Well, the truth is that depends on your personal situation, there is no one size fits all. However, there is one strategy that many real estate investors seem to enjoy taking advantage of. 

 

And that’s the leverage Life Insurance strategy. Let’s break this down. 

 

First money is deposited into a Life insurance policy (specifically a whole life insurance policy). This gets you an Initial Death Benefit as well as a Cash Value. The initial death benefit helps produce the capital required at the time of death.

 

Whether it is there to cover taxes (estate preservation) or its there because your loved ones need additional capital to help replace your missing income the death benefit is there from day 1. But also, you get a cash value, think of this as a saving account. Just by depositing into your life insurance policy year over year, your cash value grows roughly at 4% (depending on how you set up your policy). But this is where things get interesting. 

 

What real estate investors have been doing is they then take their policy to a lender. And lend back 100% of what they deposited, this means, they are only out of pocket what they pay for the loan. You see, what most real estate investors know is the strength of leverage, and even small appreciation can add a lot of money when leverage is involved.

 

This means their seemingly small returns are amplified, making life insurance a worthwhile investment while they are alive. While all along they have the initial death benefit. 

 

 

 

Well, that depends on the investor. Most investors seem to be fine carrying debt. Meaning they do not have any intent in paying off the loan. I mean why would you? If what you pay for the loan, is less then, what you make in growth in the cash value it is a no brainer. 

 

 

 

First, the amount you pay out of pocket for the loan is tax-deductible. As well a portion of the policy is deductible, called Net-Cost-of-pure-insurance or NCPI for short. This gives you a slight benefit to what your net cost is at the end of the year.

 

 

 

Well, with any good investment there are risks. What an investor has to consider is their capability of funding the policy and loan year over year.

 

Most of the strategies require a 10-year deposit window having the required capital to invest is crucial. So you do not want to create a policy that spreads you to thin. Secondly is interest rates.

 

We are in a low-interest-rate environment as we speak, should there be an increase in interest rates can the investors sustain the loan payment? 

 

 

 

This strategy is not for everyone. It does offer a different take on life insurance, and can defiantly be used to help propel the right client forward. But like any strategy consult with your advisor beforehand.