Ask these 14 questions. In this episode, I'm going to address the
question: "How can I tell if a financial advisor
is proficient in structuring an IUL." What's an IUL? An indexed universal life
insurance contract. And i'm going to go through 14
questions that could help you tell immediately if an advisor,
even an insurance agent really knows what they're doing
in structuring it correctly. And you will be able to tell
almost immediately if an advisor, an insurance agent is proficient
in structuring an IUL in the right way and funded correctly.
So, it can perform at its optimum level for you and your financial goals.
So, I'm Doug Andrew. And what do I know? Well, I have been using indexed universal
life insurance since 1997 when it first came out. I've been using
universal life for tax-free accumulation, tax-free
income, tax-free transfer ever since EF Hutton,
the brainchild behind it came out with the idea in 1980.
In fact, most CPA firms and large tax law firms have contracted us to come
and teach them about 3 sections of the
internal revenue code as it relates to max funded IUL.
How they allow someone to accumulate their money tax-free
and then be able to access the money tax-free for 30 or 40 years in retirement
and not deplete their principal. And when they ultimately pass away, it
blossoms in value and transfers income tax-free because nothing else in the
internal revenue code actually does that. And so, throughout my
history of helping people do this, many times people will say, "Well,
how can I tell if an insurance agent or a financial advisor is
proficient?" I'm going to tell you a horror story and why this concerns me so
much. Many times, I will go out and speak and
teach. I have written 11 books so far. And sometimes people will read and get
insights into this opportunity. They sort of
find out. "So, which companies do I use?" There's only about five or 6 companies
out of over 200 that offer index universal life that i would put my money
into. Because i am very, very picky about which
companies. And then there's only certain products
with those companies that i would put my money into.
But it's really how it's structured. It has to be structured correctly and
funded properly in order for it to perform like a
tax-free cash cow. Many times, I would go through and
people would find out the company that i like to use or the
exact name of the product. So they would then contact a relative
that had a license. Or sometimes a relative
invited them to watch a video that I had produced or
come to a seminar. And they would say, "Now, now, let me help
you set this up." Well, this is the saddest because many
times... I'll never forget one couple, they heard me on the radio
and I basically said, "Okay, the last 7 years..." Now, this could have been
from the year 2000 to 2007, it could have been from 2008 to 2015.
Because both of those 7-year periods, people who had max funded IUL
doubled their money. Now, if you know the rule of 72, they doubled their money
in about 7, 7.2, 7.5 years.
That's averaging over 10%. And so, they go, "What?" I've never seen one do that.
And so, I would be on the radio and go, "Well, well.
Now, if you started out with 500,000 let's say... 7 years ago your 500,000
would be worth a million right now 7 years later. If you started out with a
million, it would be worth 2 million now. And if you started out
with 500,000 in the year 2000, it would have doubled
to a million by 2007 and would have doubled
again to 2 million by the end of 2015." And people would hear me say that.
Only a few, maybe the rest were too embarrassed they didn't understand it.
They thought maybe I was fibbing or not telling the truth. But
they came in and they would say, "Mr. Andrew, we put
500,000 into an index universal life 7 years ago and our 500 000 is only
worth 250 000 now. What happened? What do you mean it
should have been worth a million? In other words, we should have had an
extra 750 grand?" And I go, "Yeah. Let me see that." And I would look
at their insurance contract, their policy and in about 2 minutes. I could tell
what was wrong. And I would say, "Who designed this
for you?" And they would sheepishly go, "Well, our nephew." Or
"My brother-in-law." They have an insurance license and they assured us that
they were using the same company and even the same product
that we told them that you were using. I said, "Well, yeah. It's the same company.
It's the same product. But they had no idea what they were doing. They
made this account 4 times bigger than it needed to be.
I mean you could have been earning 11 and netting 10.
And instead you were earning 11 and only netting 5.
Oh, my heavens are netting less than... They designed this
maybe to help their wife and kids more than your wife and kids. I'm sorry to say
this. But that that was an expensive relationship with
your nephew or your brother-in-law." You can't believe
how many times I have had similar horror stories like that one.
So, when we wrote our most recent book called The Laser Fund,
this book is 300 pages that contain charts graphs explanations of how this
works. It also has a second book when you flip
it over and that contains 62 actual client stories.
But on the left brain side in the... One of the last chapters on that 200 pages,
it's titled "What Can Go Wrong?" In fact on the right brain side,
out of usually 4 or 5 success stories,
I always share a story of one that was done wrong. And it's usually
been done wrong because the advisor was not
proficient. Almost every time. Or else the client has
structured it to accommodate 50 000 a year and they only put in
2,000 a year. They way, way underfunded it
or something like that. So, it's very obvious
what goes wrong. But the most common reason was that the advisor was not
proficient. So, that motivated us to write in this
chapter a laser ready test. Laser stands for
Liquid Assets Safely Earning Returns. So, I'm going to share with you some of
the questions that you can ask so that you can find out
if that advisor really knows how to do it correctly
and if they're proficient. You ready? So, here we go.
I'm going to read write down these questions and you can get a copy of this
book for free. I'll show you how here at the end of
this. This is question number 1, "What is TEFRA, DEFRA and TAMRA?" Those are
tax citations. And how do they impact my policy now
your financial professional should be able to answer this
off the cough. If they say, "Well, let me check on that."
They're likely not prepared to structure one of these things properly for your
benefit. So, you might want to cross check their
answer with what's in the book here. Next question. Explain to me internal
revenue code sections 72(E), 7702
and 101(A). Again, an advisor this proficient will know what those 3
sections of the internal revenue code untl
off the cuff. If they say, "Well... Well I don't know that. I'd have to look it up."
Hello! That's a danger signal. They don't know what they're doing.
Next question. What's a guideline single premium? See, this is the total amount
that you will be able to fully fund that you design into the policy in
the first 11 years and the fastest you can do it is in 5 years.
Or you could take 20 years but it's called the GSP. If they don't know what
that is, They don't know what they're doing. What
factors will the insurance company consider
when gauging the size of my policy besides the GSP? --Guideline single premium.
So, this includes your age, your gender, your health status and so forth.
They ought to know that. Next question, What size policy would someone have
on average who is a healthy 60 year old male
with a gsp of $500,000. Now, if they have done this even remotely
enough, they should know off the cuff oh about
1.2 to 1.3 million of death benefit. If they don't know that, if they go, "I
don't know. I'd have to go check it out." Hello! They don't know what they're doing,
they have hardly done this. here's the next one:
what are the rules for perfecting a modified endowment
contract? that's often called a mec. if they don't know off the cuff
the rules to perfect a mec, hello they don't know what they're doing. and
they could cost you unnecessary tax. here's the next one:
How can an insurance company earning 5% on their general account
portfolio afford to credit a policy 7%
or 8%? Now, if they don't know right off the cuff the answer to that
question because of linking to an index and how you're allowing the company to
take the interest on what you're earning in their general account portfolio and
buying upside options, if they don't know that,
that is a huge red flag. How can a company
earning 5% on their general account portfolio afford to pay you
7 or 8 or 9 or 10 percent? They better know the answer to that or
beware. Here's the next one: How can policy
holders experience 1 to 2 percent higher payouts
than the average index that they are linked to?
In other words, if the insurance company is paying out an average of 7 or
8 percent with their indexing, how can they
afford to give you 10%? In other words on a million dollar nest
egg or cash value in the insurance policy,
how can the insurance company afford to give you $100,000 a
year without depleting principal when the index is only earning 8. If
they don't know the answer to that question,
hello! If they say, "Well, I don't know. I don't understand that."
It's because of the arbitrage of accessing your money via an
indexed loan where you're borrowing money at 5% and you keep
earning 7 8, 9, 10 or 11 percent.
This easily allows you to be able to access about
2% more in payout without depleting your principal than what
you're actually earning on the index. This is an incredible way to have
tax-free cash flow about 2 percentage points higher than
the actual index rate that you're earning. Now, many
advisors don't understand that one. Next, who runs your policy illustrations
for you? If they say some clerical person or the
home office. Ah, no. A professional will insist that
they actually create those themselves because it takes an expert
tweaking the illustration for you to squeeze down the death benefit under
TEFRA, DEFRA, TAMRA and to help you have a contract that
if it earns 11 it nets 10. Otherwise, you will have maybe a policy
that if it earns 11 will only net you 6 or 7.
Hello! It's going to cost you dearly over time. Here's
another one: If i maximum fund a laser fund,
an iul over the life of the policy, what is the expected
net internal rate of return likely to be? That should be within 1%.
And if they happen to say that, say, "Show me."
And if they can't show you that the internal rate of return cash on cash
is within one percent of the gross rate of return, they're not designing it
correctly. Again, you could be earning 11 only
netting 5 or 6 when you should be netting 10 if it's not done right.
How long have you been structuring these types of policies?
Now, do you have access to several different types of index policies?
If they only sell for one company or only one, hello!
Then they're only doing one-size-fits-all advice for you.
Because all different companies and policy features are different for what
your goals are. Here is another question: Do you
specialize in maximum funded index universal life
policies or do you handle a lot of other insurance as well?
If they're selling car and auto and homeowners and whole life and all these
things, chances are they do not do indexed ul
enough to really be a professional instruction at right.
Second to the last question. How many insurance companies do you represent?
Now, if they only work for one, chances are they only have one product that
they're allowed to sell and it may not be the best one. That's
why the professionals that I point my
students to usually have access to 5 or 6 of
the best companies that i've usually vetted
and that I put my money in myself. The last question:
Is insurance your sole profession or is it a part-time
endeavor? Uh, if they say, "Well, yeah. I'm a barber by day but i sell
insurance by night." Hello! You want to make sure that they
have immersed themselves as a full-time professional
in doing this so that they know what they're doing.
So, I would recommend that you ask questions. Those are hard questions. But
if you don't get the proper answers, that should
be a red flag. And you want to seek out an iul
professional and sadly, they're few and far between.
But if you would like to know how to ask those
questions and know the answers yourself, get a copy of the Laser Fund book. Now,
(whoops) this is the left brain side, this is the right brain
side. And I will send one out to you
absolutely free. I'll pay for the book. You just pay $5.95 shipping and handling.
Go to laserfund.com. Laserfund.com. And you can learn as much as you want in
3 levels of depth with charts and graphs.
Or you can flip it over and also read 62 actual client stories of how this
is the superior vehicle for retirement, college funding,
business working capital, for emergencies, for
real estate management and on and on and on. So, here's to your brighter future.