This article is based on the video that you can find on the YouTube channel Life180.

For this article, I'll discuss the four reasons why you should consider using whole life insurance to purchase your next real estate investment property. I understand that many people may wonder, why would I use whole life insurance for anything? Why even invest in whole life insurance at all? After all, prominent figures like Dave Ramsey and Suze Orman often advise against it, labeling whole life insurance as a poor investment choice.

I'm here to affirm that they are correct. Whole life insurance is indeed a poor investment choice. In fact, it's not an investment at all; it's primarily a savings vehicle. When you contrast the two, investments involve risk, whereas savings vehicles offer guarantees, preserving your capital without the possibility of loss. That's the fundamental distinction here.

Whole Life Insurance makes your real estate investment better

Now, let's delve into four key aspects of whole life insurance that can significantly bolster any real estate investment.

Having collaborated with real estate investors nationwide, I can attest to the effectiveness of this strategy in not only augmenting the growth of your real estate portfolio but also in providing a safeguard against potential risks. Let's face it, accumulating wealth often necessitates embracing a certain degree of risk, and the cyclical nature of real estate perfectly epitomizes this reality. While property values have witnessed a remarkable surge in recent years, with some experiencing nearly a 100% appreciation, it's imperative to explore tactics that can mitigate potential downturns.

It's incredible how rapidly property values have surged over the past two years, isn't it? So, while things are going smoothly, whole life insurance can provide an additional boost to your investment portfolio if managed effectively. On the flip side, in the event of a downturn like the one experienced in 2008 or during a period of real estate market volatility, your whole life policy can act as a hedge, helping to offset losses and recapture wealth more efficiently.

This is all about financial efficiency, not about risk. Understanding how to leverage financial strategies and tools is key, and that's where Whole Life Insurance comes in, it's a solution to improve efficiency in all your financial endeavors.

First Reason - Whole Life Insurance Offers A Guaranteed Return

So let's dive into this. The first point I want to address is the guaranteed return offered by Whole Life Insurance.

Before delving further into this concept, it's crucial to emphasize that your whole life insurance policy must be properly designed. Here is a link to a video that discusses how to structure a whole life policy correctly, which you should watch to gain a thorough understanding. If you're considering whole life insurance as an asset, notice I didn't say as an investment, but as an asset, a savings vehicle, to enhance the outcomes of your real estate investments, then it's imperative to ensure you're approaching it in the right manner.

Unfortunately, among the hundreds of thousands of life insurance agents worldwide, particularly in the United States, only a very small fraction truly understand how to do this correctly. This understanding is crucial. Not all whole life insurance policies are created equal. If you're aiming to enhance the outcomes of your real estate investments, you cannot rely on indexed universal life insurance. Why? Because real estate inherently involves risk, and you need to be prepared for that.

It's essential to acquire real estate in the right markets and in the right manner, and there are strategies you can employ to mitigate risks, topics we cover extensively in our videos.

But ultimately, you don't want to introduce risk into your life insurance contract. While Indexed Universal Life (IUL) may serve as an alternative for retirement planning, like other retirement investments, it carries inherent risks. Despite what IUL agents may claim, it's crucial to recognize the presence of risk. Therefore, if you're seeking a cash value life insurance policy, it must be whole life insurance. This brings us to the importance of guarantees.

Now, consider this perspective: When investing in real estate, what's the initial step? It's saving money with the specific purpose of investing in real estate, correct? So, where do you intend to save? In a regular savings account?.

Are you considering saving in a CD? Or perhaps wondering where to put your money? You could opt for a savings account, where you might earn anywhere from a tenth to one percent, depending on your location. Alternatively, you could choose to put your money in a whole life policy. With proper design, you could potentially achieve an internal rate of return over a longer period, approximately 40 times what you'd earn in a traditional savings account at present. This translates to around a 4 to 4.5% internal rate of return.

So what this does is provide an inflation hedge for you. The concerning aspect is that when you save money in a traditional savings account, you run the risk of losing money to inflation. Your purchasing power, what your money can actually buy, gets devalued year after year. It's crucial to take this into consideration.

For instance, imagine you have $100,000 sitting in a bank account while facing an inflation rate of 7.5%, as we have experienced in 2022. That means the value of your money in the bank account decreases by $7,400 due to inflation.

Exactly. Remember, while you're earning a tenth of a percent in a savings account, you're losing out on 7.5% due to inflation. That translates to a loss of $7,400 in purchasing power for that $100,000. So effectively, your $100,000 now holds the purchasing power equivalent to around $93,600. That's a significant impact. Therefore, securing a guarantee that surpasses the long-term target rate of inflation set by the Federal Reserve is a substantial advantage that you should leverage.

Second Reason - Whole Life Insurance Is Protected Against Lawsuits

Another compelling reason to consider using whole life insurance for your next real estate purchase is its capacity to safeguard your funds and offer protection in potential legal disputes. This aspect is critical to understand, particularly given the complexities of real estate ownership. While this article doesn't delve into the intricacies of real estate financial strategies, I can facilitate connections with experts who can provide in-depth guidance on this topic if you're interested.

Ultimately, when you own real estate, you're constantly vulnerable to potential lawsuits. While having the right insurance coverage for your properties and tenants is essential, there's always a risk of being underinsured or facing legal issues unrelated to your assets.

In such situations, your properties and other assets could be exposed—except for those held within a whole life insurance policy. In most states, any capital within your whole life policy is shielded against lawsuits. Recognizing the value, power, security, and control that come with this protection, it becomes evident that there's no other financial vehicle offering comparable benefits.

Understanding this makes utilizing whole life insurance for asset protection a clear and logical choice.

Third Reason - Whole Life Insurance Is Protected Against Lawsuits

Now, the third reason why I believe whole life insurance is remarkable is because of the tax benefits it offers. If you're drawn to real estate, chances are you already grasp the significance of tax advantages with every asset you acquire. With whole life insurance, it's particularly advantageous because you're investing post-tax money, akin to a Roth IRA.

You'll have the opportunity to grow your funds tax-deferred. Moreover, with the right approach, you can access the money tax-free. Additionally, unlike anything else in the financial industry, it comes with a tax-free death benefit.

So once again, this is a plan that, as I always say, if you're purchasing this home, or in this case, your next investment property, it's likely not going to be your last, correct? I imagine you're approaching this with a strategic plan in mind, aiming to accumulate properties to generate passive income and craft a specific lifestyle for yourself.

Whole Life Insurance Guarantees Your Real Estate Portfolio

By utilizing whole life insurance as the savings vehicle to achieve your property acquisition goals, you're tapping into the only self-completing savings vehicle in the world. Why do I say that? Because a properly designed whole life insurance policy is the sole method to ensure that your desired outcomes will materialize when you want them to, whether you're present to witness them or not.

And what does that mean? Let's consider this scenario: You're saving money in a traditional savings account, aiming to accumulate $50,000 for your next home. You reach your goal, purchase the property, and start building up savings again. However, let's say you pass away when you've saved up $30,000. In this case, your family inherits one home and $30,000. But will they be able to achieve what you intended for them with just that amount?

No. If you're saving in a whole life policy, your family not only gets the house, but they also receive the tax-free death benefit associated with the plan you had in place. So, it's not just about achieving better returns compared to a savings account; it's like a savings account on steroids. With a whole life policy, you benefit from various other living benefits, and the tax-free death benefit ensures that the goals you had for your family, spouse, children, community, church, or any other aspect of your life are self-completing.

If your goal was to acquire 10 or 15 rental properties to reach your desired financial destination, I want to emphasize that this goal can be achieved overnight. Of course, nobody desires such an outcome, but it serves as the ultimate backup plan, providing reassurance and security.

Fourth Reason - Whole Life Insurance Helps Create Arbitrage For Real Estate Investment

Now, the fourth significant reason, though not the final one, why I love this approach is the concept of arbitrage. But what exactly is arbitrage?

Arbitrage simply refers to the difference or spread between the acquisition cost of an investment and the earnings generated from that investment. Let me illustrate this concept: When you save money in a regular bank account and accumulate, let's say, $50,000 for a down payment on an investment property, and you pay that down payment in cash, what occurs? You relinquish control of that money, transferring control to the bank.

However, if you utilize a whole life policy, saving the same $50,000, you gain access to a line of credit associated with it. You leverage the capital you have by utilizing this line of credit, which might be at a 3% interest rate, for instance.

And then what happens is, the money in your whole life policy that you've used to leverage and acquire that 3% line of credit begins earning anywhere between four and a half and five and a half percent, right? So, you're essentially building in a positive spread. That one and a half to two percent spread is what we call arbitrage. Initially, it may not seem like a significant factor with just one property. And yet, as you accumulate three, four, five, six, seven, eight, nine, or 10 properties, it becomes a massive factor in your wealth creation journey.

Consider this perspective: that 2% spread acts as both a hedge and an amplifier. When the real estate market performs well, even if it averages a modest 5% gain, which has been extraordinary in recent years with gains even reaching 20%, a 2% increase on that translates to a remarkable 10% boost in returns, one of the best market outcomes ever.

Conversely, if the market experiences a 5% decline, and you can hedge off losses by 2%, you effectively reduce your losses from 5% to 3%. In such a scenario, that's a significant 40% reduction in losses.

That's incredibly impactful when you consider it over an extended period. Now, folks, this is precisely why I turned my attention this way. It's one of the core principles I've outlined in my book, "Cashflow Hacking": the strategy of leveraging whole life insurance alongside real estate investing to achieve your financial goals.

If you have any inquiries or wish to engage in further discussions, please refer to the link provided below(Clarity Call). Feel free to leave your comments or questions in the comment section as well.

Until next time, I hope you have a blessed, inspirational day.