The Pros and Cons of the Dual Asset Strategy
We’ve created a list of the Top 5 Pros and Cons of the Dual Asset Strategy. Check them out below.
As we all know, there is not one perfect financial strategy out there that checks each and every one of your boxes when it comes to your goals. If there was, well, you wouldn’t be here researching this one.
The Dual Asset Strategy has so many benefits, but it’s not for everyone. As much as we think this strategy should be a tool in the 100 Year Real Estate Investor’s toolbox, there are a few drawbacks to consider.
There is a lot of misinformation concerning this strategy. Perhaps the most prevalent is that it’s a scam concocted to sell more life insurance. This mindset can lead to the belief that all insurance products are created the same. The fact is, it’s not a scam but a concept that utilizes a specially designed whole life insurance policy. This policy is very different from the policy your neighborhood insurance agent tried to sell you 10 years ago. It is designed to mitigate the insurance costs (and thus, lowers the commission to the agent) so that you can maximize the cash value – resulting in a more efficient policy than most people are familiar with.
When implementing this strategy, our team is also very picky about the carriers, products, and features needed to guarantee you get a properly structured policy with the benefits needed to get the most of your cash value. (For more, check out this video on how Whole Life Insurance compares to other savings vehicles)
Below you’ll find an honest overview of the Dual Asset Strategy – what it is and what it isn’t – so you can determine if it’s for you. If it is, we encourage you to schedule a call with our 100 Year REI Team.
BENEFIT #1: WHOLE LIFE IS NOT TIED TO THE STOCK OR REAL ESTATE MARKETS.
If you are a real estate investor, chances are the majority of your discretionary income is being diverted to assets that carry a certain amount of risk. Whether it’s the stock market, cryptocurrency, or your real estate holdings; these products have no guarantee of their value in the future.
These are assets you may be counting on when the next opportunity arises. However, what happens when the markets are down? Your ability to tap into those assets to take advantage of a deal also goes down. After all, one of the rules of investing is not to sell when the market is down.
Diversifying your portfolio by putting a portion of your cash reserves into whole life insurance allows you the liquidity you need when an opportunity arises. Since the growth is not correlated to the stock or real estate markets, your cash value will be there whether the market is up, down, or sideways.
BENEFIT #2: LIQUIDITY! CASH IS KING.
That leads to the second benefit of the Dual Asset Strategy: liquidity.
Once more, think about where your cash is currently. If you needed to access that cash, how easy is it to get to?
If it’s the equity in your primary home or other real estate holdings, you’d either have to sell the property, qualify for a HELOC, or refinance the property and pull cash out to get to it.
If it’s in an investment or crypto account, that asset needs to be liquidated.
The only truly liquid place you can store your cash is in a bank account, but who wants their savings earning less than 1% and being eaten up by inflation?
Plus, there’s an opportunity cost when taking money from an interest-bearing account – the interest that could have been generated on those dollars.
Borrowing against your whole life insurance policy’s cash value is a lot like a HELOC with a lot less stress. You get to borrow against the value of the underlying asset, while still capturing the growth of that asset as if you never touched it.
What you don’t have to do is jump through hoops at the bank to qualify for the loan, or be subject to the bank’s payment terms. In fact, you can choose when to start paying back your policy loan, how much, and how often. The insurance carrier determines the interest rate of the policy loan, the rest is up to you.
BENEFIT #3: TAX ADVANTAGES
When you contribute premiums to a whole life policy, the dollars go into the policy on an after tax basis (similar to a ROTH).
The cash inside the policy grows in two ways:
- Through guaranteed increases that are built into your contract with the insurance carrier.
- Through dividends, which are essentially the insurance carrier’s way of sharing it’s profits with its policyholders. While dividends are not guaranteed, the 100 Year REI Team only works with carriers that have a history of not missing dividend payments for 100 years or more.
As guaranteed increases and dividends are added to the cash value, the taxes on those gains are deferred.
You can borrow against your contributions AND your gains income tax-free (under current tax law). Plus, as long as it’s structured correctly, you can take supplemental income for retirement income tax-free as well.
That’s not the only tax advantage to whole life policies. The death benefit also passes to your beneficiary income tax-free and without going through probate.
This can be a great tool for real estate investors that may be leaving behind illiquid assets to their beneficiaries which could trigger a tax event. Would you rather your beneficiaries be able to continue to enjoy the income-producing asset for years to come, or have to sell it in a fire sale to cover a tax bill?
BENEFIT #4: FINANCE BIG-TICKET ITEMS FOR YOURSELF, YOUR FAMILY, OR YOUR BUSINESS
In addition to real estate investment, there’s a good chance that you’ll have other financing needs as life goes on. Cars, boats, RVs, family vacations, medical expenses, home repairs, and other emergencies create a need for cash.
Imagine being able to cut out the banks and finance these items yourself. The number of things you can finance through your policy is infinite, and the best part is that you aren’t missing out on the opportunity to continue growing your cash as you use it. That’s the beauty of the Dual Asset Strategy – your dollars work in two places at once! Whether that’s creating two assets, or replacing a broken A/C unit in your rental property, your cash is working for you.
Real estate investors in particular will have a need for capital expenditures, as there always seems to be some kind of repair needed in the properties they manage. In these cases, the 100 Year Real Estate Investor could make a personal loan to his or her real estate business to pay for the repair costs.
In doing so, they create a promissory note between themselves and their company in which they get to set the payment terms, including the interest rate.
The business gets to write off the interest expense of the loan, and the business owner gets to recoup the interest and pay off their policy loan. All while continuing to grow their cash reserves. Win-Win!
BENEFIT #5: CREDITOR PROTECTION
Each state has its own rules involving the protection of life insurance cash values in the case of a lawsuit or bankruptcy. In general, most states allow for some or all of the policy’s cash value to be protected from creditors.
You can click the following link to see the rules in your state: https://www.insuranceandestates.com/life-insurance-creditor-protection-by-state/
There are many benefits to using the Dual Asset Strategy, but as we mentioned above, like every financial strategy out there it’s not for everyone.
Here are some of the drawbacks to consider.
DRAWBACK #1: REQUIRES A LONG TERM MINDSET
Plain and simple, if you are looking to get rich quickly this strategy is not for you.
Just like starting a business or investing in real estate, it may take a couple of years before you are profitable with your whole life policy. Since it is an insurance policy, there is a cost to the insurance protection you are purchasing. In the early years, for every $1 you put into the policy, you won’t see that entire $1 in cash value.
Over time though, you’ll start seeing that $1 plus more growing inside your policy. And the longer you keep your policy the more exponential your growth becomes.
DRAWBACK #2: YOU MUST QUALIFY
As you know, the Dual Asset Strategy utilizes whole life insurance. To qualify, you have to apply for the policy with an insurance carrier and be medically and financially evaluated for the coverage.
The carrier is taking a risk when offering insurance to an applicant. If the insured dies, they could be liable to pay out a benefit many times more than the premium they received. For some applicants, their medical history may preclude them from being able to offer coverage.
If you don’t qualify for insurance coverage, the good news is you can still own a policy on a healthy insured. Many of our uninsurable applicants will own policies on their spouses, children, siblings, business partners, or even their parents. In doing so, they retain all the control over the contract and utilize the cash value.
DRAWBACK #3: REQUIRES FINANCIAL DISCIPLINE
There is no required amount that you need to be able to start your Dual Asset Strategy. The 100 Year REI Team meets with each person and evaluates their personal finances, goals, and objectives to design a policy with a contribution that fits into their budget.
In some cases, those that think they don’t have enough funds to start a policy may find that their cash is being used inefficiently and can redirect those dollars. In other cases, it may not be the right timing, and our team will put them on a path to be in a better position in the future to start their policy.
However, once you do implement your policy, you are committing to contributing to your policy on a regular basis, between a minimum and maximum amount. You should strive to maximize your policy as much as you can to make sure it grows as efficiently as possible.
There is flexibility after the first few years if you need to lower or stop your premiums, but you should be committed to maximizing your policy in the early years for the policy to perform the way you expected.
And, although you get to decide how and when to pay off your policy loans, you should be responsible and accountable to yourself to pay off the loans on a timely basis. Policy loans that remain unpaid for long periods of time could negatively impact the performance of the policy.
We hope this has given you a way to evaluate if the Dual Asset Strategy is right for you. If you think you could benefit from implementing this strategy into your current financial plan, we encourage you to schedule a call with our team now! They are happy to answer any questions you may have and help get you on the path to becoming a 100 Year Real Estate Investor!