-funded. They are merely “Over-funded”. That distinction is super important to comprehend. A Maximum Over-funded Policy allows for THE MOST Cash Value. More Cash Value means bigger loans for Real Estate Investing.

Recommended Reading: If you’re asking yourself: “What is cash value life insurance?” Start with this free Life Insurance 101 Tutorial.

I can’t stress enough how important it is to make sure your policy is designed right! So how do you optimize a policy for Real Estate Investing? I’m going to explain why we need to have a Maximum Over-funded Policy. I’m also going to show you just how much an improperly-designed policy is costing you in unrealized returns.

If you want to see what a properly-designed policy looks like right now, you can request an illustration. Then book some time on my calendar so I can show you the differences. You can book the appointment here.

As we dive into the details, you’ll begin to get a clear picture of why a traditionally-designed “infinite banking” policy is not optimal for investing in real estate. You should also check out all of the links, recorded webinars, and YouTube videos for even more information.

Free Download: How Does Life Insurance Work?

Real Estate Investing Requires Maximum Over-funded Policies

Again, it’s crucial to realize that Investing in Real Estate with a Life Insurance Policy requires a Maximum Over-funded Policy. Well, I suppose that’s not entirely true. You can use a poorly-designed policy for investing in Real Estate. But if you do that, just realize that you are leaving money on the table. You NEED a properly-designed policy to optimize your Real Estate Investing.

It’s crucially important to realize that using an improperly-designed policy can easily cost you tens or even hundreds of thousands of dollars over time.

I want to point out that none of these Private Banking systems were ever intended for use in real estate investing. Be aware that I’m going to refer to “Infinite Banking Concept“, “Be Your Own Bank“, “Bank on Yourself“7702 Plans” collectively as Private Banking. The key thing for you to know is that all of these Private Banking systems utilize Over-funded Cash Value Life Insurance.

For more info on the difference between a maximum over-funded life insurance policy and one that is minimally funded, be sure to check out this article.

How is it costing me money?

It’s helpful to know that in a Maximum Over-funded Policy, about 85-cents of every dollar of premium goes to the Cash value. On the other hand, most Private Banking policies only have about 65-cents of Cash Value for every dollar of premium. It’s important to point out that Private Banking policies are not necessarily poorly-designed. Rather, the intent is to only have 65% Cash Value to Premium. This funding shortfall allows for the bogus idea that the Policy Owner can “pay themselves interest”. It’s super important to realize that this “interest” is really just extra Premium. The policy owner is simply adding more premium to the policy and pretending its “interest“.

I refer to using a Maximum Over-funded Policy for Real Estate Investing as The Double Play. The Double Play is literally putting your money to work in two places at one time by leveraging the cash value of a maximum over-funded life insurance policy. The word Maximum is what separates what I do from other Private Banking practitioners. This means that my Policy’s are properly-designed for real estate investing.

Recommended Reading: Minimum and Maximum Over-funded Life Insurance Explained

In the paragraphs below, I’m going to make a comparison between two policies so you can see the advantage of the properly-designed policy.

Assumptions for Comparison

Let’s run through a comparison of The Double Play versus traditional Private Banking policy designs. This first table shows the assumptions we are going to use:

Just keep in mind that the premium doesn’t have to be this large. I just want you to know that it Can be this large. It also makes the math easier for our example. The Max-funded and Over-funded percentages represent the ratio of Cash Value to Premium with each Policy design.

At the time of this web page revision, there are several companies paying over a 6% dividend. Policy loan rates are all over the board. But it is possible to get a 5% loan right now from the companies I recommend. You can also use a Cash Value Line of Credit. That’s a loan from a Third-party bank secured by an assignment of collateral against the policy. Just be aware that rates on a CV-LOC are pretty high right now. They are based on the Prime Interest Rate.

Cash Value in a Properly-Designed Policy

This Table shows how much more Cash Value a Maximum Over-funded Policy has compared to a Private Banking design. I’m showing the Dividend in the last column so you can see that the Policy Design alone will cost you $1,200 in unrealized Dividends. That’s 1.2% on your $100,000 Premium!

How Much Can I Invest In Real Estate?

You should be aware that your Cash Value your collateral.That means that your Cash Value balance is your Credit Limit. You can see in this Table that The Double Play offers a $20,000 advantage. That’s 30% more capital you can deploy in your investment opportunities.

If we assume a 10% investment return over one-year, that translates into $2,000 more. With Policy Loan interest at 5%, The Double Play leaves $4,250 before taxes compared to only $3,250 when you use a Private Banking Policy. A Properly-designed, Maximum Over-funded Policy will result in 30% greater performance. This is another $1,000 in unrealized returns! That’s another 1% on your $100,000

Let’s Add Those Together

This Table shows the Total Return including both the Dividend and the Investment return. The Properly-designed Policy outperforms the Private Banking Policy by $2,200! You also need to be aware of what that will mean when you factor in:

  • Many years of growth and compounding, and
  • Many more years of $100,000 premiums.

It’s really a “No-Brainer”! Here it is in percentage terms:

And here it is in a Graph to make it easier to visualize just how much better The Double Play is over a Private Banking policy design over time.

Just FYI, I included a “$100,000 at 6% so that you can see that The Double Play is better than using your own cash to invest too. 6% would be the net after-tax return. That’s not directly comparable to the Life Insurance scenarios because they do not include tax. Just be aware that The Double Play is better even when the taxes are factored-in. I have dozens of other posts that show the comparison with taxes included.

The Double Play concept of leveraging the cash value of an over-funded policy is covered in detail here: Click Link.

Max Out the Paid-up Additions Up Front

It is the concept of “Paying Yourself Interest” that ruins Private Banking Policies for Real Estate Investing. They are leaving room for the Paid-up Additions to be added without creating a MEC (Modified Endowment Contract). It’s very important to realize that in our example above, the Private Banking policies would have had a much larger Death Benefit. The Death Benefit needs to be higher in order to allow for more Premium. BUT! The higher Death Benefit:

  • Leads to higher internal policy charges (the reason for the lower cash value) and
  • Results in a higher commissions for the Agent selling the policy.

Real Estate Investors NEED their policy’s cash value to be maxed out from the beginning. Period. You want as much of your money to be working in two places at one time as possible. If you have the money, it should be in the policy from the beginning, not added later as fake “interest”.

Payback Period

The red line shows a policy with 85% cash value to premium and the blue line shows one with 65%. At a 7% return on the cash value, it takes over 6 years for the cash value just to get back to the amount paid in premium! The properly-designed policy takes only 2 years.

Lastly, I just want to show you how the lower starting Cash Value impacts the “Payback” period. The Payback Period is when the Policy’s Cash Value catches up to the amount of Premium paid into the Policy. It’s important to point out that this chart is only looking at the Policy itself. That means no Real Estate Investments. You can see that if a policy starts at 85% cash value to premium, then the cash value breaks even in just over 2 years.

However, when the policy starts with only 65% cash value to premium, it takes over 6 years to break even.

Bottom line:

Investors that want to use “Infinite Banking” for Real Estate Investing need a Maximum Over-funded Life Insurance Policy. You CAN use a traditional “infinite banking” policy, thousands of people are doing it right now. But if you do that, just realize that I’ve just shown you that those thousands of people are leaving thousands of dollars on the table. Don’t be one of them. Use a Maximum Over-funded Policy.

Don’t leave money on the table. Make sure you work with an Agent who can properly design a Maximum Over-funded Policy. Use the links below to Request an Illustration and Schedule a Call with me. It is helpful to know that it is much easier to understand this concept when you are reviewing an actual life insurance illustration.

More Info:

If this seems a little overwhelming, be sure to check out How Life Insurance Works or Life Insurance 101 for a basic understanding of how permanent insurance works and what the cash value in a policy represents.

Interested in meeting other people investing in Real Estate with Life Insurance? Join The Double Play community on Facebook and network with like-minded real estate investors.


Recommended Reading: Debunking the Infinite Banking Myths

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No Rendering of Advice: The financial content in this document is provided for your personal education. It is not intended for trading purposes, and cannot substitute for professional financial advice. Always seek the advice of a competent financial advisor with any questions you may have regarding a financial matter. Information in this document is not appropriate for the purposes of making a decision to carry out a transaction or trade nor does it provide any form of advice (investment, tax, or legal) amounting to investment advice, or make any recommendations regarding particular financial instruments, investments, or products.

The sole purpose of life insurance is for the death benefit protection. Any other benefit is ancillary.