- What most insurance agents don't understand
about indexed universal life.
In this educational video episode, I'm going to address
how to structure IUL to become self-insured.
Now, I'm surprised how many agents don't even know
what I'm talking about when I say self-insured.
So get ready to learn.
(upbeat music)
I'm Doug Andrew and I've been a financial strategist
and a retirement planning specialist
now for nearly five decades,
helping people prepare for a comfortable retirement
so they will not outlive their money,
so that they can accumulate, access,
and transfer their money totally income tax free.
There's only one vehicle in the Internal Revenue Code
that does that in a superior fashion.
I've challenged many CPAs and tax attorneys that I teach
in advanced continuing education courses.
Show me any other financial instrument
in the Internal Revenue Code that does that.
And they wanna know where in the code
and that's why they come to learn
about Sections 72(e), 7702, and 101(a).
You can learn more about how to accumulate access
and transfer money tax free in IUL
under those three sections of the code,
complying with TEFRA, DEFRA, and TAMRA's
tax citations on this channel.
Let me summarize what I mean by self-insuring
and how your insurance
can actually become cheaper as you get older,
because I'm amazed how many insurance agents
do not understand this.
They poo poo universal life and say,
"That thing's gonna crash and burn
when you're in your 70s and 80s.
The cost of the insurance is gonna go through the roof."
And I go, "No, the cost of insurance is nothing
after the 12th year on most of mine."
They go, "What?"
So let me explain what I'm talking about here.
I'm going to use an example that I use
in many of these educational videos.
I've compared an IUL to a bucket for years.
It's a repository where we're gonna put money into it.
Now, the difference with universal life and whole life,
whole life insurance was designed on a chassis
for death benefit so that it has guarantees in there
and you have to pay a certain amount of premiums
for a certain number of years so that it won't lapse.
And those guarantees, which they tell are an advantage,
they're actually a detriment to having the policy perform.
In other videos, I explained that the best
whole life policies that I've ever seen
would illustrate maybe 8% dividends,
but it took until age 95 before the internal rate of return,
cash on cash paid into that whole life policy equaled 5.9%,
meaning clear to age 95,
if the company credited eight,
you are only netting 5.9% cash on cash.
Why do I like universal life?
Because I've averaged 9.6 and netted 8.6.
I can net more than whole life grosses
because I structure it correctly.
And let me show you what I mean by this.
The objective when you take out universal life
is for living benefits.
That's why EF Hutton designed it in the first place
is for living benefits.
And a lot of agents don't know how to do this.
So here's this bucket, and let's say you're a male age 60
and you wanna reposition $500,000
from underperforming or non-performing or volatile assets.
Many times, I'll use the example
of somebody who wants to get $200,000 net after tax
out of IRAs or 401ks invested in the market
'cause they're sick and tired of the volatile market
and they don't believe they're gonna be
in a lower tax bracket when they retire.
They wanna convert to tax free.
So they come to me and say,
"Doug, I want to be able to put 200,000
out of these IRAs or 401ks.
Roll it out over five years and put it into this."
Okay, 200 grand.
"I also have a rental property
that I'm sick and tired of being the landlord,
taking out the trash, fixing toilets, evicting tenants.
It's an albatross around my neck.
I wanna sell that
and I'm gonna realize about 200,000 of equity.
I want to put that in here."
Okay, there's another 200,000.
We're up to 400,000.
Any other assets that are underperforming?
"Yeah, I've got a hundred grand sitting over here
in banks and credit unions.
It's pathetic. I didn't know where else to put it.
It's only earning 1%.
And I know the current of inflation's coming down
at 3, 4, 5, I'm going backwards.
I need to increase liquidity safety
and rate of return of that."
Okay, there's another a hundred grand.
We have 500,000.
So this is what is called the guideline single premium.
That's the most that this person's gonna put in.
They can't put in more than that.
They don't have to put in that much.
This is called the GSB, the guideline single premium.
It's a male age 60.
I go in and under the TEFRA and DEFRA tax citations,
it tells me that a 60-year-old male
who wants to have this 500,000 grow
at the best internal rate of return possible,
as fast as possible, the minimum death benefit is a million.
Now, if this were whole life,
they'd be required to have more than that, okay?
That's why whole life costs more.
It can't perform as well.
Now, I could buy way more life insurance
than a million with $500,000 of cash.
That's not the objective.
I want the least amount of insurance
so that this 500,000 will grow faster, bigger, okay?
And so a million, but do I use the increasing death benefit
or the level death benefit?
Now, there are some shortsighted senseless advisors
that say, "Oh, level's the devil."
Oh, bless your little heart.
You don't even know what you're talking about.
If you are gonna fund this as fast as TAMRA allows,
which means you can put in
about 100, 120,000 a year the first year,
again, the second year, the third year,
it may take you three years and one day
to get most of that in.
Maybe four years and one day,
you finally put in the last 50 grand,
but it takes you four years and one day
to get this money in there
if you want to create tax-free income.
That's the TAMRA tax citation.
I can comply within three years and one day,
four years and one day with universal life.
With whole life, it takes six years and one day
or seven payments, okay?
So I can get the money in faster with IUL.
But see, I put the money in
and I wanna use the level death benefit
if I'm gonna fund this within five or 10 years.
Now, if I'm in my 20s or 30s and I don't have any lump sums
and I'm just setting up an IUL
and I'm tucking away 500 a month,
then I would use the increasing death benefit until when?
Until you're finished putting money in,
you're finished funding it and you're gonna retire
or you're gonna stop and let it sit and grow,
then you switch immediately to the level death benefit
if you want it to become cheaper as you get older.
Let's just go back to this
'cause most of my clients are older people
who have the money, okay?
So you put in 500 grand
and use the level death benefit, that's a million,
meaning when I get in 500,000 bucks,
that qualifies as part of the million if I die.
They're only gonna pay out a million.
But see, that means that 500,000 of that million
was my own money.
It means the insurance company
only has a net amount at risk.
They're only on the hook for the remaining 500,000
'cause the first 500,000 was my money that's in there.
They're only gonna charge me for the 500,000.
So in four years and one day,
the insurance company's only charging me
for half as much insurance as they did the first year.
Is that making some sense?
The spigot on the bucket,
which is the cost of the insurance that has to be there
in order for it to be tax free,
that spigot is already about half the size
because the insurance, I'm self-insuring my cash,
is now becoming the death benefit, okay?
Now, most of the clients that I've helped
throughout the years have been averaging 9.62% since 1980.
Since 1997 when indexed universal life came out,
and by using rebalancing,
they've been averaging 11.17, netting 10,
meaning that if they get credit at 11,
the net rate of return retroactive back to day one is 10.
If they earn 9.6,
they're netting 8.6 after the cost of the insurance.
The spigot on the bucket has only been draining out
1% of the gross rate of return retroactive back to day one.
But actually in the later years,
it's only draining out 1/10th of 1%.
If I earn 11, I'm netting 10.9 in that given year,
but I always like to go retroactive back to day one.
But getting back to this, if I'm earning 9.6,
that means my money will double in 7.5 years.
That 500,000 will double to a million in 7.5 years.
That would be by the 12th year in this case.
So in 12 years, my cash value on this
is now equal to a million,
which is what the death benefit was.
What's the net amount of risk?
Zero.
Okay, the insurance company pays out a million if I die.
Actually, they pay out 1,050,000.
They have to pay out 5% more than my cash
if my cash equals the death benefit,
the original death benefit.
So the net amount at risk is now very, very small
'cause I have self-insured, my cash value has equaled
and begins to exceed the death benefit
in as soon as 12 years okay?
Why do I need to worry about guarantees
on a whole life policy
that keep the death benefit enforced to age 120
when I'm already self-insured guaranteed in 12 years?
Okay, it's ridiculous.
They don't know what they don't know.
Now this, as we fill this up, if this doubles to a million,
TEFRA and DEFRA says the death benefit
if you die is 5% greater.
So they would pay out 1,050,000,
but they're only charging you
for 50,000 of actual net amount at risk.
So the spigot on the bucket now is really, really small.
And the cost of that when you're 12 years older,
when you're age 72, the cost of that is minuscule
compared to the interest they're crediting you
on a million bucks.
That million's gonna double in 7.5 years.
If you don't take out money,
it's gonna double to two million.
If you die, they'll pay out 2.1 million,
but they're only charging you 4-5%,
100,000 of actual net amount at risk.
The cost of 100,000 of death benefit
when you have two million of cash value in there
earning interest, I mean, 10% growth on two million
is 200 grand.
The cost of 100,000 of insurance
doesn't even come close to that.
Are you beginning to understand this?
This is how you become self-insured.
So this is what most insurance agents do not understand.
If you want to learn more about how to become self-insured
and have your insurance actually get cheaper
as you get older,
I would recommend you study this book
and talk to an IUL specialist
who knows what they're doing, okay?
Now, I wanna gift you a copy of this.
This retails on Amazon for 20 bucks.
It's a 300-page book.
It's actually two books in one.
This side is 200 pages, 14 chapters,
with all the charts and graphs and explanations
of how a property structured IUL is deemed
what I call a LASER fund,
Liquid Asset Safely Earning Returns,
and how it's a superior vehicle to IRAs or 401ks
or whole life insurance for living benefits, okay?
Now, if you're a left brain learner,
this is the side for you.
If you're a right-brain learner,
you flip it over and read this one.
This has about 100 pages, 12 chapters,
with 62 actual client stories of how IUL can be used
for all kinds of goals such as retirement,
working capital for business, college funding,
real estate management, emergency funds,
pension maximization, all kinds of goals, okay?
So if you wanna use your right brain or your left brain
or your whole brain, claim a free copy of this book.
I'll gift you one.
Simply go to laser fund, L-A-S-E-R fund.com,
or click on the link below and contribute a nominal amount
towards the shipping and handling.
I require a little bit of skin in the game, okay?
And I'll cover the rest of that cost
and I'll pay for the book.
I'll fire out a hard copy to you via priority mail.
Now, when you're in there
claiming your free copy of this 300-page book,
check out if you'd like to listen and learn
or watch and learn.
There's audio and video options there too.
There's educational webinars we teach on a regular basis.
They're free and you can even schedule an appointment
to talk to an IUL specialist
that I've trained that will create an illustration
for you correctly at no cost or obligation,
so you can see how an IUL policy can be structured correctly
so that you can become self-insured.
(upbeat music)