Ep 187 – Building the Right Insurance Plan with Sarry Ibrahim

Whole life insurance isn’t something a ton of people have. Many people get term life insurance after they have kids, but don’t think about doing whole life. But there’s a way to scale your real estate portfolio using insurance that can help you become a successful investor.

Adam Schroeder talks with Sarry Ibrahim, founder of Financial Asset Protection, about how to set up and utilize your whole life insurance so that you can put your money to use quickly and efficiently.

Learn more about Sarry at: http://www.finassetprotection.com/

***To receive your copy of Zach’s Top 20 Markets to Invest in 2023, email your request to [email protected] ***

Transcript:

Adam

Hey, Rent to Retires. It’s Adam Schroeder here with another episode, and I’m joined today by Sarry Ibrahim. He is here to talk about the most exciting investment out there, and that is life insurance. So, Sarry, thanks for joining us today.

Sarry

Hey Adam, thank you so much for having me on.

Adam

Absolutely. Now, Sarry, you are the, uh, the founder of the, uh, financial Asset Protection Company. Tell us a little bit about how you got started on your journey. ’cause I imagine you weren’t a small kid growing up, telling your parents, mom, dad, Sunday, I’m gonna be a financial asset person <laugh>, and help people with, uh, with their plan here. So how did you get on this kind of track?

Sarry

Yeah, exactly. It’s not really a, a job. You kind of grow up thinking you’re gonna do, uh, the way I, I feel like it kind of found me. So I started this journey when I was doing my M B A and I started, um, my first job at Allstate Insurance. So that kind of introduced me to the insurance and financial services world. And I noticed then I, I, I intentionally went into the job thinking I was just gonna do this job just to get experience and then go somewhere else. But what happened was, is I ended up really enjoying, like, I, I understood the field and I also more importantly understood like the importance of it, right? It’s not just insurance, it’s not just products. It’s really, it’s a way of living for a lot of people. So that kind of like resonated with me.

Sarry

And then that led me to starting my own firm, an independent brokerage. So we did like a lot of, uh, Medicare and health insurance products for, for retirees from the city of Chicago. And that led me into finding about finding out about the infinite banking concept, which I’m sure a lot of your listeners and a lot of other real estate investors are familiar with the infinite banking concepts. So, fast forward to today, that’s exactly what we do. We help clients build out cash value, whole life insurance policies, as well as other types of financial and insurance products, but really for them to become their own sources of financing, to invest in real estate, to invest in alternative investments, or really to do anything they want with their money.

Adam

Yeah. Fantastic. So when it comes to it, you mentioned the, the infinite banking term, then, you know, that’s a, a word that sounds fantastic. Um, when you think of, you know, infinite means my money goes on forever. Um, tell us a little bit about what infinite banking actually is and how people are able to use it as, you know, how do you utilize it?

Sarry

Yeah, exactly. So in very basic terms, it’s the use of cash value life insurance. And it was originally introduced in Nelson Nash’s book, becoming Your Own Banker. So in the book, he talks about that there’s, uh, there’s a couple different types of life insurance. There’s term life insurance, which is just term, it’s, it’s literally exactly what it sounds like. It’s just life insurance only. And then there’s cash value, specifically, I’m gonna talk about whole life insurance. So within whole life insurance, there are two parts to it. There’s the cash value part, and there’s the life insurance part. Imagine a life insurance policy with the savings account attached to it. That’s what infinite banking is. It’s using the savings portion of your life insurance policy to leverage that as collateral and then invest in real estate, invest in anything you want. It doesn’t even have to be for investment purposes, but that’s kind of like in a, in a very basic way, that’s what infinite banking is, and it’s called infinite banking because there’s an infinite amount of things you could do with the policy. You can save for retirement. You could reinvest back in your business, you can use it for passive investments, you could leave it just for legacy purposes only just to leave money for the next generation or the next two generations so that it’s infinite in the way that you could use it.

Adam

Yeah. So how, I mean, it would seem, and I know we’ve discussed this with some other insurance people before, how is it able, I mean, this sounds quite honestly like, um, I don’t know if I would, I wouldn’t call it necessarily a Ponzi scheme, but like a pipe dream in some ways that you’re able to pull money out, but yet it doesn’t impact the ability of your policy to continue growing. Um, from what I understand about infinite banking, which seems impossible, how is that possible?

Sarry

Yeah, think of a real estate property. Let’s just say you had a, a real estate property right now that was paid up, and let’s just say the market value on it was $500,000. You had no mortgage on it. And let’s just say you, you went out and you took out a loan against that property, and let’s just say you went out and took out a loan for a hundred thousand dollars against that property. That outstanding loan does not impact the appreciation of that property, right? In fact, that’s why a lot of real estate investors use leverage. They use loans, is because the, the idea is that the appreciation of the property will outpace what you’re paying in interest and other expenses. So, um, taking out that take, taking out that loan against the property does not impact the market value of that property. It impacts what you owe on that property, but it doesn’t impact the overall appreciation. Same thing with life insurance. When you have a whole life policy that’s properly designed and you have cash value in it, the cash, the cash grows, the po the policy appreciates and value, and then when you take money out, you’re not necessarily subtracting from the principle of it, you’re borrowing against it from the insurance company. So you’re taking out a loan against the policy, and the policy continues to, uh, appreciate, it’s called non-direct recognition. And that means that the policy loans do not impact the growth of the policy.

Adam

Okay? So whenever you’re doing it, let’s say I am, you know, I’m, me, I’m 40 years old looking to get one set up, but I’m thinking to myself, you know what, in 10 years I’m gonna retire, I’m going to, you know, move on to the next phase of my life. And a lot of people, when they think about the future selves, think about earning less, which hopefully they aren’t mm-hmm. <affirmative>, but you know, they think about how they’re gonna be earning less later in life. Is it, do I put in the amount that I can pay and afford now? Or do I put in the amount that I think I’ll be able to afford later? Or can I change the amount that I’m putting in? How does that work? Because I think whole life I’m gonna have to pay it for the rest of my life. So how does, how does that work?

Sarry

Yeah, so that’s a good thing about whole life is that there are, it’s very flexible and there’s something called reduced paid up like R P U, and then you could do reduced pay it up at any point in the policy. Uh, usually it’s a minimum of seven years to prevent the policy from becoming a modified endowment contract. And then that means that, so when you build out cash value, whole life policies in most, in most situations, the growth of the cash, the loans, the withdrawals, the income you take out, uh, every part of the money coming out of it is tax free. If it’s an, if it’s not a modified endowment contract, if it is a modified endowment contract, then you’re taxed on the loans and withdrawals on the gains of the loans and withdrawals. So, um, to prevent that, you have to pay until a policy for at least seven years.

Sarry

And in this case, let’s, you mentioned you, you would pay in for 10, you could actually pay in for seven if you wanted to. You could even set it up so that way you’ll plan on paying it, paying it for 10 years, but then let’s just say year seven, you’re like, you know what, I’m done paying this. You could do that as well. So it’s very flexible. You could stop paying premiums and the policy will remain active or remain enforced for the rest of your life. So yeah, it’s called the whole life. It’s because the whole life policy remains in for your whole life. It’s actually until age 121. So it remains in effect, but you don’t have to pay premiums for your whole life, if that makes sense.

Adam

Yeah. All right. Fair enough. And so let’s say I’m missing an average person. I’m putting in a thousand dollars a month into something like this. Um, you know, like I said, I’m 40 years old, gonna put a thousand dollars in for 10 years. What, realistically, if I want to use this as, you know, down payments on a property or investing in a, a business or something like that, how long are we talking that I’m needing to do this? Like, am I waiting four or five, six years? So, you know, I have, you know, I’ve put in 40 or $50,000, or when, when does money actually become accessible in a whole life policy like this?

Sarry

Yeah, awesome question, Adam. So a lot of, so I think, look, the first thing to said is infinite banking is used to preserve wealth and then for you to ultimately become your own source of finance. So it’s not necessarily, that doesn’t, that doesn’t mean that you don’t use the policy now today to like get rich. It’s, it’s, it’s literally impossible to use that for that purpose. It’s, it’s meant to conserve your wealth and to, to grow it at a conservative rate over time. So if you put in a thousand dollars a month, realistically, um, if it would, your policy would probably break even by year five or year six. That means that all the money you put into it, you on the cash value. So you have, when you pull money into it, you have the premium side. And then when you, you, then you also have the cash value side, and then you have the life insurance side, the death benefit.

Sarry

So if you’re putting in a thousand dollars a month, just based off of just like rough numbers off the top of my head based off of illustrations I’ve done in the past, I could probably tell you that around year five, maybe year six, to be a little bit more conservative, that your, your cash value will equal your premiums paid. That means you’ll meet your basis in the policy. However, having said that, you, your policy is technically liquid from day one. So that means that if, if today you put in a thousand dollars a month, you can access, um, about probably 50 to 60% of your cash value initially within month one. So that means if you put a thousand in today, you could leverage about $500 roughly, uh, within 30 days. So it’s very liquid, it’s just not entirely liquid to begin with. And, and we always do like a financial analysis meeting with clients to understand like what they wanna do and their goals and things like that. And if a client’s like, I need all my money, like day one, this is not a good strategy. This is a strategy, it’s a long-term strategy. It’s a, it’s a strategy you use when you have, uh, some sort of cashflow to start with, to put aside and then that you can still access. So you’re not locking up money for 10 years, but you are, and, and you’re, in fact, you’re, you’re not able to access 100, 100% of your money right away.

Adam

Yeah. Fantastic. So when I look at, you know, later on pulling money out, let’s, I mean, we’re talking about real estate, so let’s keep talking about it. Mm-hmm. <affirmative>, yeah, I’m gonna buy a house. I need $50,000 for a down payment. I wanna pull out this money. Am I looking at a rate that’s closer to like what you were alluding to earlier, closer to like a HELOC rate? Am I looking at something closer to like what I would be paying for, you know, a conventional mortgage or maybe even a hard money loan? Like what kind of rates are we talking about? I mean, obviously the number can change, but what would you compare it to whenever it comes to interest rates?

Sarry

Yeah, so the interest rates as of today with one of the insurance companies we work with is 5%. So it was kind, it was kind of interesting what happened. Their, in their interest rates were like 5% for over 15 years. And then after the interest rates went up recently, um, they went up to 5.7, and then they went back down to five, 5.5, and then now it’s down to five, 5% interest. So it’s 5% simple interest, which is about half what HELOCs are right now, and other lines of credit. Right now I have a couple clients I’m working with, they have HELOCs and other forms of lines of credit that are around 11 to 12%. So we’re at 5% simple interest with life insurance loans. And it’s, it’s what it is, it’s co it’s calculated daily and then it compounds in arrears. So that means, just to use simple math, if you take out a $50,000 loan from the policy, you take 50,000, you multiply that by 0.05, it comes out to 2,500 annually in interest, and then you divide that by 365 days.

Sarry

So that means every day your loan balance grows by $6 and 84 cents. Um, and, and then if you don’t pay that off in the year, then it compounds into the next year. So it’s a very, in other words, it’s a very cheap form of capital compared to everything else that’s out there. And more importantly, when you take out this loan that you could use, you could very much use for a down payment on a, on a property, uh, your policy continues to grow, as we already mentioned. And I think a really important thing is that when people think of loans, they think of other conventional loans. Like for instance, if right now I have to put down $50,000 on a property, right? If I go borrow that money from someone else or from another bank to use as a down payment, the lender is not gonna probably allow that, right?

Sarry

Because it’s too much leverage. It’s essentially a hundred percent leverage. And the, the bank isn’t gonna let, they’re, they’re not gonna allow that for two main reasons. One is because of the debt to income servicing. They, they know that you have to service that additional debt now, which is gonna increase the, and on top of the mortgage and property taxes and insurance, it’s gonna increase that. So they probably won’t allow it for that reason. And then also number two is because there’s no true equity in the property, in that case, if the bank, if you default on that loan and then the bank wants to foreclose, now they don’t really have any real equity in the property because you leveraged that from somewhere else. However, with a life insurance policy loan, it’s not the same thing. If you take out a 50,000 loan from your life insurance policy and you use that as a down payment, that the, and, and the bank knows, obviously they know that you took that from a life insurance policy, they know that that’s your policy, and they know that that’s a non-recourse loan, and they know that that’s where the collateral stops at the policy.

Sarry

So that means if you don’t pay back the policy loan, the life insurance company can’t come after any of your other assets except for the policy itself. In short words and simple words, yes, you can use a life insurance policy alongside other loans without it showing as an actual loan. It’s, it’s shown as using your own cash from a checking account or receiving account equivalent to using your own cash. So it’s, it’s really good to use with other loans as well.

Adam

So how would I actually, you know, you mentioned sitting down, formulating a plan with people. What does formulating a plan look like?

Sarry

Yeah, so in the financial analysis meeting, we look at like your current income, your current current sources of income, how often, how long do you wanna work, um, the, the range of that income, how often does it fluctuate, what your goals are. Like, do you wanna retire in 10 years? If you do wanna retire, what does that mean? Like, do you wanna go from like full-time to part-time or just stop working or we, we, we wanna identify like what money means to you and what your financial goals are. And then after that we’ll set up the, the meeting, the meeting could look like, you know, for, in a very basic way, one policy like you, for one policy for you, Adam, you’ll put in, for example, 10,000 a year, here’s your cash value. Um, this is how much you could leverage. You mentioned you like to invest passively in real estate in the, in the first year, you can leverage, you know, 6,000.

Sarry

That’s kind of a, a a, a very, um, a basic way of using, uh, the, of our personalized analysis meetings. Now, if a little bit, where it gets a little bit complicated is of like, alright, we’re gonna do two or three policies to start with, which sometimes happens, like if you’re married or if you have a business partner, you wanna do a couple policies, that’s also a, a thing you could do too. So it could be a couple policies, and also it can get a little bit more tricky where it’s like, all right, we’ll we’ll recommend you to, you know, we’ll recommend to you guys to, to passively invest in real estate or to another real estate investment company. So we like to do this strategy. It’s a, it’s a holistic approach. It’s not so much of like, instead of using real estate, this is meant to be like a, a both and strategy where you’re using this strategy alongside other strategies. Um, so the, the personalized, the personalized analysis meeting, like the, where we present the solution to you, it could, it could, it varies for every person. It can be, you know, very simple for one person, or it can be really complex for, for someone else.

Adam

Now you mentioned something that blows my mind whenever I’ve talked with friends of mine who are doing, um, this infinite banking, and that is the sheer number of policies that someone can have. Like I think one of my good friends who’s doing it has like three, three life insurance policies. And my question is pretty simple, why, um, yeah, like, do you have to make a new policy every time you decide to change something? Or, you know, why, why do I, why do people have more than one policy? You mentioned obviously like if you have a business partner Yeah. Or you know, you want to get your wife an account or something like that. But why would an individual have multiple accounts?

Sarry

Yeah, that’s an awesome question. Some, you mentioned some, your friend has three, some people have like 16 or 20 policies, you know. Uh, and, and, and the reason for that is because of, and there’s a couple reasons, but I think the main reason is the modified endowment contract limit. Like let’s say for example, we set up a policy for you and it’s 10,000 a year. Your MEC limit or your modified endowment contract limit could be like 12,000. I’m just guessing this number is right off the top of my head. It’s just like 12, maybe $12,000 for the MEC limit. Now that means, let’s just say you made a little bit more money. Like you’ve met that mec limit, you’ve maxed out the policy at 12,000. Now you have like, let’s just say an extra 10,000. Well, you would start a second policy, and then that second policy can also have a MEC limit, and then it keeps going on and on.

Sarry

So that’s a main re that’s a main reason why people start multiple policies is because they reach the meck limit. And then other reasons could be they have different purposes. Like, like for example, you have a husband, wife, and two kids. The husband has a policy on himself to ensure himself, and then his wife would be the beneficiary, and then the wife would also have a policy on herself, and then the husband would be a beneficiary. And then you have two kids, and that could be their college savings account. And then you can keep going, like you have a business partner. The policy’s meant to ensure that business in case something happens to one of the business partners, or you have an, like, you have a key employee where if that, if something were to happen to that employee, your business would be negatively impacted. So you have a policy on that employee, and then you have like a, a pl a an executive bonus plan for an employee. Like if, if you have an employee that you wanna keep, you wanna retain, you could do an executive bonus plan. So the second reason for multiple policies is different purposes.

Adam

Wait, I want to back up about 30 seconds there. You mentioned taking out a life insurance policy on an employee. Yeah. So you can take out insurance policies in case of other people’s deaths.

Sarry

Yeah. Yeah. And anybody you’re financial responsible for, uh, or, um, employees or partners? Yeah, definitely. Yes. It doesn’t have to be just family members. It could be anyone you’re financial responsible for, or you have some sort of like vested interest, but like an employee or a partner.

Adam

Now, do they have to sign off on it or can you just be like, Hey, you’re my employee, I need you, I’m creating an account for you. Yeah,

Sarry

Good question. So yeah, in most situations they do have to sign off. They do have to, you know, they, they have to understand what policy. I think in the only, in some certain situ situations, if it’s like a term group policy, like a lot of people have group terms through work and they don’t really remember signing off. They probably just signed one thing that included all their benefits and within their benefits. But in those types of policies, the, the employee is the insured and then their family members or whoever they wanna list is the beneficiary. But if the, if the company is the beneficiary, yeah, definitely the employee has to sign and say like, they have to know that they’re in the insured, the company’s a beneficiary. Or sometimes what you do is the company’s a beneficiary up to a certain point. And then after that point, then the policy gets turned over now to the employee for them to own the policy and then list whoever they want as the beneficiary.

Adam

Okay. So we have quite a few people that I speak with who are business owners on a regular basis. Let’s say you take out, you know, you have a key employee, you take out a policy on ’em, and then they retire, um, and they’re no longer your employee. Do what happens to the policy at that point? ’cause they’re no longer your employee mm-hmm. <affirmative>, like you can, you just keep paying into it. Can you stop? Like what, what do you have to do there as a business owner?

Sarry

Yeah, you can keep the policy, you can keep the policy, you can keep paying for it. If it’s paid up, like how I mentioned R P U, reduce paid up. If, if the policy is paid up, you can keep it. Um, you can keep paying premiums into, you can borrow against the policy. If it’s a cash value policy, you can borrow against it. You can leverage it. Yeah. Even if the employee quit or retired, you can still keep the policy. Yeah.

Adam

And then would you just have to show, like get a death certificate later? Or like, let’s say they’re, they’re older, they do end up passing away after they’ve left you. They, how, how does that part work?

Sarry

Yeah, the company would be the beneficiary. So the company would collect on that life insurance if, if they kept the policy in force. Yeah, they would, even if the employee is no longer their employee, but passes away like 30 years later, the company could collect on that, on the, the death benefit

Adam

That, that blows my mind. <laugh>

Sarry

Yeah.

Adam

Absolutely. Sounds, uh, sounds mildly insane to me to think you could, uh, insure someone else like that, but yeah. So who, in your opinion, who is the right person to get something like this?

Sarry

Yeah, Adam. So anyone who’s, so number one, you have a long-term vision, like you wanna do something long-term, you wanna think outside the box, like you’re still leveraging banks, you’re still using lines of credit, but it’s, you, you, you have this kind of inner feeling where you wanna do things a little bit different. Where if you could pay interest back to yourself, you could recoup more of that lost interest. So like long-term vision, creative thinking, and you’re kind of willing to, you know, you’re patient too. ’cause it’s, it’s a long-term strategy. It’s liquid as mentioned from day one, but not entirely liquid. So you want to have this kind of like, uh, uh, a long-term patient approach to it.

Adam

So you mentioned year one, 50% roughly. Yeah. That you can do at some point. Do you hit a hundred? Do you max out at like 80? What are we, what are you looking at in that regard?

Sarry

Yeah. Eventually you’ll be able to borrow more than you put into the policy. And that typically happens around, depending on how it’s structured, maybe year five, year six, depending on how it’s structured. Yeah. You’ll, you’ll definitely meet a hundred percent of your cash value, of your premiums paid into it, plus more than that. So you can go above the basis and then you could do so on a tax free basis, which is very rare. Like it’s very rare in other fields to do, in other areas to do that, to, to take out more and money than you put into something without paying taxes on it.

Adam

Yeah. And then that’s just reduced off the death benefit, right? So if you die and you owed, you know, 400,000 mm-hmm. <affirmative>, but your, you’d put in 300, but your policy’s worth 500, your family just get a hundred thousand, right?

Sarry

Yeah. If your, if your cash value is four, if you, if the loans you took out were around 400,000, your death benefit is probably gonna be like 4 million or much more than that is. So the death benefit also when you, when you start off day one, the death benefit is gonna be at a higher start, uh, at, at a higher part. And then the death benefit also appreciates in value. So if somebody dies, they have like, you know, they owed 400,000, their death benefit is probably gonna be much greater than that in the millions probably, you know, because the death benefit started off much higher and, and it appreciated at a, at a higher rate.

Adam

All right. Well, fantastic. Well Siri, thank you so much for joining us today. The website is thinking like a bank.com. I realize I spelled it wrong if you’re, uh, listening there, but it’s thinking like a bank.com. Uh, really appreciate you joining the show. Is there, uh, anything you would like to, to tell people, um, you know, on the, before we wrap it up here?

Sarry

Yeah, thanks for having me on. Uh, check out the book Becoming Your Own Banker by Nelson Nash. If you reach out and you set up a free 15 minute call with me, I’ll send you a free copy of the book, uh, becoming Your Own Banker. Just go to thinking like a bank.com, schedule a 15 minute call and I’ll send you a free copy of that book.

Adam

Fantastic. Well, again, thank you so much for joining us today. I really appreciate it. To everybody else, head on over to rent to retirement.com. Once you have your, uh, once, once you’ve got your money in your account and ready to go, head on over to rent to retirement.com. If you want a copy of Zach’s report of Top 20 Markets to invest in in 2023, send an email to podcasts at Rent to Retirement and we will get that sent over to you right away. Really appreciate the time you spent educating yourself today. We’ll talk to you on the next episode.