Whole Life Financing For Dummies

Have you been sitting on the sidelines waiting to accumulate cash to start investing in short sales? There are faster, easier and more efficient ways to raise needed funds but one that is gaining a great deal of support is the use of whole life insurance as a finance vehicle for short sale investing.

Whole life insurance is often considered a “bad buy” among traditional investment guru’s including notables such as Dave Ramsey and Suzy Ormon…indeed, for the average American struggling just to get by, any form of life insurance is often viewed as a luxury rather than necessity. However, those with the foresight plus a little time on their hands to crunch the numbers soon realize a whole life policy isn’t always a bad investment…in fact, held long-term it can be the most economically viable option. Beyond the basic death benefit, there are other very real rewards to be gained from a whole life policy including the use of low-cost financing.

Basically it works like this; once a participating whole life policy is purchased and capitalized or funded, the dividends eventually cover the cost of the policy itself. Additional paid in full riders can greatly increase the initial funding of the account to grow the cash balance to a desirable level. At this point, the policy can be borrowed against for any desired purpose…including the purchase of real estate. A contract is established that delineates the “interest rate” to be charged on the loan and the time period in which it is to be repaid. Meanwhile, the policy continues to receive dividends based upon the complete cash value of the policy essentially creating an exceptionally low cost source of funds. In fact, the policy owner benefits in several ways since the payments (with interest) are paid directly back into the whole life account. Interest can be used as a write-off for the real estate expenses while simultaneously, excess payment amounts paid back into the whole life policy are used to purchase additional paid-in-full premiums thereby increasing the death benefit and available source of future cash value in the account.

Not only does the account continue to grow, pay dividends and collect the full payments back into the account but insurance is considered a protected asset in many states and taxes are deferred until the withdrawals exceed the amount paid into the policy. Because dividends are considered a ‘return of premium’ rather than distribution of profits, they are not subject to typical taxes.

If you own a whole life insurance policy, take time to carefully consider the feasibility of using a policy or cash value loan to dramatically enhance your individual real estate portfolio. By establishing favorable repayment terms and recapturing the interest rates into your own account, it’s possible to act like your own banker while building a strong real estate investment portfolio.

NorthWest Real Estate