- Take the least amount of insurance you can get away with,
according to the IRS, and then put in the most money
or premium the IRS allows
and this will turn into a tax-free cash cow.
In this educational episode, I'm going to address how do you
or how should you buy indexed universal life?
(upbeat music)
So I'm Doug Andrew and I've been helping thousands of people
optimize assets and minimize taxes now
for about five decades.
I'm 70 years old, I started in 1974.
If you've watched very many of my educational episodes
on this channel, you'll soon learn
that one of my favorite financial vehicles
where you can accumulate your money totally income tax free.
You can turn on tax free income,
you don't have to wait till you're 59 and a half
but for retirement and knocks the socks off of most IRAs,
of 401ks.
And at the end of the day when you die
anything you leave behind blossoms
and transfers income tax free.
And this is under three sections
of the Internal Revenue code.
So when I get asked the question,
how should I buy indexed universal life?
Thank you for this question because unfortunately,
probably 99% of agents, life insurance agents,
who sell IUL do not know how to structure it correctly
and fund it properly so it performs
at the highest net internal rate of return.
They're never trained that
or they're told by their superiors,
"Oh no, level is the devil.
You don't ever use the level death benefit."
I'm going, "Oh my heavens."
These people do not get it.
They don't know what they don't know,
and it's unfortunate.
That's why I train.
I've trained over 5,000 financial advisors, CPAs,
and tax attorneys,
and I have currently over a thousand IUL agents
who belong to a coalition and network that I mentor
on a weekly basis called IUL Insiders.
They know how to do it correctly.
And what's the difference?
At the end of the day
if an agent who does not understand what they're doing,
they have way more insurance on the account
then they needed to.
What does that mean?
It means that even if the IUL averaged 7%
because they didn't know how to rebalance
and reallocate every year,
you're gonna be lucky to net three or 4%
because the cost of insurance gobbled up
half of your interest.
Unfortunately, that's the most common mistake I see made
by IUL agents who don't get it.
No, you ought to be able to put in your money
and actually have the least amount of insurance
the IRS will let you get away with
and it turns into a tax free cash cow.
And your self insured where your cash value equals
or exceeds the death benefit usually by the 12th year.
And most of my clients are savvy people, you know,
55 to 75 years old who understand money,
and so they take the level death benefit,
there's no question.
The only time you use the increasing death benefit
is you've got somebody in their twenties
or thirties socking away, you know,
500 bucks a month into one of these and then they stop
and stop funding it.
Then you switch over to the level death benefit
if you want the cost of the insurance to get cheaper
as you get older.
If you want the cost of the insurance
to keep getting expensive as you get older,
as Dave Ramsey assumes, then you don't ever change it.
No. You want the cost of the insurance
to get cheaper as you get older.
So when people ask me the question, how should I buy it?
Well, I would recommend you structure it
or buy it for living benefits.
Now, if you need it for death benefit,
yeah, you can structure it.
In my opinion, to outperform whole life
because of the nature of it.
Whole life is okay for death benefit.
Yes, whole life was built for that, you know,
chassis where you have to pay a certain amount of premium
so that with these guarantees,
the death benefit will never lapse if you die, you know,
at age 100.
But whole life was never designed to give you
a very good net internal rate of return
to have tax free income.
You just ask a whole life agent
to illustrate the whole life policy
generating the most income as possible
so you do not outlive your money if you live to be 120
and get that number.
And I don't care what the number is, let's say it's 40,000,
I can probably generate 60 to 80,000 outta the same amount
of cash value in an index universal life insurance policy.
And because the use was to increase the income,
I would rather have twice as much income.
So you can get away with less insurance
than a whole life policy to accommodate the amount of money
you want to put in under IRS guidelines.
So let's get back to how should you then set up your IUL.
Well, under three tax citations, TEFRA, DEFRA, TAMRA.
You want take the least amount of insurance
the IRS will let you get away with
and then put in the most money the IRS allows
as fast as they allow.
This is determined or dictated
by the Tax Equity Fiscal Responsibility Act of 1982,
it spells the acronym TEFRA.
And also the Deficit Reduction Act of 1984, DEFRA.
The TEFRA, DEFRA tax citations
dictate the minimum amount of insurance required
based upon the person's age, gender, and health.
And the more unhealthy they are,
if they can still qualify and even be rated,
you can even squeeze down the death benefits
so that if your objective is to earn 11 and net 10,
like I have, then you can get away with less insurance.
If you are uninsurable, you use a surrogate.
Get your spouse, your kids, your grandkids,
'cause it's the owner of the insurance contract
that gets all the tax-free income.
But you just don't assume that,
"Oh, I'm gonna take this out on my kids
that are 20 years old 'cause the insurance is cheaper."
No, it isn't.
They have to have more insurance than you do.
The 20 year old can earn 11 net 10
but you can be 78 years old and one foot in the grave,
so to speak, and be rated at table D.
Squeeze down the death benefit under TEFRA and DEFRA,
and you can earn 11 and net 10 just like a 20 year old.
The cost of the insurance is the same
even though you're 78 years old
and rated 100% more than a normal 78 year old, table D.
You can't believe how many agents don't understand this.
Because you're able to squeeze down the death benefit
and take the least amount of insurance
the IRS will let you get away with.
So let's take an age 60 year old that's in good health.
Under TEFRA and DEFRA,
if you wanted to reposition 500 grand,
the least amount of insurance now
is about double that a million.
Your objective isn't how much insurance
can I get for 500 grand?
No, people don't come to me saying,
"How much insurance can I get for 500 grand?"
They want to know the least amount of insurance
required by the TEFRA and DEFRA tax citations
so that they're half a million they want to put in this
will double to a million to 2 million to 4 million
to 8 million, you know, as fast as possible.
So the least amount of insurance at age 60
under TEFRA and DEFRA is a million.
Now if your objective is net internal rate of return,
you structure it so that your money will grow tax-free
at the best net internal rate of return.
You want the cost of insurance to get cheaper every year,
not more expensive.
Most financial advisors, like Dave Ramsey and Suze Orman,
they don't even understand this.
Because they're thinking that the life insurance
is gonna cost more as you get older
because they're thinking of annual renewable term.
And most insurance policies
have that annual renewable term in there.
But if you're structuring it for living benefits,
every dollar you put into it
and all the interest you're earning
can qualify as part of the death benefit.
So the actual net amount of risk is getting less
and the insurance company is charging you less
every single year until the insurance is free
because you are self-insured.
Your cash value equaled or exceeded the death benefit
within 12 years.
So how should you structure it?
Let's go back to the 60 year old.
If you wanted to put in 500 grand,
you can't put it in all at once.
First of all, you'd violate TAMRA.
Your money would only grow tax deferred.
Then if you wanna turn on income, now you have to pay tax.
Is tax life a last in first out like an annuity.
Most people come to me, they want tax-free income
so they have to jump through another hoop
in the Internal Revenue Code called TAMRA,
the Technical and Miscellaneous Revenue Act of 1988.
See, the banks and brokerage firms,
they couldn't compete with these.
They were safer, paying higher interest,
and they were tax-free and they blossomed when you died.
Theirs wouldn't do that.
So they wanted to slow the flow
but they didn't want to kill these
'cause this is where they put some of their money.
Banks and credit unions, in fact,
put 30 to 40% of their tier one assets.
Those are assets that they must have on hand, liquid,
and safe in case of a run on the bank.
Okay, guess where they put it?
In insurance companies usually in the form of BOLI,
bank owned life insurance.
They borrow your money and pay you 1% interest,
they turn around and make five.
How much more is five than one?
Don't say four.
It's five times.
They pay 10,000 a year in interest to borrow OPM,
other people's money.
On a million dollars they pay 10 grand
and they make 50,000 by putting it into insurance
with insurance companies.
That's a 500% return.
It's actually an infinite rate of return
'cause it would only be 500% if it was on their money.
They're doing it on other people's money,
so it's actually an infinite rate of return.
That's another subject.
We have a lot of educational episodes
on how to become your own banker.
Let's get back to this.
If I want to have the cost of insurance get cheaper
so that I structure it correctly
to accumulate my money tax-free
and then be able to access that money tax-free.
I want to then have my cash value be counted
as part of the death benefit,
I want the level death benefit.
So when I put in a hundred grand a year,
if I put in a hundred grand the first day of the first year,
the first day of the second year, and third year.
Finally the fifth deposit to comply with TAMRA,
it happens in four years and one day
and now I have my 500 grand in there,
but my original death benefit was a million.
Now if I die, they're only gonna pay out a million
if I do it the smart way
because I want to have the insurance get cheaper
as I get older.
And so the net amount of risk is only a 500,000
once I have 500,000 in the policy.
Because 500,000 of a million dollar death benefit
is now my money.
The insurance company is only charging me
for half as much insurance as they did four years earlier
even though I'm five years older or whatever.
Is this making sense?
Well, based on average rates of return,
9.6 divided into the rule of 72,
that half a million now is gonna double
in about seven and a half years.
By the 12th year on most of the policies
that many of my clients have,
their cash value equals the death benefit.
What's the cost for insurance now?
Zero.
There is no net amount at risk,
except TEFRA and DEFRA says that if you happen to die,
the insurance company must pay 5% more
out in a death benefit tax-free than the cash value.
But they're only charging you for that 50,000.
If I died when I had a million in there,
the death benefit's 1,000,050,000.
When a million in another seven and a half years
doubles to 2 million, if I die they pay out 2.1 million.
But they're only charging me for a hundred thousand,
net amount risk is 2 million is my own money.
Now, that's how you should structure your IUL
so that the cost of the insurance gets cheaper
as you get older,
and so you're self-insured as soon as possible,
maybe as early as 12 years into it or 20 years into it.
If you follow the buy term, invest the difference crowd,
it's gonna take you 30 years
before your money equals the amount of life insurance
so that you can get rid of it.
And then people don't want to get rid of it
because of inflation, you now need both
if you happen to die.
And the money in a tax deferred IRA or 401K
is not all your money,
only two-thirds of that is your money.
It is not the smart way to go. Okay?
So if you wanna learn more
about how to structure it correctly,
I would recommend you study this book.
And I would recommend
that any IUL agent understands the answers
to 14 questions in this book.
If they can't answer those questions off the cuff,
that should be a red flag.
So you can buy a copy of this on Amazon
and they're 20 bucks plus shipping and handling.
And if you do that, thank you.
But I'll gift you a copy free.
I'll show you how to claim your free copy
but please know it's actually two books in one.
This side is the left brain side.
For those of you who make your decisions or learn logically,
it has all the charts and graphs and explanations.
It's 14 chapters, about 200 pages.
If you're more of a right-brained learner,
you learn by stories, you flip it over and read this one.
This is 12 chapters, about a hundred pages
with 62 actual client stories
of how a properly structured IUL
can be used as a dream solution for retirement,
college funding, working capital for your business,
real estate management, emergency funds,
pension maximization if you're a school teacher,
police officer, or firefighter on and on and on.
If you wanna use your whole brain, read both books.
But you simply go to laserfund.com
or click on the link below.
You contribute a nominal amount
towards the shipping and handling,
and I'll cover the rest of that cost
and I'll pay for the book. Okay?
So I'll fire out a hard copy via priority mail, next day.
But while you're checking out, getting your free copy,
you may wanna consider if you'd like to listen and learn,
and watch and learn the audio and video formats.
You can also schedule or register
for an educational webinar.
We teach them on a regular basis, they're free.
But you can even schedule an appointment online
to talk to an IUL specialist,
one of these IUL insiders that know how to do it right
so that they can show you some illustrations for no cost,
no obligation because I don't want you to make a mistake
taking out an IUL and not having it structured correctly.
So hopefully this video has helped you understand
how you should set it up the right way
and I would rather earn 11 average and net 10
than have it done wrong and only earn seven
and maybe net four.
Does that make sense?
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