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Real Estate Investment vs. Whole Life Insurance: What’s Right for You?

When deciding how to invest your money, it can be risky to determine the best option for your financial goals and risk tolerance. Two common choices are real estate and whole life insurance. Below are the factors to compare the differences between these two options: Investment Returns One of the main differences between real estate and whole life insurance is the potential returns on investment. Real estate investments might have long-term returns in the 8%-15% range, while whole life insurance policies have guaranteed returns of about 2% and projected returns of around 5%. It’s worth noting that both real estate and whole-life insurance investments may have poor short-term returns. Whole-life policies often have a -30% return in the first year, while real estate investments may have negative returns due to high transaction costs if sold within the first few years. When comparing the potential returns on a $100,000 investment over 30, 40, and 50 years, the difference between a 10% return on a real estate investment and a 4% return on a whole life insurance policy is significant. For example, a 10% return would result in 500% or 1,650% more money after 30, 40, or 50 years, respectively. Therefore, it is worth considering the level of risk you are willing to take when deciding between these two options. Taxability of Income Both real estate and whole life insurance can provide income in the form of dividends or rental income, respectively. Whole life dividends are tax-free, as they are considered a return of premium paid. Rental income from real estate investments is taxed at your ordinary income tax rate but is often covered by depreciation in the early years, making it tax-free. When depreciation is no longer applicable, real estate investors may exchange their equity tax-free for a larger property. The depreciation is recaptured at a maximum rate of 25% if the property is eventually sold. Taxability of Exit If you dispose of your real estate or whole life insurance investment before you pass away, you may be required to pay taxes. The sale of real estate may lead to recapturing depreciation at a rate of up to 25% and long-term capital gains taxes on any profits. In addition, if the cash value of a whole life insurance policy exceeds the total premiums paid, it may be subject to ordinary income tax upon sale. It’s important to remember that tax losses from tax-loss harvesting can reduce capital gains but not gains from the sale of whole life insurance. Exchanges Alternatively, you can avoid paying taxes by exchanging your investment for a similar asset. For example, a 1031 exchange allows for the tax-free exchange of real estate for similar real estate within 60 days of the sale. Likewise, a 1035 exchange allows for the tax-free exchange of the cash value of a whole life insurance policy for another cash-value life insurance policy, an annuity, or a long-term care policy. Death Benefit and Taxability at Death Real estate and whole life insurance investments can be tax-free to your heirs upon death. This is because the real estate receives a step-up in basis, while life insurance death benefits are not taxable. However, it is essential to note that with whole life insurance, the cash value borrowed against the policy will be subtracted from the death benefit before it is paid out. Availability in Retirement Accounts and Asset Protection While neither real estate nor whole life insurance is typically available in standard retirement accounts, real estate can be placed into self-directed IRAs and 401(k)s with the accompanying tax, estate planning, and asset protection benefits. Likewise, whole life insurance is not an option in retirement accounts. However, some states provide excellent asset protection for the cash value of a whole life insurance policy in the event of bankruptcy. At the same time, real estate may have more limited asset protection options, such as placing it into a multi-member LLC. Ability to Borrow Against the Asset Real estate and whole life insurance can be borrowed tax-free but not interest-free. The terms for borrowing against a whole life insurance policy are set when the policy is signed, but these terms may not be as favorable as those for borrowing against real estate. It’s important to note that the dividend on a whole life insurance policy will not decrease, even if a significant portion of the cash value is borrowed.
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Bio:
Mike was born in Chicago, Illinois on August 13, 1946. He was brought up in thesuburb of Skokie on Chicago’s northwest side and graduated from Niles Township (East ) high school In 1964. Two years later he joined the US Air Force in November of 1966. After 2 years of Intense training he volunteered for Viet Nam and was sent toBien Hoa Airbase, which was 25 miles from Saigon, the nation’s capital. He volunteered for a number of especially dangerous missions on his days off, such as flying as a door gunner on a US Army helicopter and as a technical assistant on a psychological operation on an Air Force O-1E observation aircraft. Capping off his impressive accomplishments was winning the coveted Base Airman of the Month for March 1969, a feat which was featured in the Pacific Stars And Stripes newspaper read by every service man stationed in the Pacific theater of operations. After hisViet Nam tour of duty he was stationed at Luke Air Force Base in Glendale, Arizonawhere he met and married his wife, Lequita.He graduated from Arizona State University in May, 1973, and after a 30-plus year career as a financial advisor he joined a number of service organizations including Easter Seals and Valley Forward, sponsor of EarthFest. He was also involved with the National Federation of Independent Business and became the longest-serving chairman of the Leadership Committee ever. He spoke before the ( AZ ) House Waysand Means & Senate Finance committees. He then joined Disabled American Veterans ( DAV ) in September of 2015. He rose quickly through the ranks and became Chapter 8 Commander in May of 2019 where he served with Distinction for 3years before being “ termed outâ€. The next year, as Vice Commander, he won the title of National Champion Recruiter!

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Michael Crowe

Mike was born in Chicago, Illinois on August 13, 1946. He was brought up in the suburb of Skokie on Chicago’s northwest side and graduated from Niles Township ( East ) high school In 1964. Two years later he joined the US Air Force in November of 1966. After 2 years of Intense training he volunteered for Viet Nam and was sent to Bien Hoa Airbase, which was 25 miles from Saigon, the nation’s capital. He volunteered for a number of especially dangerous missions on his days off, such as flying as a door gunner on a US Army helicopter and as a technical assistant on a psychological operation on an Air Force O-1E observation aircraft. Capping off his impressive accomplishments was winning the coveted Base Airman of the Month for March 1969, a feat which was featured in the Pacific Stars And Stripes newspaper read by every service man stationed in the Pacific theater of operations. After his Viet Nam tour of duty he was stationed at Luke Air Force Base in Glendale, Arizona where he met and married his wife, Lequita. He graduated from Arizona State University in May, 1973, and after a 30-plus year career as a financial advisor he joined a number of service organizations including Easter Seals and Valley Forward, sponsor of EarthFest. He was also involved with the National Federation of Independent Business and became the longest-serving chairman of the Leadership Committee ever. He spoke before the ( AZ ) House Ways and Means & Senate Finance committees. He then joined Disabled American Veterans ( DAV ) in September of 2015. He rose quickly through the ranks and became Chapter 8 Commander in May of 2019 where he served with Distinction for 3 years before being “ termed out”. The next year, as Vice Commander, he won the title of National Champion Recruiter!

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