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Several investment club members I have joined have a very unique investment idea.
The basic investment scenario is as follows: Put the maximum funding into a Universal Life Insurance policy with as little insurance as possible, as allowed by law. (Some parties are taking their IRA monies, paying the taxes and penalties for these monies). The UL policy invests in the S&P 500 or similar investment vehicle. Then take loans from the policy based on the monies invested. Loan charge is typically 6% and can create arbitrage if able to re-invest monies and get a higher return. The loan amount does not reduce your investment in the UL policy, and all the monies continue to grow tax deferred. Loans can be re-paid with monies re-invested. This will enhance your overall returns since all the monies in the policy grows compounded, tax deferred, and also get a return on difference of re-invested loan monies over and above the cost of the loan. At retirement, initially take out your principal investment, tax free, then take out loans on the interest earned, again tax free since these are loans. The loans are never paid back and reduce the death benefit. The growth in the policy will pay for the insurance premiums to keep it in force.
The idea is create your own bank to provide investment monies, as needed, assuming the monies can be re-invested at a return above the loan amount of 6%.
Does this sound reasonable? And why or why not?
The basic investment scenario is as follows: Put the maximum funding into a Universal Life Insurance policy with as little insurance as possible, as allowed by law. (Some parties are taking their IRA monies, paying the taxes and penalties for these monies). The UL policy invests in the S&P 500 or similar investment vehicle. Then take loans from the policy based on the monies invested. Loan charge is typically 6% and can create arbitrage if able to re-invest monies and get a higher return. The loan amount does not reduce your investment in the UL policy, and all the monies continue to grow tax deferred. Loans can be re-paid with monies re-invested. This will enhance your overall returns since all the monies in the policy grows compounded, tax deferred, and also get a return on difference of re-invested loan monies over and above the cost of the loan. At retirement, initially take out your principal investment, tax free, then take out loans on the interest earned, again tax free since these are loans. The loans are never paid back and reduce the death benefit. The growth in the policy will pay for the insurance premiums to keep it in force.
The idea is create your own bank to provide investment monies, as needed, assuming the monies can be re-invested at a return above the loan amount of 6%.
Does this sound reasonable? And why or why not?
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