- You don't have to have a terminal illness
to access money tax free from a life insurance policy.
In this educational episode
I'm going to address the question,
can I access money tax-free out of an IUL insurance policy
without being critically ill?
Yes, you can.
And I'm gonna show you how easy it is to do that,
but I'll also talk about
what an accelerated death benefit rider is,
which you can also get on a permanent life insurance policy.
So stay tuned.
(upbeat music)
So my name's Doug Andrew.
I've been helping people optimize financial assets
and minimize taxes now for nearly five decades.
And I've helped thousands of people optimize assets
by using max-funded insurance contracts
where they are using it primarily for living benefits
to accumulate their money tax-free
under section 72E of the Internal Revenue Code
that allows you to earn interest and dividends
and grow your cash value inside of a life insurance policy
totally income tax free.
But section 7702 of the Internal Revenue Code
dictates how you can access that money
while you're alive without triggering income tax.
And then at the end of the day, when you finally pass away,
anything left in the policy blossoms.
It transfers out to income tax-free under section 101a
in the Internal Revenue Code.
Nothing else in the Internal Revenue Code does
what I just said, the way that I just described it.
I've taught advanced continuing education
to many CPAs and tax attorneys for decades.
And I've always challenged them
to show me any other financial instrument that does that
and they've yet to show me anything.
So when people ask me, golly, can I access money
out of my life insurance policy
specifically in IUL policy without having to die?
Can I do it without triggering tax?
Can I get it tax-free without being critically ill?
Because a lot of times people hear about critically ill
or terminally ill people that they have a special provision
maybe with their insurer, the insurance company,
that allows you to access part of the death benefit
without actually dying to get part of the death benefit.
So I'm gonna separate those two concepts here
and make sure you understand them.
And I'm gonna explain why I've always used max-funded IUL
to be able to access money
anytime I need it for whatever reason.
It doesn't have to be
because you're having financial difficulties
because of a critical illness
and you're maybe in a facility
and you're running up healthcare costs and what have you
and you don't have long term care insurance or whatever.
So I've always believed in self-insuring,
but let's go back to this concept
of being able to access part of the death benefit.
So let's say that you're 60 years old
and you take out an IUL policy
and your goal is to take the least amount of insurance.
The IRS will let you get away with
in order to have your money grow tax-free
and be able to turn on tax-free income,
which is what over 90% of my clients wanted to do.
They wanted to use the life insurance policy
primarily for living benefits.
So a 60-year old non-smoker that qualifies, passes the exam,
may be required under the IRS guidelines
and these are different guidelines
and those are tax citations.
To have about double what they put in
in insurance death benefit.
So if you wanted to sock away $500,000,
maybe not all in one lump sum,
but a hundred thousand a year for five years or whatever.
And you wanted to be able to have that grow
at the best net internal rate of return
at the end of the day.
So that if you averaged 11, you might net 10
like I have for the last 25 or 30 years.
Then you would take the least amount of insurance
the IRS will let you get away with.
So if you're age 60,
that would be about a million dollars of life insurance
in order to accommodate $500,000 of premiums.
Now some people say, wow, who pays a half a million bucks
for a million dollars of life insurance?
Well, our clients do 'cause they're not after
the life insurance so much,
they're after the 500,000 growing
and an internal rate of return
within 1% of the gross rate of return.
If you earned eight, you'll net seven.
If you earned 11, you'll net 10.
And so you take the least amount of insurance
the IRS will let you get away with.
Now you could buy way more life insurance
for a half a million bucks than a million,
but that's not the objective.
So assuming you're doing it for living benefits
and you're healthy and that's your primary objective,
you set up a life insurance contract,
an IUL policy with a million dollar death benefit.
You're 60 years old and you begin to put in
a hundred thousand a year for five years, 500,000.
You can't put in more than that in the first 11 years.
The insurance company would have to refund
anything over 500,000 thousand
'cause that's the most you can put in
if that's what you structured it
with a million dollar policy.
Now, if this is a little bit fuzzy to you,
I have a lot of other educational videos
that talk about TEFRA DEFRA and TAMRA on this channel.
So let's say you do that.
And while you're funding it
'cause this has happened many times with my clients.
While they're maximum funding their policy,
all of a sudden they start getting diagnosed with dementia
and then it turns into Alzheimer's
or maybe they have a grand mal seizure
and all of a sudden they're epileptic or they're diabetic.
And all of a sudden they have some setbacks
and the doctor says,
your life expectancy is only seven years
or eight years or four years or whatever,
or heaven forbid, they have a heart attack
and it's really serious,
or they get cancer and it's in the fourth stage
and I've had clients who have been diagnosed
in the fourth stage of of cancer,
Hodgkin's disease or whatever it is.
And the doctor goes, hmm, your life expectancy now
is nine months to two years.
Well, all of a sudden you're not gonna finish
funding that policy necessarily
because you may need that money
to take care of some of the medical expenses,
but maybe you've put in 100,000, 200,000
maybe you've put in the whole 500,000
and the death benefit is a million.
Now a lot of times people have life insurance
and they don't have a lot of cash value in it,
but they have the million dollar death benefit let's say
And they know they're gonna die sooner than later.
So some insurance companies will allow you
to be able to access
part of that million dollar death benefit
in this example,
and many companies will have
what is called an accelerated death benefit.
It usually comes as a rider.
You usually have to take it out
when you first take out the policy.
Usually that doesn't cost anything or not much of anything.
And that just means that if you need to
and if you are critically or terminally ill
and you can prove that,
the insurance company will give you a portion
of that million dollar death benefit
without you having to die first
for your beneficiaries to get it.
So you don't run up a whole bunch of medical bills
and leave those bills behind to your family.
And then they're required
to assign the life insurance proceeds
to pay off those debts.
People have done that, but you can actually
access maybe a few hundred thousand dollars
of that million dollar death benefit before you die.
So that's called an accelerated death benefit rider
and you can access part of the death benefit before you die.
Now I mentioned earlier, most of the time
my clients maximum fund their policies
and they were healthy enough to qualify.
So many of them do not actually end up
being diagnosed with a terminal illness
within the first five years, even though it's happened.
So let's say you have $500,000 in that policy
and that $500,000 is growing,
my average rate of return since 1980 on universal life
and then indexed universal life has been 9.62%.
If you round that down to 9.6,
your money doubles every seven and a half years.
So once you had 500,000 in there,
that would double to a million
within seven and a half years.
Now your cash value equals the death benefit.
The actual cost of insurance is really next to nothing,
but TEFRA and DEFRA tax citations say that the death benefit
has to be five percentage points ahead.
So if you happen to die, when you have a million dollars
of cash value inside of a million dollar policy,
the insurance company to pay out one 1,050,000,
but they're only gonna charge you for that 50,000.
That's why the cost of the insurance gets cheaper
as you get older and a lot of agents don't understand that.
If you went another seven and a half years
that million doubles to 2 million.
And if you died, the insurance company had paid
2.1 million tax-free,
but 2 million of it was your own money.
So if you're max spending the policy,
you just access the cash value
because it is the death benefit.
But see, you're not having to have
an accelerated death benefit rider.
It's your money.
You can go grab not only the interest on that million,
which might be 10% a year.
That's a hundred grand.
You can access 900,000, even 940,000 of your cash value
without causing the policy to lapse.
So you just simply access the money.
You can withdraw it, you can borrow it,
and people say, why would you borrow it?
Because if you borrow it out,
you could borrow it 2% and they'll credit you 2%.
It doesn't cost you anything to borrow it
so that if you wanna do, you could pay it back.
But many of these IUL policies
will have a no lapse guarantee rider.
And so you have to leave maybe 6 or 7%
of that million in there
to make sure the policy doesn't lapse
because that would trigger unnecessary tax
if you pulled out the whole million.
You don't wanna have to pay tax on that 500,000
that it grew by.
Does that make sense?
And so you don't wanna do something stupid,
but as that money grows, you simply use that as collateral.
Many people may borrow at 4 or 5% and keep earning 10%.
That's called arbitrage.
They're making a hundred percent more
than the insurance company is charging you.
So it keeps growing.
These are all explained in my various books
and other educational videos,
but if you really need to access money
out of a max-funded indexed universal life insurance policy,
chances are you'll have enough cash value in there
that you just fill out one page.
Are you gonna withdraw the money?
Are you gonna borrow it?
And it's not a one time.
You can do it as many times or any time you want
and you access the cash value, totally tax-free.
You're not accessing the death benefit.
You could, but if your cash is the death benefit,
if you've self-insured by max funding it,
you don't need an accelerated death benefit rider.
Does that make sense?
Because it's your money.
Also, if you do have life insurance
and you don't have an accelerated death benefit rider
and you are critically ill,
but you may live two or three or four years,
you could actually sell that life insurance policy for cash
on what is called the life settlement market.
There are institutions and companies and private investors
that actually will buy your life insurance policy.
Now people say, why would they do that?
Do the math.
I had a gentleman that he actually passed away
on the operating table.
He had a heart attack and so forth.
And so the, his life expectancy
after they revived him for the next year,
they said, oh, you're probably not gonna make it
more than two years.
He thought otherwise.
And he had a $3 million life insurance policy
and he was having to pay about 8,000 a month into it
'cause he was minimum funding it
'cause he had his first heart attack seven years earlier.
So he decided not to max fund it.
So he had 3 million of life insurance
and he thought, you know what?
I think I'm gonna beat the odds.
We sold that $3 million policy for a million bucks.
So he got a million dollars tax-free cash
for selling his policy.
And if he lives a long time, that would've been a good deal.
If he dies sooner than later,
the people who paid him a million dollars,
where else would they be able to invest a million bucks,
and in 2, 3, 4, 5 or six years
have it grow to be 3 million tax-free?
So it was a win-win.
He got a million dollars to travel
and do things that he wanted to do
in the last few years of his life
and the person who bought his $3 million policy
for a million bucks, it was a win for them
because they're gonna get 3 million sooner or later
and he would have to live a long time for it
to be not a great investment return.
So there's all kinds of ways
or exit strategies out of a life insurance policy.
You don't necessarily have to be critically ill
or even prove that you're terminal,
but you can access the cash values if you maximum fund it.
You can sell your policy.
But if you have a death benefit
and the insurance company has
an accelerated death benefit option,
you can even use that to access some of the death benefit.
You do not have to be critically ill though,
if you have the cash in the policy anyway.
Does that make sense?
If you wanna learn more about what a laser fund is
and max-funded indexed universal life is.
It's my favorite financial vehicle
and I've been helping people optimize assets
and minimize taxes now for 48 and a half years.
I want to gift you a copy
of my most recent bestselling book
called The LASER Fund: How to Diversify
and create the foundation for a tax=free retirement.
But you can use this for all kinds of goals,
for life, for death, whatever emergency funds,
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So this is the 300 page book with all the charts
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On the right brain side, our 62 actual client stories
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So here's how you claim your free copy.
Simply go to laserfund.com,
laserfund.com.
You contribute a nominal amount
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Have a little bit of skin in the game.
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Don't miss out.
I'm sending out about a thousand of these a month
and while you're in there,
if you would like to listen and learn or watch and learn,
there's options there for audio and video
and check out some of the educational webinars
we hold on a regular basis.
You can even fill in for an appointment
to talk to an IUL specialist
to see how this may benefit you
in your particular set of circumstances.
You wanna make sure you structure it correctly
and fund it properly so that it qualifies
to be what I call a "LASER Fund."
LASER means liquid, assets, safely earning returns.
(upbeat music)