How safe is max funded IUL, indexed universal life? By the end of this video, you will understand
that max funded IUL can provide ultimate safety not only safety of the institution compared to
a lot of other financial institutions that a lot of Americans put money into
but also safety of principal. Meaning, whatever you set aside you do not want to jeopardize or
lose but also any year that you make money you want that to become newly protected principle.
So you will not lose what you made in previous years when there's a market downturn in the future.
So, I'm Doug Andrew I've been a financial strategist, retirement planning specialist, now for
north of 48 years. You probably have surmised one of my favorite financial vehicles to accumulate
money tax free and then be able to access that money tax free and not necessarily waiting until
you're over the age of 59 and a half. But anytime to be able to access money without triggering a
penalty or tax and then when you ultimately die you can leave it behind and it blossoms
it increases in value and transfers tax-free, okay. So, in a series of educational videos, I talk about
three sections of the internal revenue code and three tax citations section 72(e), 7702, and 101(a),
and the internal revenue code have been around in one form or another for over 108 years
that allows money in an IUL policy to accumulate tax-free. You can access money tax-free and when
you die it blossoms and transfers income tax-free. I know of nothing else that does that.
As long as you adhere to three tax citations I call these like IRS hoops that you have to
jump through TEFRA, DEFRA, and TAMRA and those are acronyms. So, you can learn about those in
other episodes. But one of the common questions I get asked, "Well, Doug, how safe are this IUL
policies?", and I love that question. So, let's talk about safety of the institution first.
When we talk about IUL policies those are offered by the multi-trillion dollar insurance industry.
Which is not only the backbone of America but the backbone of the world, okay. If you study you'll
learn that this is where many banks and credit unions put 30 to 40 of their tier 1 assets for
liquidity and safety, I'll explain that in a moment. But let's go back to the great depression, okay.
In the great depression, because many of these insurance companies that I put my money into have
been around for 150 years or longer. They were around during the great depression and they
came through with flying colors. Why? Do you know that some real estate in the great depression
dropped as much as 80 percent in value? So, real estate wasn't the answer back then. Banks closed
40 percent never reopened again. Do you know there was not one single legal reserve insurance company
that went under in the great depression? Nope, not one. They came through with flying colors
maybe crediting you know two and a half three and a half percent. But people had access to
their money in these insurance companies. So, they weathered the great depression with flying colors.
Let's fast forward to 2008 mortgage meltdown. A lot of Americans have no idea how close we
came in America to a total financial collapse okay and that's why the government panicked. So, in 2008,
about 400 banks went under, 900 more were on the watch list. Meaning, on the brink of going under
and this would have caused a run on the banks in America. So, the federal government asked the five
major banks in America in 2008 to disclose where they had their tier-one assets. Now, a tier-one
asset is money that banks and credit unions have to have on hand liquid and safe. This can't be out
in mortgages on homes that they have to then foreclose on a home like they did in the movie
it's a wonderful life. No, they changed the rules. They can't just call a mortgage due unless you are
behind for three months or more and so they can't just go ask for money from you out of the
the mortgage on your house. So, they keep tier one assets that are liquid and safe in case there's a
run on the bank a lot of people want their money out of the bank and so that's called a tier-one
asset and they disclose that they had 30 to 40 percent of their tier-one assets in insurance
companies. Why? Well, because most of the insurance companies manage way more money than the banks do
but they're way safer. Banks they loan out money and so forth and 80 percent of the value of a
piece of real estate and they give themselves a 20% cushion in case they have to foreclose.
Insurance companies if they loan money on real estate like skyscrapers and shopping malls
they only maybe loan 50% loan to value. So, they have a bigger cushion if they have to foreclose
on a skyscraper or shopping mall and that's why they come out smelling like a rose if they have
to do that. Because they are more conservative. If an insurance company invests in bonds it's double
a or aaa bonds. They don't loan it out in high risk type of investments or loans. If they put
it in stocks it's very carefully selected stocks and it's usually no more than 10 or 15 percent of
their general account portfolio. This is one of the reasons why the insurance industry and insurance
companies that are legal reserve companies that means they have reserves on hand that are liquid
and safe in case the banks want all their money out of the insurance company where they put it
okay. They have to have liquidity and so this is where they put their money and that's how they've
weathered the great depression the banks know this. So, this is where the banks and credit unions put
their tier one assets for liquidity and safety. Now, if you're connecting a few dots here let me just
take this side trip and by the way make a comment or share this video with somebody else that would
appreciate this information. Nut based on what I just said why would you have any more money
than necessary in some emergency fund in a bank or credit union if that bank or credit union paying
you one percent or less is doing well with your money? Turning around and increasing the liquidity
and the safety by maybe five or six notches higher in safety. See, most of these insurance
companies are rated triple a where I put my money. Most banks in America are only rated triple b.
Now, triple a isn't one notch higher than triple b it's like six notches higher
in safety. So, the banks are taking your money that you put in them and increasing the safety
by five or six notches higher by putting it into insurance companies and they're earning a higher
rate of return of four or five percent tax-free and they're only paying you one percent. How much
more is four or five than one? Don't say four it's four times, it's five times, it's 500 percent more.
On every million you put in banks they pay 10,000 a year in interest but they earn 50,000
in the insurance company. You can bypass the middleman is what I'm saying and put your
cash even emergency funds in insurance companies because that's where banks put some of your money.
So, back in 2008 when the five major banks said we have our money in insurance companies
in what form? Well, a lot of times it's in BOLI. So, BOLI means bank-owned life insurance.
Why? Well, they own insurance on who? They're stockholders they're board members or whatever.
But see, it's the owner of the insurance that gets all the tax free accumulation and tax-free access but
they do it for liquidity a lot of times, okay. A lot of corporations in 2008, I disclosed they had it in
COLI, that's corporate-owned life insurance okay and that's true for my own corporation.
So, when we talk about it max funded IUL is safe with an institution and these are the institutions
that have whether the great depression and the downturns like 2008. Now, let's talk about safety
of principle the second concept. What I mean is if I'm setting aside 500 bucks a month or 100
thousand a year or 500 grand. Whatever I'm putting into my IUL policy if that's earmarked for future
goals like retirement or college funding for my kids or grandkids or my working capital for my
business, I don't want to jeopardize that. That's serious cash to me. So, the reason why I use IUL is
because you have safety of principle. If I put in let's say 500,000 or it grows to a million. I want
that to be safe that's my principle and so I don't want to lose my principle due to market downturns.
Indexed universal life allows you to be able to link to an index if you want any given year
and when you do that then the insurance company has the wherewithal to be able to buy upside
options because they take the interest they're earning on your money and you said, "You know what,
just take the interest on my money but don't jeopardize my money keep it safe", and so your
principal is safe that's safety of principle. If you had a million and it's earning four percent
in the insurance company you can just settle for 40 grand or you can say I'll give you that 40,000
and you buy upside options and pay me whatever the S&P does and those options may double and they'll
pay you 8% or 12%. But the insurance company has the wherewithal to pay you if the
market goes up. But what if you guess wrong and the market crashes and it drops 40 percent? If you had
your million in the S&P or in the market your million would go down to 600,000.
But no, if you have safety of principal then your million is still safe. You didn't
risk your million in the market. It stayed safe in the insurance company. You have safety in principle.
You may not have made anything that year because the options expired worthless because the market
went down but you didn't lose. Will Rogers once said people get more concerned about the return
of their money than the return on their money when things go bad, okay. That's called safety of
principle. But the next concept will blow you away. You not only protect your principle. But let's say
you had a million dollars in March of 2020 and if you were a client of our firm many of our advisors
said, "Hey, the Covid19 pandemic the market dropped 30 percent. Linked to a one-year point to point
with no cap index. I think your chance of making a really good return is great", and they did. One year
later in March of 2021 many clients got credited 61.33%. That means if you had a million in March of
2020 in March of 2021 your IUL policy would have had 1,610,000 in it tax-free. Now, if the
next year the market crashed 40%. You would still have your million six hundred thousand. You
would not lose one dime of the six hundred and ten thousand dollars that you made the year before.
You're locking in the gain and you're resetting every year and so you every year you make
money that becomes newly protected principle. You will not lose in future years money you made in
previous years due to a market downturn. That is incredible. So, that is safety of principle
and in a year you make money that also becomes newly protected principle so you will not lose
in future crashes money that you made in previous up years. You wouldn't believe how many advisors go,
"Huh? How can you do this?", and they're not taught this and you can watch an episode on why advisors
usually don't understand this. So, that's the beauty behind the safety of an IUL policy.
Safety of the institution in the industry and safety of your principal. So, make sure when you
meet with an IUL professional that you can ask them questions like this but you'll already know
the answer to this one if you watch this episode. But you can learn more by reading and studying the
book The Laser Fund. This should be your textbook and if you have not claimed your free copy yet
be sure and go to laserfund.com that's 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
and I'll fire out a copy to you and there's also options when you go in there to listen
and learn and watch and learn and you can even schedule an appointment with an IUL specialist.
But I would strongly recommend you watch these educational videos so your conversation starts
out here instead of down here, okay. But these pillars on the front stand for liquidity safety
rate of return on tax benefits and an IUL policy this structure correctly and funded properly
scores the highest scores in safety compared to any other investments that I'm aware of.