July 3rd, 2008
"Louis, I think this is the beginning of a beautiful friendship." CASABLANCA, 1942
This is going to be a brief but replete post.
This post outlines a strategy that protects you against unforseen loss and guarantees a profit to your estate if you die owning investment real estate.
Every time you buy an investment property you have to establish a fund to assure that the taxes and insurance get paid, the maintenance gets done and that contingencies don't derail the investment's potential.
These expenses get taken care of If you put that money into a savings vehicle and draw it out as needed. If, however, you use a whole life insurance policy as your repository, there are other advantages that accrue. Here are just few:
- You can borrow the money from your policy to pay for these expenses and the policy will continue to earn interst and be credited with dividends as if you had not borrowed a penny.
- A single policy can support multiple properties' money needs at once.
- With proper ownership and borrowing arrangements the money that flows through the policy will be entirely tax free.
- You can repay the money you borrow and perpetuate the usefullness of the policy for decades.
- At death your named benficiary will receive the face amount of the policy - less any outstanding loans - as a tax free death benefit.
There are, of course, many other benefits that a real estate investor can derive from the proper use of whole life insurance (not universal life insurance at this time) in support of an investment program. Consult a properly informed financial guide before launching such a program.
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Nice post, Jeffrey, and an excellent point. I used to be an agent, and a whole life policy is a great solution for a number of investment scenarios. It won't make you rich, but it might just keep you from getting poor! It also has the benefit of forcing you to come up with an exit strategy, which every investor and business owner needs.