Similarities Between an Infinite Banking Policy and Real Estate Investing

Both an Infinite Banking Policy & Real Estate Investing allow you to use other people’s money to create wealth. 

Real Estate investing allows you to use the bank’s money to create more wealth. A life insurance company allows you to use the insurance company’s money to create wealth.  

Infinite Banking and Real Estate allows your money to do Multiple jobs.

When you invest in Real Estate, you have an asset that typically grows in value. It is also generating income. 

An Infinite Banking policy grows cash value and death benefit at the same time.  You can use a policy to build wealth and pay off debt or use the cash value inside a policy as collateral, invest elsewhere, and create a return on that investment.  

Both are Fantastic at Creating Consistent and Predictable Tax-Free Growth

When you buy real estate, your property appreciates in value over time. The same thing happens with an Infinite Banking policy. The death benefit and the cash value both grow over time. 

You do not have to pay taxes on either one yearly. Other investments may involve on-going capital gains tax, which can kick you into the next tax bracket. When taken as a loan, the cash flow from Life Insurance is not considered income, so it will never put you into the next tax bracket.

Deposits create equity

Mortgage payments create equity with each payment made on the property.  Each deposit into an Infinite Banking policy grows the cash value within that policy. Each deposit also increases the death benefit. 

Access Equity Tax-Free money through loans

 When you have equity inside a piece of real estate, you can access that equity tax-free through loans. When you have cash built up in the cash value of a life insurance policy, you can access the money tax-free as well.

The problem with trying to access the money through real estate is that many banks restrict how much of that equity you can have access to, and you almost always must qualify for a loan. This can take time. You do not have time when you need to capitalize on a deal.

When you borrow money against your life insurance policy, you generally have the money in 3 days or less.

Both real estate and life insurance require Maintenance or regular expense.

Maintenance in real estate includes regular maintenance, but it can also include unexpected costs, such as a new furnace, new roof, or a bad tenant.  There is a cost for life insurance as well to have an ongoing policy.  But, there will never be any surprises, and some of the costs can even be shut off. 

Rent it out

You can rent out your real estate and create cash flow. You can loan out your money inside your life insurance policy and charge the borrower interest.  You can then put any of the arbitrage or profit you make back into your policy and create future cash flows that you will never pay taxes on. 

Leveraged Equity Reduces Net Value of Asset

if you have a house worth $300,000 and you take out a loan of $200,000, you have net equity of $100,000. 

The same is true with the cash value inside your life insurance policy. If you have $300,000 cash available in your policy, and you take out a loan of  $200,000, You’ll still have $100,000 net equity. When you pass away, that loan on your house will get paid off if the house is sold. However, the amount of money your heirs receive from the sale will be reduced by the loan amount. 

With a policy loan, if you have $300,000 in cash value but a loan for $100,000, you will get the death benefit minus the loan. In a policy with $300,000, the death benefit will probably be at least $1,000,000.  Your heirs will get the Death Benefit minus the loan.  This will be significantly more than what the heirs would get from the sale of the house alone. 

Step-up basis at death

Real Estate investors practice what is called buy, borrow, and die. They buy real estate and borrow against it, over and over. They continue to do so until they pass away. 

This allows them access to cash tax-free. When they pass away, their heirs receive the house at current market value and sell it for little to no capital gains tax. The same is true for a death benefit inside life insurance. 

Real Estate has a “Like-Kind Exchange 1031.

This allows the profits from one property to another to be rolled over and avoid taxes. 

Life Insurance has a similar process, called a “Like-Kind Exchange 1035”, which allows you to roll over all the cash value in a policy, including the gains, into a new policy with no tax implications. They work in similar ways, but there are many more rules involved in a 1031 Exchange.

You can sell it!

Yes, you can sell your life insurance policy to another person. Life settlements are like selling the deed to a house. Just like selling your house, there may be tax consequences when you do this.