- Don't focus on what it is.
Focus on what it does!
In this episode I'm going to advise you
to not let a life insurance policy lapse.
If you no longer want or need it, possibly sell it!
Otherwise, you may be missing out on tens of thousands,
maybe hundreds of thousands of dollars.
I will give you some examples.
(soft music)
So I'm Doug Andrew.
I've been a financial strategist
and retirement planning specialist now
for north of 48 years, doing what?
Helping people in America
in particular optimize their financial assets,
minimize taxes
and empower what I call their authentic wealth
in all three dimensions.
Hence the name of this channel is "3 Dimensional Wealth."
It's like a three-legged stool.
We're focusing right now
on the financial dimension in this episode.
Now, a lot of people who have subscribed to my channel
and if you have not done so, it's free.
And when you do, click on that little bell
because then you'll be notified
every time I post a new educational video
which I do almost on a daily basis, okay?
But stay with me to the end
'cause I wanna gift you a copy
of my most recent best-selling 300 page book
called "The Laser Fund."
Now, if you watch very many episodes, you'll quickly realize
that one of my favorite financial instruments
for 48 years as a financial strategist
to allow people to accumulate their money tax-free
and then be able to access that money anytime,
totally income tax-free.
And at the end of the day, when they finally pass away
anything left behind in that account
will blossom, maybe even double or triple
and transfer income tax-free is a max-funded
IUL, Index Universal Life Insurance contract
that's structured correctly and funded property.
What do I mean?
You are taking the least amount of insurance
that the IRS will let you get away with
so you're using it as a living benefit.
Hence the name life insurance.
Most insurance agents sell life insurance
as death insurance.
Only to be used when you die.
No, EF Hutton who is the brain child
behind the emergence of universal life
clear back in 1980 basically said "We need to be using this
for the tax-free living benefits."
And if you want that as your primary objective,
to be able to generate on every million dollars
maybe a 10% payout, a hundred grand a year
of tax-free income without depleting principle,
starting at age 60 and lasting if you'd live to be 120.
Yeah.
Is a max-funded IUL policy.
I've helped thousands of people do this.
And so you're taking the least amount of insurance
that the IRS will let you get away with.
These are in three sections of the Internal Revenue Code
that have been around for over 108 years
as of the recording of this episode.
Sections 72e, 7702 and 101A.
72e says money inside of an insurance policy
will grow tax-free.
7702 says you can access the money
without triggering income tax if you do it the smart way.
And then section 101A says at the end of the day
when you die, anything left in there will blossom
and transfer income tax-free.
Meaning if I died in an accident tomorrow,
every million I might have in IUL policies
would blossom to probably about double that, 2 million
and transfer income tax-free to my beneficiaries.
So it's the only vehicle
in the Internal Revenue Code that does that.
But in order to make sure that your money grows tax-free
and you can access it tax-free,
you have to comply with three tax citations
and they are acronyms, TEFRA, DEFRA and TAMRA.
Basically TEFRA and DEFRA
dictates the minimum amount of life insurance protection
that has to be attached to the account
based upon your age and your gender
and your health so that the money grows tax-free,
it doesn't move out of the tax-free umbrella
under the definition of tax-free life insurance
in the Internal Revenue Code.
If you violate TEFRA and DEFRA,
it moves over to the taxable investment section of the code,
okay?
TAMRA says you have to spread it out,
the funding over usually about four or five payments.
And so this all happened in the 1980s.
So in a nutshell, most people would come to me
and they didn't necessarily want or need more death benefit.
Even though they didn't realize they probably could use it.
They came because they wanted to optimize assets,
minimize taxes, and have alternatives to IRAs, 401(k)s,
working capital for business and so forth.
Because when you really compare it, nothing else comes close
to passing the liquidity, safety, and rate of return test
with flying colors like max-funded IUL.
And it actually blossoms when you die.
So many times I would hold up an image
of a box of baking soda in front of audiences.
And I would say "What are some uses for baking soda?"
And usually the women in the audience would speak out first
and say "Well, you can soak in the tub with that."
"It takes the odor out of the refrigerator."
"It takes the pop out of a pot of beans" and so forth.
And the man would go,
"Oh, I clean my battery terminals with that stuff."
And then somebody finally goes
"Oh, it's good for baking."
Yeah, the obvious, it's baking soda, okay?
That's what life insurance is.
The obvious thing is it's for life.
Most people talk about
all kinds of other things that it's used for.
But my point is don't focus on what it is,
focus on what it does.
Now, it's like a financial Swiss army knife
is what I compare it to.
Because when you use a max-funded
index universal life policy, it accumulates money tax-free,
you can take out money tax-free throughout your whole life.
It doesn't trigger penalties before age 59 and a half
and all those strings attached to IRAs and 401(k)s.
At the end of the day, it blossoms and transfers tax-free.
Nothing else does that.
And so you can use it for retirement.
It knocks the socks off of IRAs of 401(k)s or even Roths.
I've never owned any of those.
Why would I?
'Cause this outperforms and is far better than those.
But not only retirement,
but business owners use max-funded IUL
as working capital for their business.
Real estate investors use it as working capital
for their real estate management.
It works as an ideal emergency fund
instead of having money in a bank or credit union, okay?
College funding for kids or grandkids.
It knocks the socks off of of a 529 plan.
Pension maximization for school teachers
where you can take the difference
between the no survivor benefit.
Let's say 5,000 a month as a retiring school teacher
and the 4,000, they were gonna reduce it down to
if you wanted to provide a survivor benefit to your spouse.
Just take that thousand dollars
and put it into an IUL policy
and you will have way more benefits and flexibility
than buying the most expensive life insurance policy
you'll ever buy from the state where you taught school.
There's all kinds of uses, a state planning and so forth.
Now, the point of this episode is sometimes
we get to a point because of whatever happens,
circumstances, what have you, that people,
they deplete their assets, they have,
something happened in their life
and they have a life insurance policy.
Now, it doesn't have to be a max-funded IUL,
it can be a term life insurance policy.
It can be any kind of, you know, whole life insurance.
And they get to a point where they no longer want it
or they don't feel like they can afford it.
That they're putting money into this losing proposition.
And so this happens and it's just part of life.
And so people go "You know what?
I really don't care
about leaving behind a tax-free death benefit
and this is putting a crimp in my cash flow."
And so they're just gonna let it lapse.
And I go "Hold on, ho, ho, hold on.
No, no, no, no, this is an asset."
And they go "What?
No, it isn't, it's a liability.
I'm having to keep paying money into this thing
and I'm not gonna be around."
And I go "No, no, no.
Listen to me.
There is a secondary market,
it's called the life settlement market.
And sometimes in the life settlement market
you actually have insurance companies
that are the biggest investors."
And they go "What are you talking about?"
See, your life insurance is an asset.
So let's say you have a million dollar policy.
And you know, you're having to pay, you know, 3, 4, 5
$6,000 a month into it because now you're in your eighties.
And you're going "You know what?
This is just draining my resources.
So I'm just gonna let it go."
Well, before you do that, okay?
You can shop that life insurance policy
on the life settlement market.
Now, there's 20 or 30 different life settlement companies,
but there's about three big ones, okay?
And so whenever I do this for a client,
I fill out the paperwork
and I get the signature from the owner, and the insured
and they're gonna shop the life insurance
to see if anybody would buy it.
Now, why would an investor
or another insurance company
want to buy your million dollar policy?
Because they know the math.
They're looking at what it does.
If they take over that policy
and they need to put in 3,000 a month or 5,000 a month,
they do the math.
5,000 a month is 60,000 a year.
60,000 a year would have to earn what interest rate
to grow to 1 million, especially tax-free?
How many years would that take?
And they calculate how many years
would that premium take to grow to a million dollars
especially after tax and they back into it
and they go "Okay, eight years,"
"11 years," "12 years," "15 years."
And then what do they do?
They take your application
and they calculate your LE, that's your life expectancy.
So they submit it to the,
they get your doctor's records and so forth.
And they will calculate to the month.
"This person has a life expectancy of 97 months,"
or "63 months," or "114 months."
They calculate it to the month.
Now, you can die sooner, you can live longer.
But they will calculate your life expectancy
and they will do the math.
And if the money that they feel
that they're gonna have to put into this policy
to keep it going until you finally check out
would give them a great rate of return,
better than most investments would,
they will offer you a lump sum
of whatever that differential is.
And it could be 50,000, a hundred thousand.
It could be somewhere between 5%
up to 25, 27, 28% of the death benefit.
Yep.
So instead of just letting it go and getting zip,
I have had clients,
one had a little over 3 million of life insurance
and no longer could afford it.
And we were able to sell that $3 million policy
for a $900,000 cash.
Instead of getting nothing.
Had another policy for 400,000
and we were able to get 70,000.
Another policy a million, we were just gonna let go,
she couldn't afford it anymore,
and she's getting 55,000, but 55,000 is better than nothing.
Now, these are big boys and girls,
the company's buying these, they've already done the math.
They know that they will be the owner
and the beneficiary of that policy from that point forward
and at some day when that person dies,
they get the lump sum of money tax-free.
But they've already done the calculation.
So don't just say "Oh, we're just gonna let it go"
without at least shopping it on the life settlement market
to see if you can get 50,000, a hundred thousand,
somewhere between maybe 5% up to 25% of the death benefit
in a lump sum.
And usually that lump sum
is going to be less than what you've paid in
and so it's all tax-free.
You don't have to pay tax when you get that money.
Now, I wish I could go into more detail.
But if this is intriguing you,
you can learn about max-funded insurance contracts.
I'll gift you a copy of my book "The Laser Fund."
You'd go to L A S E R fund.com.
You contribute a nominal amount to the shipping
and handling, I'll cover the rest of that
and I'll fire out a copy of this 300-page book to you
if you wanna own a max-funded insurance policy.
But if you think you or someone you know
may want to sell their insurance policy
'cause they no longer think they want it or can afford it,
get hold of me through the resources, through my channel
so that I can help you shop that policy
and possibly get you 5, 10, 25%
of the death benefit in one lump sum selling the policy
before you just let it go because it's an asset.
The message is don't focus on just what it is,
focus on what it does.
It could be a good investment for somebody else
who has the money to keep paying the premiums
because they will do the math.
Does that make sense?
This is to you and your brighter future.
(soft music)