Integrating Life Insurance into Your Passive Investment Strategy

 

For most people, life insurance conjures up images of a basic safety net in case of untimely death. But life insurance can serve a far more strategic purpose for investors seeking passive income streams. When structured intentionally, certain types of permanent life insurance policies can become powerful portfolio tools that complement other passive real estate and business investments in impactful ways.

However, tapping into these non-traditional applications requires rethinking common misconceptions that permanent life insurance is always a poor investment. With proper optimization, life insurance can provide unique advantages ranging from tax-free compounding to leverage for enhancing returns. Used creatively, life insurance can take your passive investing to the next level.

Debunking Myths About Life Insurance

Many investors dismiss permanent life insurance policies outright as bad investment vehicles due to perceived high costs, illiquidity, lack of control, and low returns compared to other options. But this narrow view fails to capture the broader picture. When designed and employed purposefully, permanent policies using specialized strategies can provide advantages not found in traditional investments.

Some common myths that discourage utilizing life insurance as an investment include:

  • Low returns – Optimized policies can earn cash value returns comparable or superior to many conventional investments, all tax-free.
  • High costs – Policy expenses can be minimized to maximize cash value accumulation long-term, shifting focus from premiums to returns.
  • Illiquidity – Cash values can be borrowed against income tax-free for any need, providing access comparable to liquid accounts.
  • Market risk – Cash values remain intact regardless of stock market declines, offering stability.
  • Requirement to die – Accelerated death benefits allow tapping cash values while living if terminally or chronically ill.

With an open mindset, purpose-designed policies can provide benefits ranging from tax-deferred compounding to leverage for enhancing portfolio returns.

Tax Advantages Unique to Life Insurance

One of the key advantages of permanent life insurance policies is the ability to accumulate cash value on a tax-advantaged basis. The cash value account grows by crediting premium payments at a minimum guaranteed interest rate plus dividends paid by the insurance carrier. Premiums paid into the policy grow tax-deferred, meaning no taxes are owed on the gains each year.

Policyholders can access this cash value income tax-free in a couple ways:

  • Policy loans charged at relatively low fixed interest rates, usually 5-8%
  • Withdrawals up to basis (total premiums paid)

These features contrast favorably with taxable investment accounts, where gains are subject to taxes annually creating drag on long-term compounding. As an instrument for long-term capital accumulation, the tax-free treatment can make properly optimized permanent life policies a superior vehicle.

Generating Tax-Free Income

One of the most useful financial applications of a permanent life insurance policy is generating tax-free income. This is achieved by taking strategic policy loans.

Here is how the strategy works:

  • Cash value accumulates tax-deferred within the life insurance policy.
  • Loans can be taken out against up to 90% of the policy’s cash surrender value.
  • These loans are charged relatively low fixed rates, typically 5-8% interest.
  • The loans are not taxed as distributions since they are technically debts.
  • Meanwhile, the cash value continues growing while any loans are outstanding.

This structure creates a revolving source of tax-free income. Essentially you are accessing growth within the policy cost-effectively without triggering taxes. This can provide supplemental funds to reinvest or spend. Policy loans offer a unique source of tax-favored income that cannot be achieved with conventional investment accounts.

Leveraging Death Benefits

In addition to cash value accumulation, the death benefit component of life insurance can provide powerful investment leverage.

A policy’s death benefit is the guaranteed amount paid to beneficiaries upon the insured’s passing. This amount grows exponentially over time supported by premiums and dividends.

If optimally leveraged prior to death through policy loans, this increasing death benefit can enhance investment returns:

  • Loans reduce the net death benefit but the total keeps growing.
  • Interest and dividends can repay loans over time, restoring the net benefit.

You gain investment exposure to an asset steadily appreciating above cash values contributed. When coordinated with other investments, this death benefit leverage can boost portfolio returns.

Complementing Other Passive Investments

For passive real estate investors, incorporating permanent life insurance can benefit your overall plan and portfolio in multiple ways:

Principal Protection – Cash values remain intact regardless of market declines, providing stability.

  • Tax Optimization – Tax-deferred growth and tax-free income enhance after-tax returns.
  • Leverage – Death benefit provides shadow leverage that increases internal rate of return.
  • Income – Tax-free policy loans generate supplemental cash flow.
  • Financing – Low-rate policy loans can provide capital to invest.
  • Diversification – Non-correlated growth diversifies portfolio risk.
  • Legacy – Death benefit passes income tax-free to heirs, completing the wealth cycle.

Optimizing for Cash Value Growth

To reap the full advantages, the key is optimizing policies specifically for cash value accumulation and growth. Some key techniques include:

  • Aggressive funding early with larger premiums
  • Utilizing paid-up additions riders to rapidly increase death benefits
  • Strategic policy loans and withdrawals to stimulate growth
  • Capturing dividends at opportune times
  • Annual reviews to maximize policy performance

The right policy design, funding strategy, and ongoing optimization is crucial to harness the full investment upside.

Employing the “Investment Optimizer” Strategy

A powerful concept for investors is the “Investment Optimizer” strategy. This utilizes a permanent policy’s unique advantages to boost returns in other investment accounts.

Here is how it works:

  • Build cash value within a specially designed permanent policy for tax-advantaged growth.
  • When ready to realize gains in investments like stocks or real estate, liquidate and trigger taxable events.
  • Rather than reinvesting proceeds, use policy loans to purchase new investments tax-free.
  • Interest and dividends in the policy repay loans over time.
  • Continuously reuse policy capital to enhance returns across generations of investments.

This efficient recycling of capital supercharges your overall passive portfolio returns. Any income produced from investments can be directed back into paying off policy loans.

Ideal Candidates for Strategic Life Insurance

Certain investor profiles are ideal candidates for creatively employing life insurance to advance financial objectives:

  • Seeking tax diversification – Derive benefits from tax-free growth and income.
  • Focused on wealth transfer – Leverage death benefit for estate planning and multi-generational goals.
  • Want portfolio resilience – Mitigate risk through uncorrelated stable cash value growth.
  • Open to unconventional strategies – Take advantage of innovative applications for optimal results.
  • Have longer time horizons – Allow sufficient time for strategies like policy optimization and loans to play out.
  • Value principal protection – Insulate from market losses and volatility.

For investors meeting several of these criteria, strategically designed life insurance can powerfully complement passive investment pursuits and provide a range of unique advantages.

Specialized Guidance Is Critical

While optimized life insurance can be a game-changer, success requires working with specialists. Credentialed advisors who understand these advanced concepts are best positioned to craft and manage solutions tailored to your objectives.

Be wary of any advisor who focuses solely on minimizing premiums or policy expenses. Sophisticated life insurance planning is not about premiums – it is about maximizing cash value accumulation, death benefit enhancement, and portfolio returns. Finding experts who can effectively explain and deliver these more complex outcomes is key.

As passive investing educator and Founder of Money Insights,  Rod Zabriskie says, “The purpose of insurance is not to buy insurance. The purpose of insurance is to increase return on investment.” By leveraging the unique attributes of life insurance, your portfolio can capture higher returns and greater tax efficiency.

To listen to a full conversation on investment optimization, check out the Money Insights podcast. Or to learn about this and other valuable passive investment strategies, join Left Field Investors and get access to a full range of educational content and networking opportunities.

Chris Franckhauser

Vice President of Strategy & Growth, Advisory Partner

Chris Franckhauser, Vice President of Strategy & Growth, Advisory Partner for Left Field Investors, has been involved in real estate since 2008. He started with one single-family fix and flip, and he was hooked. He then scaled, completing five more over a brief period. While he enjoyed the journey and the financial tailwinds that came with each completed project, being an active investor with a W2 at the time, became too much to manage with a young and growing family. Seeing this was not easily scalable or sustainable long term, he searched for alternative ideas on where to invest. He explored other passive income streams but kept coming back to his two passions; real estate and time with his family. He discovered syndications after reconnecting with a former colleague and LFI Founder. He joined Left Field Investors in 2023 and has quickly immersed himself into the community and as a key member of our team.  

Chris earned a B.S. from The Ohio State University. After years in healthcare technology and medical devices, from startups to Fortune 15 companies, Chris shifted his efforts to consulting and owning a small apparel business when he is not working with LFI (Left Field Investors) or on his personal passive investments. A few years ago, Chris and his family left the cold life in Ohio for lake life in the Carolinas. Chris lives in Tega Cay, South Carolina with his wife and two kids. In his free time, he enjoys exploring all the things the Carolinas offer, from the beaches to the mountains and everywhere in between, volunteering at the school, coaching his kids’ sports teams and cheering on the Buckeyes from afar.  

Chris knows investing is a team sport. Being a strategic thinker and analytical by nature, the ability to collaborate with like-minded individuals in the Left Field Community and other communities is invaluable.  

Jim Pfeifer

President, Chief Executive Officer, Founder

Jim Pfeifer is one of the founders of Left Field Investors and the host of the Passive Investing from Left Field podcast. Left Field Investors is a group dedicated to educating and assisting like-minded investors negotiate the nuances of the passive investing landscape and world of syndications. Jim is a former financial advisor who became frustrated with the one-path-fits-all approach of the standard financial services industry. Jim now concentrates on investing in real assets that produce cash flow and is committed to sharing his knowledge with others who are interested in learning a different way to grow wealth.

Jim not only advises and helps people get started in passive real estate syndications, he also invests alongside them in small groups to allow for diversification among multiple investments and syndication sponsors. Jim believes the most important factor in a successful syndication is finding a sponsor that he knows, likes and trusts.

He has invested in over 100 passive syndications including apartments, mobile homes, self-storage, private lending and notes, ATM’s, commercial and industrial triple net leases, assisted living facilities and international coffee farms and cacao producers. Jim is constantly looking for new investment ideas that match his philosophy of real assets producing cash flow as well as looking for new sponsors with whom he can build quality, long-term relationships. Jim earned a degree in Finance & Marketing from the University of Oregon and a Master’s in Business Education from The Ohio State University. He has worked as a reinsurance underwriter, high school finance teacher, financial advisor and now works exclusively as a full-time passive investor. Jim lives in Dublin, Ohio with his wife, three kids and two dogs. In his free time, he loves to ski, play Ultimate frisbee and cheer on the Buckeyes.

Jim earned a degree in Finance & Marketing from the University of Oregon and a Master’s in Business Education from The Ohio State University. He has worked as a reinsurance underwriter, high school finance teacher, financial advisor and now works exclusively as a full-time passive investor. Jim lives in Dublin, Ohio with his wife, three kids and two dogs. In his free time, he loves to ski, play Ultimate frisbee and cheer on the Buckeyes.

Chad Ackerman

Chief Operating Officer, Founder

Chad is the Founder & Chief Operating Officer of Left Field Investors and the host of the LFI Spotlight podcast. Chad was in banking most of his career with a focus on data analytics, but in March of 2023 he left his W2 to become LFI’s second full time employee.

Chad always had a passion for real estate, so his analytics skills translated well into the deal analyzer side of the business. Through his training, education and networking Chad was able to align his passive investing to compliment his involvement with LFI while allowing him to grow his wealth and take steps towards financial freedom. He has appreciated the help he’s received from others along his journey which is why he is excited to host the LFI Spotlight podcast and share the experience of other investors and industry experts to assist those that are looking for education for their own journey.

Chad has a Bachelor’s Degree in Business with a Minor in Real Estate from the University of Cincinnati. He is working to educate his two teenagers in the passive investing world. In his spare time he likes to golf, kayak, and check out the local brewery scene.

Ryan Steig

Chief Financial Officer, Founder

Ryan Stieg started down the path of passive investing like many of us did, after he picked up a little purple book called Rich Dad, Poor Dad. The problem was that he did that in college and didn’t take action to start investing passively until many years later when that itch to invest passively crept back up.

Ryan became an accidental landlord after moving from Phoenix back to Montana in 2007, a rental he kept until 2016 when he started investing more intentionally. Since 2016, Ryan has focused (or should we say lack thereof) on all different kinds of investing, always returning to real estate and business as his mainstay. Ryan has a small portfolio of one-to-three-unit rentals across four different markets in the US. He has also invested in over fifty real estate syndication investments individually or with an investment group or tribe. Working to diversify in multiple asset classes, Ryan invests in multi-family, note funds, NNN industrial, retail, office, self-storage, online businesses, start-ups, and several other asset classes that further cement his self-diagnosis of “shiny object syndrome”.

However, with all of those reaches over the years, Ryan still believes in the long-term success and tenets of passive, cash-flow-focused investing with proven syndicators and shared knowledge in investing.

When he’s not working with LFI or on his personal passive investments, he recently opened a new Club Pilates franchise studio after an insurance career. Outside of that, he can be found with his wife watching whatever sport one of their two boys is involved in during that particular season.

Steve Suh

Chief Content Officer, Founder

Steve Suh, one of the founders of Left Field Investors and its Chief Content Officer, has been involved with real estate and alternative assets since 2005. Like many, he saw his net worth plummet during the two major stock market crashes in the early 2000s. Since then, he vowed to find other ways to invest his money. Reading Rich Dad, Poor Dad gave Steve the impetus to learn about real estate investing. He first became a landlord after purchasing his office condo. He then invested passively as a limited partner in oil and gas drilling syndications but quickly learned the importance of scrutinizing sponsors when he stopped getting returns after only a few months. Steve came back to real estate by buying a few small residential rentals. Seeing that this was not easily scalable, he searched for alternative ideas. After listening to hundreds of podcasts and attending numerous real estate investing meetings, he determined that passively investing in real estate syndications was the best avenue to get great, risk-adjusted returns. He has invested in dozens of syndications involving apartment buildings, self-storage facilities, resort properties, ATMs, Bitcoin mining funds, car washes, a coffee farm, and even a Broadway show.

When Steve is not vetting commercial real estate syndications in the evenings, he is stomping out eye diseases and improving vision during the day as an ophthalmologist. He enjoys playing in his tennis and pickleball leagues and rooting for his Buckeyes and Steelers football teams. In the past several years, he took up running and has completed three full marathons, including the New York City Marathon. He is always on a quest to find great pizza, BBQ brisket, and bourbon. He enjoys traveling with his wife and their three adult kids. They usually go on a medical mission trip once a year to southern Mexico to provide eye surgeries and glasses to the residents. Steve has enjoyed being a part of Left Field Investors to help others learn about the merits of passive, real asset investments.

Sean Donnelly

Chief Culture Officer, Founder

Sean holds a W2 job in the finance sector and began his real estate investing journey shortly after earning his MBA. Unfortunately, it could not have begun at a worse time … anyone remember 2007 … but even the recession provided worthy lessons. Sean stayed in the game continuing to find his place, progressing from flipping to owning single and multi-family rentals to now funding opportunities through syndications. While Sean is still heavily invested in the equities market and holds a small portfolio of rentals, he strongly believes passive investing is the best way to offset the cyclical nature of traditional investment vehicles as well as avoid the headaches of direct property ownership. Through consistent cash flow, long term yield and available tax benefits, the diversification offered with passive investing brings a welcomed balance to an otherwise turbulent investing scheme. What Sean likes most about the syndication space is that the investment opportunities are not “one size fits all” and the community of investors genuinely want to help.

He earned a B.S. in Finance from Iowa State University in 1995 and a MBA from Otterbein University in 2007. Sean has lived in eight states but has called Ohio home for the last 20+.  When not attending his children’s various school/sporting events, Sean can be found running, golfing, shooting or fly-fishing.

Patrick Wills

Chief Information Officer, Advisory Partner

An active real estate investor since 2017, Patrick Wills’ investing journey began like many others – after reading the “purple book” by Robert Kiyosaki. Patrick started with single family rentals, and while they performed well, he quickly realized their inability to scale efficiently while remaining passive. He discovered syndications via podcasts and local meetups and never looked back. He joined Left Field Investors in 2022 as a member and has quickly become an integral part of the team as Vice President of Technology.

An I.T. Systems Engineer by trade, he experienced the limitations of traditional Wall Street investing firsthand in his career and knew there had to be a better way to truly have financial freedom.

Unfortunately, that better way is inaccessible to those who need it most. His mission is to make alternative investments accessible to everyone who seeks to take control of their financial future and to pursue their passions in life.

Contact Us

Contact Us (Footer + Contact Page)

Name(Required)

Stay Connected!

Sign up to be notified of our latest articles and meeting announcements.

Stay Connected!

Sign up to be notified of our latest articles and meeting announcements.