Indexed UL can double cash value every 7 to 10 years
if it's structured correctly. In this episode,
I'm going to address the question "Which universal life option has a gradually
increasing cash value?" Now, that's a very interesting question and
I've been asked that numerous times in the 46 years that I've
been a financial strategist. So, in this episode, get ready because I'm
going to show you what i think they were actually asking
and also which universal life actually allows you
to have a dramatic increase, not just gradual increase in
the cash value every single year.
So, I'm Doug Andrew and I've actually had a life insurance license from
1974 when I started. I kept it clear until 2005 when I finally just let it
expire automatically to become a consumer advocate. But I have continued
to train over 3 000 CPAs, tax attorneys
and life insurance advisors, real estate professionals
on how to optimize assets, minimize taxes and also choose the right type of life
insurance based upon the goals that people express. So, when people
ask me, "Well, Doug. Now, which universal life..." So, first of all, I go, "Okay,
at least you understand we're talking about universal life."
Because between term whole life and universal life universal life is
designed for living benefits. The cash value
increases. It's designed to give you tax-free income
is the reason why EF Hutton came up with it primarily for living benefits, for
income rather than just the death benefit which is what term
and whole life is primarily designed for. So, when they say,
"Which universal life....." I go, "Okay, they're on the right track."
"...has a gradually increasing cash value?" Now, normally they really mean to ask
which one has a gradually increasing death benefit. Well, that comes under
usually option b. Some companies it's option A but
that's where the cash value inside your insurance policy
as it grows as it does increase the death benefit. That's usually what
they're asking. But they didn't ask it that way. So, when
they say, "Which universal life has gradually
increasing cash value?" Well, if you said gradual, my answer would be
"A poorly designed one." They go, "Huh?" Well, if it's gradually
increasing, then it's designed poorly. And
unfortunately, a lot of universal life insurance policies are not
designed to give you the best internal net rate of return. What do I mean by
that? In a universal life insurance policy,
when EF Hutton who is the brain child behind them and they weren't in an
insurance company, they were a brokerage firm. And they said,
"Hey..." In 1980. "...why don't we take away the volatile risk
of having your money in the market and put your money into a legal reserve
insurance company. And instead of trying to get the most
insurance death benefit for the least premium,
let's flip it. Let's do the opposite. Let's get the least amount of insurance
the IRS will let you get away with and put in the most money as fast as the IRS
allows." And it turns into a tax-free cash cow for living benefits.
It means that if you threw in $500,000 which I had
many clients do back in 1980.
$500,000 was earning net internal rates of return of
10% or more. Let's just use 10%. That means a
half a million, unless you're taking income instantly, a
half a million doubles to a million at 10 in 7.2 years. In 7.2 years, your
500,000 is now worth a million tax-free. In another 7.2 years, your million has
grown to 2 million. Another 7.2 years, 2 million, 4 million,
8 million. We have people who started out with
500,000 and now have 8 million dollars. At 10% that generates 800,000
a year of tax-free earnings. If you take it out, it's tax-free. If you leave it
there, it's tax-free. So, that's not a gradually increasing
universal life. That's increasing at a pretty doggone good net internal rate of
return doubling your money every 7.2 years.
And so, my goal when I structure a max-funded indexed universal life insurance,
because you will not generally have a gradually increasing
cash value. You want to have it growing great rates of return averaging 7 to
10 percent. And that's normally not defined as
gradual. What happens is when you design a universal life
policy with the least amount of insurance that
the IRS will let you get away with and put in the most premium, many agents
don't know how to do that. But you're trying to earn a rate of
return net cash on cash within 1% of the
gross rate of return. So, if I earn 8, i'm netting 7.
If i'm earning 9, I'm netting 8. If I'm earning 11, like I've averaged for
the last 27 plus years, I'm netting 10. Only one of those
percentage points is draining out of that account to pay
for the insurance, the cost, the fees and everything else.
So, I'm netting 10. If you're netting 10, your money's going to double every 7.2
years. If you have a million bucks in there and
you want income, that will generate 100,000 a year of tax-free
income. Now, unfortunately, many times
people come to me and they'll go, "Hey, I bought a universal life policy from my
nephew or from my brother-in-law years ago. He
used the same company that you use, Doug." I actually use several
companies. "But he used one of the companies that you
used. In fact, he used the exact product." And I look at it and i it takes
about 30 seconds and I go, "Hmm, who designed this?" "Uhm,
our nephew or my brother-in-law. He has an insurance license." I go,
"He didn't design this very well. He earned a nice commission off of this.
But you know it's been earning 8% but you've only been netting 2.
You've only been netting 3." So, what's happening
is your money's not growing. It's gradually increasing but sometimes it's
not even doing that. And I'm going, "who designed this? What was
the purpose?' "Well I wanted it to be used for tax-free
income." "Well, you've been earning 8 and
netting 2 or 3." You could have been earning 8 and netting 7. In fact,
you could have been earning 11 and netting
10 if he used this product or designed it this way."
But he didn't know what he didn't know. So,
when people ask the question "Which universal life has a
gradually increasing cash value?" I go, "One that wasn't designed the best."
Because if you have one designed correctly
for that purpose, it's not going to be gradual.
Your money should double inside that every 7 to 10 years. It's
indexed universal life that allows you to have
more than just a gradual increase in cash
value. And so, what does all this mean? So, if the answer is well,
just about any of them can be designed to have a gradually
increasing cash value, if you're satisfied with 2 percent,
3 percent net rates of return after costs and fees.
But if you would like to have the highest net internal rate of return
after costs and fees it's very critical that you design it
with the least amount of insurance under the
tax citations Tefra, Defra and Tamra. Tefra means the tax equity fiscal
responsibility act of 1982. Defra is the deficit reduction act of
1984. And Tamra is the technical and
miscellaneous revenue act of 1988. When you create a universal life policy
that will accommodate 500 thousand, 100 thousand a year,
10, thousand a year, 1,000 a month, a million dollars,
10 million. You take the least amount of insurance under tefra and defra based
upon your age and gender. And then you put in the money as fast as
the IRS allows under tamra and you fund that in 5 years or less
and this thing turns into a tax-free cash cow.
Now, if you use indexing and you rebalance, if you just use indexing
in the worst periods of time, you'll probably earn
7 which means you would net 6. On the average, you'll earn 9 and net
8. If you rebalance, then you'll earn about
11 and net 10. So, I would recommend you use index
universal life and you rebalance the portfolio
every year and you'll likely earn what I've earned 11.17
average for the last 27 plus years netting over 10%.
That is not a gradually increasing cash value. That doubles
my money every 7 years. And so, if you want to learn more about how to do this
and how to design it correctly or be able to tell
if your policy, if you own one is designed correctly,
you ought to have a comparison. You ought to have an audit done.
But I want you to learn the basics before you do that.
And so, I'm going to share with you an opportunity on how you can study and
read my most recent best-selling book. And also how you can engage and have a
professional do an analysis to see if your universal
life policy, if you own one, is performing at its
optimal best. And what you can do to make it
better or maybe you do a tax-free exchange into one that can do better for
you. So, here's how you can get a copy free of
my most recent best-selling book. I've written 11 books. This is my 11th
one. It's called The Laser Fund. I call a max-funded, tax-advantaged
universal life insurance policy, the laser fund because it's an acronym.
It stands for liquid assets safely earning returns.
This is the only vehicle, indexed universal life that allows you to
accumulate your money tax-free, access it tax-free,
when your diet blossoms and transfers tax-free.
When you do it properly, it's incredible for the net internal rate of return.
So, I call it The Laser Fund: How To Diversify and Create the Foundation for
a Tax-Free Retirement where every million dollars can generate
100,000 a year of tax-free income for as long as you live.
If you would like to claim your free copy, don't pay $20, the
retail. Claim your copy by going to laserfund.com. L-A-S-E-R, "fund", ".com".
You simply pay $5.95 shipping and handling
and I'll fire out a free copy to you. There's options in there for audio and
video training also. But folks, this will empower you on how
to have a universal life insurance contract
that will perform not just gradually with your cash value increase but
dramatically. And I'm sure that's what you would like.