Ben was thrilled with the whole life policy he purchased 8 years ago. He now had just over $200,000 of cash value in it. And his original death benefit of just over $1M was now worth $1,538,078, so it seemed to be doing a good job of keeping up with the inflation that was just starting to kick in – as everyone had known it would.
Ben was thrilled that his policy had been growing just as he had expected it to. There was an upfront cost to it that he had to pay in the first couple years, but now every time he put money into it, he had more than that instantly appear in cash value. And each year that amount was higher than the year before!
Ben did some calculations and realized that even if inflation didn’t cause his dividends to increase as it always had in the past, he would still be earning just under 5%, which was better than any other place where he could put safe money. And he had absolutely experienced the other benefits of the policy! When he realized that he wasn’t paying any tax on this growth he realized that it was performing like a risky investment, but without the risk. It seemed too good to be true. He was ecstatic that he was already seeing the long term benefits, as he had just recently started the policy.
As his cash value grew each year, Ben began to look at other investments. He was interested in real estate, but now that he could never get a loan based on a salary again, commercial real estate began to look extremely interesting. He knew that they gave loans based more on the CAP rate of the property than on the ability to repay by the borrower. Still, they were a little uneasy when they saw that he was handicapped.
An opportunity just seemed to drop in his lap one day as he was looking around for commercial real estate deals. Even though it was tough for Ben to get around, he always enjoyed visiting the dry cleaners because it brought back memories of growing up in the back while his father worked his business. One day while he and Kim were at the store they used to clean their clothes, the owner was complaining because he knew the owner of the building was trying to sell the place and he didn’t know what would happen if a new landlord came in. Ben felt the Lord was laying the perfect real estate deal right in his lap and he negotiated a great deal with the seller, which just left getting a loan to close the deal.
Financing was tough for anyone, but the fact that Ben was disabled made it especially tough. But when the banker saw that he was able to bring $150,000 cash to the table and that he owned a whole life policy which was guaranteed to grow by pretty large amounts each year, they were able to reach a deal. The economy had never quite recovered to the go-go style of the 1980’s and 90’s and cash was king. Financing was just never quite as easy to get as it used to be. On the flip side, because there was a lot less competition out there, cap rates were pretty high in commercial real estate and he was able to step in and buy a $300,000 property with $150,000 cash he pulled out as a policy loan from the life insurance company he was part owner in and got a $150,000 bank note which he would be paying back at 9% over 15 years. He was earning $40,000/yr in income on a triple net lease, and sent $18,252 to the bank each year, and $21,748 back into his insurance policy.
He was still thinking long term, so he wasn’t spending his profits, but storing them up in his policy by paying back the loan. He knew that he could defer making these payments, but he wanted to build his Storehouse (life insurance policy cash values) back up so they’d be ready for another venture. So he plowed his earnings right back into his policy knowing that even if he never increased his rents, he’d be done paying the loan off in about 10 years. Plus he planned to pay himself as much interest as the bank was charging even though the insurance company that he was part owner of charged him less. This was working so well why wouldn’t he want to make the policy all the stronger?
This was all looking pretty good, but a totally different opportunity was coming around the corner. We’ll look at that soon.
This is Part 6 in the story of Ben’s life using Whole Life Insurance in a variety of ways. You might want to read the introduction to this series which will link to each post in the series explaining how whole life works as well as linking to each post in this series on Ben’s story.
Photo credit: djhsilver