The smart way makes you money. In this episode, I'm going to address the question,
"What is the cost of owning an IUL (Indexed Universal Life Insurance Policy)?"
Get ready because you're looking at it the wrong way and you'll see what I'm talking about.
So, my name's Doug Andrew and I've helped people optimize their financial assets, minimize taxes
and empower what I call their authentic wealth now for more than 47 years. During that time
period, many many people have been able to safely retire comfortably and not outlive their money
by using one of my favorite financial vehicles which I call the Laser, L-A-S-E-R, Fund.
Laser is an acronym that stands for liquid assets safely earning returns
and people say, "Well, what is it?" Well, it's a maximum funded index universal life insurance policy
but let me give you this caveat. The Laser Fund is always an indexed universal life insurance policy
but, most indexed universal life insurance policies are not Laser Funds. Did you hear that?
Because they're not structured correctly or funded properly.
If you understand what I'm going to show you here it turns into a tax-free cash cow. It will be the
least expensive financial vehicle or account you will ever own, but all I hear from people who don't
understand is, "Aren't those expensive? Man, look at the cost of that thing." Well, get ready. I'm going
to show you you're not looking at it correctly and have you ever heard of an insurance policy
that gets cheaper as you get older? Then you have not seen one of these so let me explain.
Let me ask this, how do you calculate cost? Is it employment cost? Is it opportunity cost?
What am I talking about? Well, a lot of times when I say employment cost, let me simplify.
Would you hire an employee, which costs you money, okay, you're going to pay a salary, would you hire
an employee for, you know, $100 000, a year that makes you an extra 200,000 or $300,000 a year? Yes,
because you're getting a return on the cost, does that make sense? In fact, if you have
a widget machine that you buy for 50 thousand and it helps you make an extra hundred thousand,
that's 100% return on employment cost because you are making double what it costs you.
Now, when you calculate cost, sometimes there's an opportunity cost. What it would cost you
because of the opportunity that you could be earning a rate of return or whatever,
here is where we calculate the actual cost on owning a maximum funded life insurance policy.
What you want to do is look at the actual cost of the insurance with all the fees and everything
in the contract and you have to ask yourself what is the long-term objective?
Now, I recommend that nobody should purchase a maximum funded indexed universal life insurance
policy, my favorite vehicle, unless it's for a long-term goal, 5 years or longer down the road.
Maybe it's to save for another home but most people use it for retirement or emergency
funds or what have you. So, if you're going to be saving for a long-term goal,
you choose investments based upon the ones that are going to generate the most at the
time in life you're going to be using the money the most, not the one that's going to
try to get you rich quick in 1 or 2 years. So, with maximum funded indexed universal life,
you have to be patient because it is such a good tax-free cash cow that the IRS has some rules
they want to slow the flow of how people fund it because they were lobbied by the brokerage firms
and the banks and the credit unions cleared back in the 1980's because they couldn't compete because
these contracts were paying higher interest, it was tax-free, they blossomed when you die
and so they said, "Let's slow the flow." So, what I do is I meet people who want to optimize their assets
and I point them to the IUL specialists that will help them design an index universal life policy
primarily for living benefits. That means you're going to take the least amount of insurance that
you can get away with based upon their age, gender and their health and you put in the most money
the IRS allows as fast as the IRS allows. Long story short, let's say somebody wants to save $500
thousand over the next 20 years, maybe 10 years, maybe 5 years. Maybe they have 500,000 in a lump sum, you
can't put that in all at once. If you're 60 years old, you may have to spread it out over 4 years.
And so, you put in 100,000 or 125,000 a year for 4 years, now you have your 500,000 in
there. You could stop and let it sit. Do you know what will happen if you designed it correctly?
That $500,000 will double to a million and probably 7 to 10 years which means you are earning an
average of 7 to 10% tax-free. This is based on actual historical rates of return.
Sometimes people say, "I've never seen an insurance policy do that." I've seen thousands of them. So, 500
thousand doubles to a million and then what's going to happen the next 7 to 10 years?
A million is going to double to 2 million. Do you know on an indexed universal life policy
at age 60, the minimum amount of insurance the IRS requires is about a million 250 thousand dollars.
Wait a minute, in 15 years you have 2 million dollars of cash
value in an insurance policy that has a million $250,000 death benefit, what's up with that? The neat
thing about it is if you're using it for living benefit, that cash qualifies as the death benefit,
you are self-insured because the net amount at risk is nothing. By the 15th year, you have
more cash in the policy than the death benefit, the insurance company is only charging you for the net
amount of risk. In the first 7 to 10 years when 500,000 double to a million,
they're only charging you for the remaining 250,000. Yeah, insurance goes
up in price the older you get per thousand. The amount of thousands of coverage you're actually
at risk for is going down to where within 15, 20 years most people have more cash in their policy
than the original required death benefit and the death benefit now just stays up with the cash.
That means your insurance gets cheaper as you get older, that means that the longer you own it, the
better it performs. On the average, if I earn 11, I net 10. If I earn 8, I net 7. If I earn
16, I net 15. Why? Because only about 1 percentage point, at most 2 percentage points, goes out to
pay for the cost of the insurance but to me it's not a cost, okay? It's a benefit, here's why. During
the very first few years, maybe the cost was higher, but as I fill up my policy with cash,
not only do I have more money earning interest which actually covers the cost of the insurance
but the net amount at risk is going down. I'm self-insuring, this is like bi-term invest the
difference on steroids. What I like to do is look at the big picture. So, at age 30 if I started,
by age 60, do you know the 60 year old, the cost of the insurance is usually 120th what it was when
they were 30 years younger? People go, "What?" Well, in the policy, it says it's going to go up to this,
that's on the net amount of risk. The net amount of risk is now nothing. The amount of interest you're
earning far covers the cost of the insurance or the net amount of risk. So, I usually average and
say, "It's around 1% or so," meaning if I averaged 11% during that 30-year period, I netted
10. If I averaged 8, I netted 7, that's 1% that would otherwise go out the window in
what? Unnecessary income tax if O followed the herd and put my money in traditional IRA's and 401k's
because I would have to be earning 15% on an IRA or 401k to be able to net 10% after tax
and then usually the asset manager charges another 1% in fees, okay, and so you're earning 15
to net 9. I can earn 10 and net 9, that 1% is money that would otherwise go
out the window in unnecessary tax and I can more safely earn 10 in an indexed universal life policy
than out in a mutual fund hoping to earn 15 to net 10. Is this making sense? So, 1% really is not
a cost. Why? Because at the end of the day, when you finally pass away, it all transfers tax-free.
Do you know at my age, I'm just about 69, that if I earned 11% this year, I would probably net 10.95
on the policies that I've owned for 20 and 30 years because the older I get, the cheaper
it becomes and the better the internal rate of return is. Wow. I wish I could explain this
even in more detail but if this is peaking your interest, let me show you how you can learn more
about this phenomenal instrument called the Laser Fund. If you want to see actual charts, numbers,
historical averages, my sons, Amber and Aaron and I, have compiled my 11th book.
It's flying off of the warehouse shelves, hundreds a week go out. It's called the Laser Fund. Laser is
an acronym that stands for liquid assets safely earning returns. This is how to diversify and
create the foundation for a tax-free retirement. Do I recommend that 100% of your money should be here?
No, but I would recommend between 40 to 60% of your money be in an instrument or a portfolio like this
so you have tax-free income and the cost of the insurance when you look at these charts,
you'll see the costs go down, down, down compared to other traditional places where people have money,
usually in IRA's or 401k's with an asset manager, the fees with those advisors can approach a million
dollars when the fees on this have only been maybe 25 or 30,000. This is the cheapest way to go,
so if you want to measure the cost, you'll see the cost but you need to understand that those
costs are only associated with a net amount at risk which is getting down very
low the longer you own one of these Laser Fund. So, go to laserfund.com. L-A-S-E-R fund.com, click below,
contribute a nominal amount towards the shipping and handling, I'll cover the rest of that
and I'll pay for the book. There's options there to listen and learn, watch and learn, but this will
empower you to be able to have the least expensive approach to saving for your future, emergency funds,
college funding, for your kids all kinds of goals because this is like a financial swiss army knife.