what is a 770 account
Banking for Life No Comments

There is a great deal of hype surrounding the 770 account as a retirement and investment alternative. However, as with any investment, there is often a lack of clarity that comes with much of the information surrounding the 770 account.

In this guide, we want to go through exactly what a 770 account is, what it does, how it works, and help put down the facts about the 770 account that matter–so that you can make an informed decision about your own retirement and investment future.

This guide is a no-hype, to the point guide. We want to look at the facts surrounding the 770 account, but first, let’s answer the question, “Exactly what is a 770 account?”

What is a 770 Account?

The term 770 account comes from the IRS code 7702 surrounding cash value life insurance and cash value whole life insurance policies. This is the code that makes Infinite Banking, and other cash value life insurance strategies, possible. The IRS code 7702 is what makes life insurance tax deferred as long as it meets certain criteria–as long as the life insurance meets this criteria then the life insurance policy can remain tax-free as long as it is in force.

So, some marketers got to work and created a term called the 770 account. Just a different name for the Infinite Banking Concept. Another way to hook people in and gain some interest by creating their own, supposably new, account.

A 770 account is nothing more than a high cash value life insurance policy under a different name.

This type of account and investment strategy offers steady, competitive returns with little to no risk. However, they are often sold under false pretenses. Often, agents and marketers will use tricks to make these types of strategies look like they have much higher returns than they actually do. Let’s dig more into this.

Now that we understand how the name 770 account came about, let’s look at how a 770 account, or cash value life insurance policy. How does this investment work? What are some of the benefits of the 770 account? And what kind of returns can I expect from a strategy like this?

How does a 770 Account Work?

The 770 account works inside of a whole life insurance policy by overloading the cash value and creating an account where growth is the primary purpose of the policy.

By doing this correctly, a life insurance policy can have some very attractive benefits. These benefits are the draw for a retirement strategy like the 770 account.

  1. Tax Advantages – The first major benefit of 770 accounts is the tax advantages. The 7702 code, as previously mentioned, allows a whole life insurance policy to remain tax-free as long as it is in force. By keeping the life insurance policy in force until we die, we can, essentially, avoid taxes on any of the growth inside the life insurance policy. This is the primary benefit of the 770 account–IRS code 7702.
  2. Death Benefit – Along with this tax advantaged growth, life insurance policies transfer income-tax free when we die. We avoid taxes while alive in a 770 account, and then our money transfers to our beneficiaries income-tax free when we die. These two advantages together are what create the massive tax advantages found in these 770 accounts.
  3. Liquidity – On top of tax advantages, 770 accounts are completely liquid. We can always borrow against our policies, or liquidate money from said policies, whenever we want. There are no early withdrawal rules or penalties in a 770 account like there are in 401ks or IRAs.
  4. Safety – One of the biggest advantages in a  770 account is the safety that comes from cash value life insurance. These policies have a guaranteed growth minimum, meaning we can never lose money inside these properly structured policies. This is often the primary reason for switching to a 770 account, individuals who have lost money in the market are looking for a new way to invest without the risk. 770 accounts offer safety.

These benefits are what make a 770 account work. These benefits, along with the growth that can be found investing in cash value life insurance, are what make these 770 accounts such an attractive investment alternative.

Historical Growth of 770 Accounts

770 accounts are nothing more than a supercharged savings account found inside of a properly structured whole life insurance policy. These policies, historically, have shown growth rates from 4-6 percent. In one study, Mass Mutual policies showed growth of 6.52% over a 28 year period. Adding in the tax benefits and tax free growth, it would take 7-9% earnings in the market, year after year, to achieve this same growth rate that can be found inside a 770 account.

These earnings are competitive and safe. For those looking to hit home runs, who like the risk, and prefer to invest in stocks and mutual funds, 770 accounts are probably not for them.

However, for those looking to invest in safe, stock market alternatives, that do not fluctuate with the market–these types of high cash value life insurance accounts may be a good alternative for them.

The Downside of 770 Accounts

There is no perfect investment. Every investment has its downsides. Here are a few of the downsides of 770 accounts, or cash value life insurance.

They can take years to build significant cash value – Although this does not affect long-term growth, money inside a cash value life insurance policy takes time to grow.

They earn money slowly – These policies are safe, safety means low risk, low reward. Although they are, in almost every case, the most competitive, safe investment available, they are still a safe investment. You cannot expect breakout returns from these types of policies.

They can be difficult for those in bad health – Because these 770 accounts are tied to life insurance, those in bad health will have trouble qualifying. There are work arounds, like insurance family members, but bad health and old age can often make these policies more difficult to execute.

Is a 770 Account Right for Me?

For those looking for a safe, alternative strategy to their current investment or retirement plan, this strategy may be helpful. But it requires discipline and sticking to a long-term financial plan.

Before making any decisions regarding your financial future, speak to an expert. No financial instrument will fit every individual. Depending on your goals and needs, a 770 account, or cash value life insurance policy, could be right for you.