Guarantees are not a significant factor. In this episode, I'm going to address
IUL, index universal life versus whole life; the net amount at risk in max funded iul is far less.
And this is a game-changer once you understand this. And many whole life insurance agents do
not get this. I want to educate you so you won't be confused by those who tout, "Oh, whole life is
the cat's meow. The best instrument ever." Maybe for death benefit. But not for living benefits.
-So, my name's Doug Andrew and I've helped people optimize their financial assets and minimize taxes
now for more than 4 and a half decades. I started in 1974. I got my insurance license and my series
one securities license. And from 1974 to 1980, I ended up being responsible for over 3,000 clients
in 13 western states. And I was a big proponent of buy term and invest the difference. Because
most whole life insurance policies... Because back then, there were basically only 2 types of life
insurance. Term and whole life. Mathematically, I could prove that if you bought term insurance
and did in fact, invest the difference and you got an average return that the markets were actually
performing at back in the 1970s and '80s, you would outperform a whole life policy even with
its tax-free accumulation. Because most of those policies were only really earning about 2.5, 3,
3.5, or 4 percent. The biggest problem with buy term and invest the difference is most people
who were told to do that never invested the difference. So, they would have been better off
putting their money in a whole life policy. Well, that all changed in 1980. In 1980,
EF Hutton... They were not an insurance company, they were a brokerage firm. And they came up with
the idea of universal life. And they said, "Wait a minute, whole life is good for death benefit."
That's what it was designed for that you can put in this amount of money and you can actually
overpay the early years and underpaid the later years and it builds cash value and it's tax-free.
And it has guarantees. And maybe those guarantees are 4 percent. And it means that if you pay the
required minimum premium... I'm super simplifying this. That the insurance policy will not lapse.
And if you pay that, they will guarantee the insurance policy will be there when you die
because it was designed primarily for death benefit. That's what the guarantees were primarily
there for. When EF Hutton came up with universal life, it was primarily for living benefits. Let's
self-insure. Let's take the least amount of insurance the IRS will let us get away with
and put in the most money the IRS allows as fast as they will allow. And it turns into a tax-free
cash cow. Because money inside of a life insurance policy a permanent life insurance policy grows
tax-free under section 72e of the internal revenue code. It's been that way for over a century,
since 1913. You can access the money tax-free under section 7702. And when you ultimately die,
anything in there blossoms and transfers tax-free. But hutton said, "Why don't we just self-insure?"
This is like buy term invest the difference on steroids under a tax-free umbrella.
This is what happened. We had people back in 1980 who would put in 500,000 into a universal
life policy in one fell swoop. And back then, I never earned less than 11 and 3 quarters percent
even as high as 15.5 percent on my universal life policies back then. But if I earned 11,
I was netting 10. I had many clients who put in a half a million and they started pulling out 10%
or 50,000 a year tax-free. They're still doing it to this day. It was incredible. It was for
the living tax-free income benefit. It wasn't about the death benefit. They put in a huge
amount of money into a dinky little life insurance policy. They self-insure. Long story short, the
IRS came in and said, "What are you doing?" And they said, "We're not doing anything wrong." And
they went to court. EF Hutton won. But in 1982, under the tax equity fiscal responsibility act,
they said you've got to have a certain amount of life insurance attached to this tax-free account.
Or it's going to be taxable under the investment section of the code. If you want it to be tax-free
here, it's got to not exceed the definition of life insurance under these sections of the code.
They didn't understand totally what they were doing. How surprising is that? So,
2 years later in 1984 under the deficit reduction act, it dictates the minimum amount of insurance
that must be attached to the insurance account so that your money accumulates tax-free, you can take
out tax-free income, when you die it transfers tax-free. But the objective is living benefits.
Now, there's a massive exodus of money leaving the banks and the brokerage firms back then because
these were safer, they paid higher interest. They were tax-free, they blossomed when you die.
And uh in 1988, June 21st under the technical and miscellaneous revenue act,
it spells the acronym Tamra. They wanted to slow the flow. They didn't want to kill these
because this is where banks put their tier 1 assets, 30 to 40 percent of their tier 1 assets
for liquidity and safety. What I just said maybe went over your head. Before I explain what I meant
by that, if this is intriguing you, you ought to share this video with somebody who ought to watch
this and learn more about max-funded IUL compared to whole life. And click share. Like, comment,
subscribe. Click the bell because I post an in-depth answer to a financial question almost
on a daily basis on this channel and stay with me to the end and I'll gift you a free copy of
my most recent 300-page, bestselling book called The LASER Fund which is what I call
a properly structured max-funded indexed universal life policy, okay? So, under Tamra,
what happened is they wanted to slow the flow but they didn't want to kill it because banks
in the las 10-15 years have been paying what? A measly 1%. Every million that we collectively
deposit into a bank, they pay us one percent interest. Ten thousand? And they turn around
and loan it back out again at 5 or 6 percent. They're making 5 times what they're paying you
using your money. OPM, other people's money. In 2008 when 400 banks went under and 900 more
were on the brink of going under, there wasn't one single legal reserve insurance company who
went under. In fact, the federal government asked the 5 major banks in america to disclose
where they had their tier one assets. That's money they have to have on hand liquid and safe
in the case of a collapse or a run on the bank, so to speak. Guess where the 5 major banks have about
30 to 40 percent of their tier-one assets for liquidity and safety? In insurance companies. The
multi-trillion dollar insurance companies are the backbone of America and the backbone of the world,
okay? This is why many times teachers pensions are with annuities with insurance companies because of
the safety. They weather the great depression with flying colors, okay? This is where banks
will take your money turn around and put it into the insurance company and earn 4 or 5 percent.
Again, that's 5 times what they're paying you. They pay out 10,000 on every million. They borrow
from us. And they make 50,000. Would you invest 10,000 on a widget machine or an employee that
makes you an extra 50,000? That's called a 500% return on employment cost or equipment cost..
So, what happened is back in 1988, they said we got to slow the flow but they didn't want
to kill it because this is where they put their money. So, Tefra and Defra have to
do with a minimum amount of insurance. When you talk about Tamra, this has to do with how
fast you can put the money in without sort of messing up the ability to take tax-free income
which is what EF Hutton designed universal life to be used for is living benefits for tax-free
income. Tax-free growth, tax-free income. The death benefit was secondary. With whole life,
the death benefit is primary, okay? I would compare it to a bucket. And basically, you
want to create a receptacle a container for your money. And you want to be able to put in money
but you want the least amount of insurance the irs will let you get away with under Tefa and Defra
tax citations. This gives parity. Meaning, a 60-year old gets the same rate of return.
They can earn 11 and net 10 just like a 22 year old athletic marathon running female.
Or even an 80-year old. I had an 80-year old friend who had 3 blocked arteries adult onset
diabetes a prostate cancer episode. But we were able to squeeze down his death benefit
on his universal life so that he could earn 11, net 10. Because you're able to squeeze
down the death benefit because it gives parity if your objective is tax-free growth and income.
So, you might put in 500,000. If you're 60 years old, the minimum death benefit would be 1,250,000.
You can buy way more life insurance than 1,250,000. With 500,000 bucks,
that's not the objective. That's the least amount of insurance under Tefra and Defra.
Tamra came along and said, "Oh, you can only put in 100 grand a year." 100,000 the first day of the
first year. And finally, 4 years and 1 day later, you can put in the entire 500,000 in this example.
There's nothing magic about 500,000. I'm just using it as an example. If you comply with Tefra,
Defra, and Tamra; this bucket of 500,000 can double to a million. A million can double to
2 million. 2 million can double to 4 million. 4 million can double to 8 million. I actually have
clients who have done that. They started out with 500,000. They now have 8 million dollars tax-free
in their bucket generating between 640,000 to 800,000 a year of tax free cash flow if they want.
The spigot on the bucket is the cost of the insurance that the IRS says has to be there
in order for it to be tax-free. But a maximum funded index universal life is the only policy
when it's designed this way where the cost of insurance gets cheaper as you get older.
Have you ever seen a church policy that gets cheaper as you get older? This is what a lot of
whole-life agents don't understand. If I put in 500,000 and the original death benefit required
was a million and two-fifty, 500,000 of the million two-fifty is my money now.
The insurance company is only charging me on that spigot for the remaining 750,000.
If I earn rates of return like I have in 7.2 years, the half a million doubles to a million.
Now, the net amount at risk is only 250,000. The spigot on the bucket is getting cheaper.
When the million doubles to 2 million, 2 million is twice as much as I had 7 and a
half years earlier but it's more than the death benefit. Why in the world do I need guarantees
that my life insurance won't lapse in a whole life policy when I'm self-insured? EF Hutton designed
universal life so you would self-insure. So, let's do the math here. Maximum funded whole life versus
universal life. So, let's do apples to apples. Let's take a 65-year old who 5 years earlier
started to pay the maximum amount allowed. Now, frankly, in a universal life, you could put in
100 grand a year for 5 years. Whole life, you have to spread it out over 7 years. And that's
why it doesn't perform near as well. The minimum death benefit if you started this at age 60 is
1,250,000 under Tefra and Defra. So, you put in 100 grand a year for 5 years. Now, you have a
half a million in there. It will have grown with interest but I'm just going to simplify this.
This 500,000 of cash value that was funded over a five-year period, you could do that in your whole
life policy too. But it would take you longer than 5 years to get it in there. Let's just
assume you could get it in there. And let's just take a snapshot in time and say, "Okay,
we have 500,000 now of cash value and a whole life policy. And we have 500,000 in a universal life
policy." What's the difference? Well, I have found that most whole life policies unless it's variable
and you put your money at risk out in the market, you might be lucky to earn six and net five,
okay? The only policies that ever touted years ago 8% only netted you 5.99% by the time you
were 95 years old. I was netting what most whole life was grossing for years on my universal life.
If you're earning 5% on 500,000, okay? That means in 14.4 years,
a half-million is going to grow to a million. If that is part of the death benefit,
then the net amount at risk is only the remaining 250,000 because a million of it now is your money.
The insurance company's net amount at risk is all they're charging you for. You are self-insuring.
But do you know what I've earned on my universal life average? 10.07. 10% on 500,000 means
that it's going to double every 7.2 years. So, in 14.4 years, instead of having a million, I'm going
to end up with 2 million in my universal life. I've seen it over and over and over again. Now,
wait a minute, if in 15 years... I've had many clients that the death benefit that was originally
a million two-fifty in this example now is totally gobbled up by 2 million of cash value. Tefra and
Defra says the death benefit has to stay ahead of it by at least 5 percentage points. So, the death
benefit now grows to 2.1 million. The insurance company is only charging me for the last little
hundred thousand. That's a minuscule portion of the interest that I'm earning on 2 million dollars
because I've self-insured. What am I worried about guarantees that guarantee the policy won't lapse
when I have 2 million of cash value which is far more than the death benefit? In fact,
it caused the death benefit to go up because I have self-insured. The net amount at risk is 120th
what it was when I was 15 years younger. In other words, the older I get, the cheaper
the insurance becomes on universal life when it's maximum funded. So, stop talking about
whole life has guarantees. Because under the new section 7702, it looks like those guarantees
won't be 4% anymore because whole life policies are complaining they can't afford it
with the low-interest rates. It might go down to 2%. I don't worry about guarantees because I am
self-insured in as little as 15 years. I don't need guarantees because I now have the money in
my policy tax-free far greater than the original death benefit. And I can prove this to you many
different ways with different examples on clients that we've helped for years. If you want to read
examples of this, let me show you how you can read and learn watch and learn or listen and learn. So,
if this is intriguing you, I call a max-funded indexed universal life structured correctly and
funded properly The Laser Fund. You can own an indexed universal life insurance policy. But
if it's not structured correctly or if you have not funded it to the maximum amount,
it would not qualify to be called a Laser Fund. Laser means liquid assets safely earning returns.
And so, I wrote a book about it. It's 300 pages. But it's actually 2 books. This one is 200 pages,
14 chapters with all the charts and graphs explaining max funded index universal life. If you
learn more by stories, you flip it over and read this 100 pages, 12 chapters, with 62 actual client
stories of how max-funded IUL, the Laser Fund can be used for retirement, college funding, working
capital for business, real estate management, emergency funds, estate planning on and on and
on. It's the dream solution for many financial goals. I call it a financial swiss army knife.
How do you get your free copy? You can claim your copy by going to Laserfund --LASERfund.com. Click
on the link below and contribute a nominal amount towards the shipping and handling. I'll cover the
rest of that cost. I'll pay for the book. I'll fire out a copy to you. And if you like to listen
and learn or watch and learn, there's different opportunities for master classes online and what
have you. And you can join us for educational webinars. This is about you and your brighter
future. And so, I would love to gift you a copy of this and here is to your brighter future.