What can go wrong with IUL? What is the downside? By the end of this video episode, you will understand
the various reasons that can cause an IUL to not perform optimally and what you can do to
prevent those problems. But you'll understand that sometimes maybe it's choosing the wrong company
or wrong product. But I think you're going to be surprised that many times it's because the advisor
is not proficient. So, I'm going to give you some criteria and rules in
this episode so that you can determine if an advisor knows what they're doing.
So, I'm Doug Andrew I've been doing this for more than 48 years helping people optimize
their assets, minimize taxes, empowering their authentic wealth, for long-term goals off times
like retirement and if you've watched very many of my educational videos. I'm very passionate
about a particular product that I think retirees in particular ought to have 40-60% of their
assets in at retirement. In other words, that 40-60% of their retirement income I think ought
to be totally tax-free not even showing up on the front page of their 1040 tax return. Because so
many retirees approach retirement and they're way too top-heavy in yet to be taxed IRAs and 401ks
in the market and I go what are you thinking and the rest of their retirement they're taking money
out of those IRAs of 401ks and paying tax the rest of their life and they end up paying back
8 to 12 times the taxes during retirement then what they saved on the contribution and on their
deposits into IRAs and 401ks. They're usually not in lower tax brackets if they save very much money.
So, in this episode, I'm going to talk about, okay. So, if you think an IUL policy might be right for you
to accumulate your money tax-free and maybe reposition some of that money out of those
IRAs and 401ks into these which many people do to increase the liquidity, safety, and rate
of return, and the tax benefits, and so you want to reposition that or maybe money in
underperforming or non-performing assets like money in a bank or credit union or maybe you're
tired of being a landlord you want to sell a property and take that real estate equity and
put it into one of these or a portfolio of these. Any lump sums, settlements, I call an IUL
policy the financial swiss army knife. You can use it as a dream solution for many financial goals.
Because frankly, in the internal revenue code very few vehicles. In fact, I know of no other vehicles
that actually allow you to accumulate your money totally tax-free and then be able to access
that money tax-free. You don't have to wait till you're 59 and a half there's no rules or whatever.
I've had people put in 200,000 and pull out 120, 000 4 days later tax-free no penalty. You have
flexibility. You access your money tax-free and at the end of the day, when you die anything you leave
behind blossoms increases in value and transfers tax-free. I don't know of anything else in the
internal revenue code that allows you to do that. But then people go, "Okay, this sounds too good to
be true", you probably heard people say, "Well if it sounds too good to be true it probably isn't true."
Well, I often retort and say, "Well, if what you always thought to be true it turned out not to
be true when would you want to know or let's flip it", what if what you always thought not to be true
turned out to be true? See, a lot of times people are told, "Oh, life insurance, I've never seen life
insurance be good as an investment". Well, actually, we do not call it an investment. An investment
according to the internal revenue code will sooner or later trigger tax. I don't want to pay tax
anytime that's why I use IUL. Also, most investments are subject to volatility, I don't want that. So, an
IUL policy is not an investment. I don't want one of those and some people say, "Well how come I've
never heard about this", well, I'll address that in another episode. But people say, "Well, come on,
what's the downside?". I'm going to be totally honest with you. I'm going to share with you the downside
and I'll do it probably in order but the last reason is probably the most a common reason
why IUL policies do not perform as good as they could have performed. So, let's start out
with some of the basic reasons why maybe they do not perform at an optimal level or what have you.
Sometimes people just flat out choose the wrong insurance company. There's probably two to three
thousand you know legal reserve insurance companies in the United States. A legal reserve
insurance company just means they have to have reserve requirements on hand that are liquid and
safe in case about a run on the banks in America. Because this is where a lot of banks and credit
unions put your money in the bank in insurance companies in case of a collapse. Because they want
liquidity and safety. So, banks actually put your money a lot of your money into insurance companies
for liquidity, safety, and rate of return. If this is where they're putting their money you want to
make sure you choose the right company. So, there are rating agencies out there S&P and AM best and
Duff and Phelps and Moody's and Fitch and Weiss and all these. it's a little bit complicated and so
they actually assign a Comdex score where they take all of these analysts and they combine
them together and I would recommend if you're choosing an insurance company to put serious
cash into money you don't want to jeopardize. That you choose a company that is rated you know
85, 90 or higher with their Comdex score. So, if you chose a company that was rated 92 it just means
that company is rated stronger safer than 92% of other companies in existence in America.
So, you want to choose the right company. I would say out of a couple of hundred insurance companies
that offer indexed universal life because not all of them do. A lot of them don't understand how
to do it and what have you, it's not their forte. They only sell life insurance for death benefit.
They talk about we're big and we want to be here when you die. So, they think that bigger is
better. Now, I've always said well if bigger were better miss America would be an elephant, right?
Okay, no, just because an insurance company is bigger doesn't mean it's better because maybe
they're more stingy. Maybe they keep all their money in their coffers and they don't pay you
good rates of return or dividends. So, you don't measure based upon their size. You want
to see which ones are generous. I usually am more partial towards a mutual company because they're
more generous than a stockholder company because they're beholding to stockholders. So, you
want to choose the right company and I would say out of maybe 200 that offer IUL I would only put
my money in only half a dozen of them and so many of the advisors that I teach they know
which companies I put my money into because I'm very very picky. So, when you do the math
only the top two percent of insurance companies would I put my money into. Now, once you understand
those you can diversify between those 3, 4 5 or 6 companies that may be overkill. You
could just choose two of those companies or three of those companies. Now, I also diversify by putting
some on myself, some of my wife, some of my kids. So, I diversify by doing that but I also diversify by
using different indices and linking methods which I cover in other episodes. But when we talk about
the downside if you choose the wrong company right off the bat yeah, maybe you will not get
a good rate of return because the company didn't really design the product. So, that brings us to
the next one, if you choose the wrong product. Maybe you chose the right company so to
speak but you chose the wrong product with that company. Many companies have various products.
Now, to be honest with you, sometimes insurance agents will sell you the product the policy
that almost benefits their wife and kids more than your wife and kids. I hate to say that. But
you want to make sure you choose the right product based upon your goals. So, the right company and the
right product. So far so good? So, what comes next? Wel,l when you structure an IUL policy and by
the way if this is beginning to resonate with you you ought to share this with other people
that would benefit from this education and post a comment, okay. But I'm going to show you at the
end how you can go talk to a professional and see if they know how to do it correctly. Because
the next critical issue is make sure that it's structured correctly. Unfortunately, I would say
that over 99% of IUL policies in America are not structured correctly or funded properly. Now, to
structure it correctly you've got to understand under test TEFRA, DEFRA, and TAMRA tax citations
under section 72(e( 7702 and 101(a) of the internal revenue code to structure the IUL policy-based
upon what you're planning to use it for and how soon you're going to start accessing money, okay.
So you design it to accommodate only the amount of money that you will likely put into it and you
take the least amount of insurance that you can get away with under those IRS rules and you put
in the most money as fast as the IRS allows. You wouldn't believe how many insurance agents don't
know how to do that. They don't know how to squeeze down the death benefit even if you get rated
to where if you earn 11 unit 10. So, let me just cut to the chase. If an advisor does not structure
it correctly, instead of earning 11 and netting 10 you might earn 11 and only net 6. In other words,
there's a whole bunch of expense in there that was unnecessary and so you're not going to achieve
the optimal net internal rate of return if your goal was living benefits and I all too often see
these mistakes being made and it's very sad when I look at the policy and I go, "Who designed this
for you?", and people go, "Well, we read your book Mr. Andrew but you know we ask our nephew because he
has an insurance license and he said sure I'll do that for you or a brother-in-law", I go, "Wow,
that was an expensive relationship. You know what you started this out with five hundred thousand
you should have a million in it today and you only have a quarter of a million. How come you
lost half your money you should have doubled your money", and I look at it and in 30 seconds I go,
"Who designed this, your nephew? Your nephew cost you three quarters of a million bucks". You don't just
choose somebody because they have an insurance license even if they say, "I can do that for you", you
want to make sure that they understand certain questions that I'll give you here at the end
of this episode, okay. So, you want to structure it properly and then the other part is on you
you need to fund it properly. If you say you're going to put in you know 500 bucks a month you
better put in 500 a month or make adjustments if you can't afford that. If you are gonna put in a
hundred thousand a year and you don't you either need to make up for it sooner than later or you
need to adjust it if you don't it will not perform as illustrated if you're not funding it properly.
So, it has to be structured correctly but it has to be funded properly. Now, you're not locked into
anything it's very flexible if you've listened to very many of my episodes, I have a beatitude.
Blessed are they flexible for they shall not be bent out of shape. I don't want you to get bent
out of shape and so when you have flexibility if you come in for an annual review with a license
advisor they'll find out do you have more assets, more resources, are things, are you hurting right now?
Did you lose your job or whatever and we need to make adjustments. You can do that and still
make it perform optimally. But if you don't, if that advisor is off doing something else now and you're
left to yourself you better have somebody who knows how to keep it current or else you will end
up maybe earning 10 and netting 4. I want you to earn 10 and net 9. I want you to earn within
one percent of the gross rate of return. That one percent of the cost of the insurance. You want that
cost of insurance to be as low as possible. Is this making sense? So, let's review so far before
I get to the last one. So, you want to choose the right company. You want to choose the right product.
We're down to a very small percent out there in my opinion but it has to be structured correctly
and then funded properly by you and so when you have annual reviews to be accountable
I always had my clients come in and I wanted to be accountable to them and I wanted them to
be accountable to themselves or to me and make adjustments so that we could uh stay on track.
I usually use the metaphor of this. If you were going to get in a plane
and fly around earth 26,000 miles and you were one degree off course and you never corrected that
you would be five-six hundred miles away from where you were going to end up. If you didn't
correct a one-degree deviation you must stay on track. That's the importance of having an IUL
specialist that you meet with regularly to get you back on track. I don't want you to miss the
goal of having the maximum amount of money at the end of the day that you could have. To be honest,
the biggest reason why most IUL policies do not perform as illustrated or as represented
is because the advisor is not proficient and you can't tell that unless you know
what questions to ask the advisor. This is why after training 3,000 advisors I had
based on my publisher time warner they said there was at least 50,000 advisors buying my first book
misfortune in bulk in cases of 20. Passing them out like loose cannons but they were
buggering things up because they were not doing it correctly and so I began to develop a training and
professionals who wanted to learn how to do it correctly would pay 6,000 to come through and
learn and I had 3,000 advisors do that then 2008 hit and some of those advisors' clients would call
us and say, "What happened? My policy", and I go "Oh, my heavens. Well, where's your advisor?", "Well, they left".
Really? So, then I developed a proficiency exam. It's not an easy exam. It has a 100
questions plus 30 essay, it's not an easy exam. In fact, most advisors you hear on radio and tv
if they took that exam even though they are a certified financial planner they wouldn't
even score 30 percent on this exam because they wouldn't understand 70 percent of the questions.
I've seen this. If you understand how to structure it correctly and fund it properly and you do
annual reviews you can stay on track. So, this is what motivated me in my most recent best-selling
book the laser fund to put a chapter in here about how you can correct something so that you do not
end up missing out and so in this chapter it's titled what can go wrong and how to improve it
and on page 195 of this book. And by the way, if you don't have a free copy of this hang on I'm
going to show you how you can claim your free copy. But in here, I call it the laser ready test
and there are several bullet points and if you ask these questions of an advisor off the cuff
don't warn them just come and say, "I have some questions. What is TEFRA, DEFRA and TAMRA?",
if they can't answer that off the cuff that's a red flag, okay. Explain internal revenue code
section 72(e) 7702 and 101(a). If they can't answer that off the cuff something's wrong.
Then you go on down and you start asking them the rest of the questions here. I have an
entire page into the next page of bullet points and if they can't answer any of those pretty much
off the cuff if they go, "I don't know I'll have to check it", out or if they go I think or if they're
making up an answer and you can tell it that's a red flag. That's why I put them in this book.
Because any advisor who understands how to do it correctly will know the answers to every single
one of those questions on page 195. So, this is about you, I want to protect you and so when
people say what's the downside what can go wrong? Well, this this this but mainly if you choose the
wrong company if you choose the wrong product. But if you choose the wrong advisor good luck.
Because that's the biggest reason and I would hate to look at your IUL policy after you've
owned it for five or ten years and go "Oh dear, who designed this for you?', and if you told me it was
you know your nephew or a brother-in-law I'm going to go, "We've got to make up for all
that lost time and I don't want to have to do that". So, claim your free copy of laser fund that's
the first step. Make sure you're studying this and watching these episodes. You go to laserfund.com.
You contribute a nominal amount towards the shipping and handling. I'll cover the rest of that.
I'll pay for the book and fire it out. This has charts graphs explanations and 62 actual client
stories and when you're in there you have the opportunity to actually schedule an appointment
with an IUL specialist that I oversee that I know has passed that proficiency exam
and has to continue to pass quizzes and exams all the time to stay fresh and current.
So, I can point you to the right people. But here is to your brighter future doing it the right way.