Now, may be the best time since 1988 to get an indexed universal life insurance policy.
In this episode, I'm going to address internal revenue code section 7702 the changes that just
recently took place and how I can benefit from this with my IUL policy, get ready.
Most insurance agents do not understand this yet.
So my name's Doug Andrew and I've actually had an insurance license since 1974.
My favorite vehicle since 1980 when they were first introduced by EF Hutton
which was not an insurance company by the way. They were a brokerage firm and they were the brainchild
behind the emergence of universal life and then in 1997 when interest rates started coming down.
In order for people to earn rates of return in the seven to ten percent range average they introduced
indexed universal life. Where you can earn returns linked to the market without your money at risk in
the market. So, there's lots of videos and episodes on this very three-dimensional wealth channel
that you can view to learn about indexing. But a lot of times when people are searching for
section 7702 they want to understand, "Golly, I heard something happen with section 7702,
that has not been changed since June 21st 1988. What's up?". So, that's the purpose of this episode
is to help you learn what changes took place in late December of the year 2020.
They sort of sneaked it under the radar with some of the stimulus packages that they passed
and what it means for you because now may be the absolute best time ever for you to take out an
index universal life insurance policy if you're trying to structure it to put in the most money
the IRS allows as fast as they allow and get away with the least amount of insurance the IRS will
let you get away with. Are you ready? So, in a max funded indexed universal life insurance policy
what you're trying to do is take the least amount of insurance that the IRS will let you get away with.
That is based upon your age and gender. This is under tax citations Tefra and Defra. Now I have
episodes that talk about those. Tefra, is the tax equity fiscal responsibility act of 1982.
Defra is the deficit reduction act of 1984. Now, you can search on my channel if you want
to understand those but they were passed in order to dictate the minimum amount of life insurance
death benefit that you had to have attached to your insurance contract if you're designing it
for living benefits, for tax-free accumulation and tax-free income, and so you had to have a
commensurate amount of insurance based upon your age and gender and your health. But it gave parity
meaning equality. Meaning, that if you were a 20 year old athletic marathon running female and you
wanted to invest a half a million dollars into a universal life policy. You might have to have
five million or more of life insurance but because you're younger that insurance is cheaper.
So if your objective is to earn like I have over a 25-year period I measured my rate of return and it
was 11.17. The cost of the insurance was a little over one percent during that period I netted
10.07. So, I'm earning 11 netting 10 percent cash on cash tax-free returns. That one percent is actually
money that sometimes people say well that's a cost. Well, yeah it's a cost of the insurance but
it's money that would otherwise go out the window in unnecessary income tax. If I followed the herd
and put my money into traditional accounts like IRAs & 401ks. I mean, I would have to be earning
15 or 16 percent and then after-tax I finally net 10. I only have to earn 11 in an IUL to net
10 in that same scenario and that's why EF Hutton came out with this idea so that people could have
more safe stable rates of return of 11 netting 10. Instead of trying to earn 16 10 in the stock
market. Does that make sense? These are tax-free as long as you adhere to Tefra, Defra. But see
they gave it parity. So, a 60 year old who wants to put in a half a million only has to have a million
250,000 of insurance instead of the 20-year-old that has to have 5 million. So, you get away with
less insurance and so the 60-year-old if they're doing it for living benefits can earn 11 a net 10
because their insurance cost will only drain out one of the percentage points just like the
20 year old. A lot of times people think well insurance gets more expensive as you get older.
Well, the amount of insurance required in an IUL policy goes down as you get older. If you're an
80 year old we had an 80-year-old gentleman that had three blocked arteries a dull onset
diabetes a prostate cancer episode he had six sisters pre-decision and three brothers and so
a lot of times people thought he had one foot in the grave. But he actually had a better lifestyle
than his siblings and we got him approved but we were able to squeeze down the death benefit for
his half-million down to 800,000. Now some people go well who puts 500,000 into a hundred thousand
dollar life insurance policy? Well, he did. Why? His objective was not the insurance I mean if he did
die five hundred thousand blossoms to eight hundred. He did it because he wanted his five
hundred thousand dollars to be earning eleven and netting 10 and be able to pull out 50 grand a year
tax-free the rest of his life. Where else could he get that and so that's why he did that. But see,
the cost of the insurance was the same for the 80-year-old as the 60-year-old as the 20-year-old
because the amount of insurance under Tefra, Defra goes down as you get older. Does that make sense?
So, in 1988 June 21st to be exact brokerage firms and the banks lobbied congress because
they couldn't compete with these. These max funded IUL policies are safer, they pay higher interest,
they're tax-free, and they blossom when you die to a larger amount and transfer tax-free.
There's not a bank or credit union or even a mutual fund around that will do that.
So, they didn't want to kill these because this is where they put some of their money. Banks
will take your money and put a portion of it into insurance companies so they don't want to kill it.
But they wanted to slow the flow they complained, "Oh, the money there's this massive exodus of money
leaving our banks going into these insurance companies." So let's slow the flow, that was passed
in 1988 under the technical and miscellaneous revenue act TAMRA is the acronym. It simply means
if somebody after June 21 1988 wanted to design an insurance contract to accommodate 500,000.
If they put in all that money in one fell swoop it would grow tax-deferred. But if they started
taking out income it would now be taxable like an annuity better than an annuity because annuities
don't blossom to a death benefit most don't. But if you wanted tax-free income you had to spread
out the funding with universal life over four years in one day, five installments. So let's
say you wanted to put in five hundred thousand. You could put in a hundred thousand the first day of
the first year. A hundred thousand the first day of the second year. So, four years and one day one day
into the fifth year you put in the last hundred thousand now you have five hundred thousand.
You complied with TAMRA and now that policy is grandfathered to allow you to have tax-free income
forever after that's TAMRA and it has never changed until December 27th of the year 2020.
And so what does this mean? So, under the new 7702 changes that happened in December of 2020.
A million-dollar death benefit allows a 65-year-old male to put in more money than 500,000
and they can put it in faster 107,000 that's the TAMRA or premium down
here. Whereas before they could only put in like 497,000 not quite 500
and the most they could put in is about 82,000 a year. What does this mean? Well,
for the same death benefit you can put in more money and you can put it in faster. Which means
it will grow better. So when you're looking at this after the law was changed you now can put in
more money and you can put it in faster 107,000 a year whereas before you could barely put in
not even quite five hundred thousand and you could only fund it eighty two thousand a year. It took
actually five years in one day to get all your money in there. Well, you can reason with me. If you
can put in more money and put it in faster it will do better. Now, people say, "Well, what if all I
wanted to do was put in 500,000. How does it work?". When you look at this whole comparison and
how you can put in more money but if you don't have more money you can then actually fund it
sooner. The costs are less and so by using section 7702 taking out a new universal life policy today
you can cut the cost. You can probably get your money in there in maybe three years. A younger
person can get it in two years in one day. With the changes in 7702 the costs are less from 20 to 50
percent less. You can get away with less insurance. The cost of the insurance go down. You can put in
the money faster this thing makes universal life zing like never before. I mean, I'm here to tell you
this has been my favorite vehicle now for more than four decades and it has worked like a charm
but now this is like supercharging it. With 7702 changes you're able to be able to cut the cost
get away with less insurance keep it cheaper put in money faster and be able to have it perform.
So that the rate of return it all boils down to internal rate of return. I've been mentioning that
for years I've been able to earn an average of let's say 11 and net 10. But sometimes during the
early years if I earn 11 I'm netting nine it takes a few years of putting the money into the policy.
You sort of have to fill up the bucket or like a five-story office building.
TAMRA said yeah we'll only let you lease out one floor of that five-story apartment building. One
floor a year and if you'll do that for four years in one day we'll let all of your rental income in
that apartment building be tax-free forever after. Now, that sounds silly but I would do it in order
to have tax-free rental income. Now, they're saying, "Well, will only require you to take three
years to rent out your five-story building." So now I can have tax-free income sooner.
I can earn greater rates of return and I can cut my costs. So, if this is resonating with you and
tweaking your interest I would strongly recommend. First of all, you subscribe to this channel because
I have over 500 educational videos that you can search and find out more. Click like post a comment
share this with somebody. But if you subscribe to be able to be notified click the little bell
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But here's what I want you to do second. I would recommend first of all that you read or listen or
watch and learn. I will gift you a copy of my most recent best-selling book called the laser fund.
How do you claim your free copy? You simply go to laserfund.com click on the link below. You
contribute a nominal amount towards the shipping and handling I'll cover the rest of that cost.
Don't pay $20 on Amazon for this. I mean if you do thank you but I'll gift it to you. Now, why should
you get this? It's 300 pages that contain all kinds of charts and graphs and explanations but
it's actually two books in one. This is the left brain side this is the right brain side. This is
about 100 pages 12 chapters with 62 actual client stories that talk about how the laser fund
helps people not only diversify and create the foundation for a tax-free retirement.
But they can use it as a dream solution like a financial swiss army knife for college funding
for their kids and grandkids. It's better than a 529 plan way more flexible earns higher rates of
return real estate management working capital accounts for your business emergency funds.
Why would you put your money in a bank when you can increase the safety by six notches higher and put
your money where your bank is putting your money into insurance companies for greater safety and
rates of return. So, you can learn about that in this book you can read both sides it's 300 pages.
But there's options there for the audiobook and also up to an 18-hour masterclass if you want
to learn but you'll be notified every time we do an in-depth educational webinar which we do
on a weekly basis and I want you to learn how this can help yourself for your brighter future
and be connected to an IUL specialist if you want who can help you design and fund it correctly.
Because you have to go through a licensed individual and I would rather point you to the
ones who understand how to do it correctly because too many people who don't have it done correctly
end up kicking themselves five seven years later when they could have doubled their money
and instead, they barely made a rate of return because the advisor was not proficient.
That's the number one reason why people do not achieve the rates of return that I talk about
on this very channel. So, here's to your brighter future claim your free copy and
we'll see you on the other side as you begin to become enlightened by learning.