Max-funded IUL gets cheaper as you get older. In this episode, I'm going to address
the question. What kind of life insurance costs less as you get older?
Get ready, this is going to maybe surprise you. It's not what you may be thinking.
So, I'm Doug Andrew and I've actually been licensed ever since 1974 is when I got my insurance
license and my series one securities license. I don't think they even offer a series one license
anymore. You have to get a series 67, 63, 24, to include all of those. But I sold millions and
billions of dollars of life insurance to my own clients from 1974 until 2005 when I let all of my
licenses automatically expire at the end of that year. Why? To become a consumer advocate to educate
the general public and advisors and start a radio show and write books and I am so grateful. We've
had 12 books that I've authored so far that have been very well received and I am grateful
for that. We had one become a new york times and wall street journal number one bestseller. But
in all of these books, most of them talk about financial asset optimization and tax minimization
and my favorite vehicle to accumulate money tax-free for all kinds of goals retirement,
working capital for business, emergency funds, real estate management, on and on
and on. My favorite vehicle is a max funded indexed universal life insurance policy
if it's structured correctly and funded properly. Which if it is I call a laser fund. Which means
there are a lot of IUL policies out there that would not be qualified to be deemed a laser
fund because they're not structured correctly and funded properly. If they are they pass the
liquidity test, safety test, rate of return tests with flying colors, and they're tax-free to boot
if you make sure your grandfather to keep them tax-free during the accumulation phase the access
or distribution phase when you retire. When you're taking money out and when you ultimately die
anything left in there blossoms and transfers income tax-free. So, many times people say, "Well,
golly, doesn't universal life cost more and more as you get older?", a lot of whole life insurance
agents are critics and they are taught to say, "Oh, a universal life it will crash and burn when
you're in your 60s and 70s because the cost of the insurance is going to go through the roof", and I go,
oh, my heavens, they don't know what they don't know. Because if you structure universal life correctly
it is way cheaper than whole life insurance. In fact, the older you get the cheaper it becomes
and I have another episode on this very channel that talks about that. But in this episode, I'll
explain why the insurance does get cheaper? Why does it cost less as you get older? So, all
life insurance whether it's term whole life or universal life has a cost or term insurance
component. So, a lot of times people will buy a whole life policy because with whole life you're
sort of overpaying the early years so that you're underpaying the later years and so you're covered
for your whole life by paying a level premium and you are paying way more during the early years if
you took one out let's say at age 25 or 30. You're paying way more than the actual cost of insurance
and that builds up equity or cash value in the policy which down the road is that cash value
grows and it grows tax-free tax-favored. Then as you turn 55 and 60 65 when the actual
cost of insurance is higher than that cash value and the dividends the growth on that cash value
covers that. So, hence, with whole life, you're really doing it for a death benefit for life insurance to
pay out when you die and that's what whole life was really built on a chassis to provide a death
benefit your whole life. Where you're overpaying the early years that allows you to underpay during
the later years and so whole life agents have this in their head that the cost of the insurance goes
up and with universal life they go, oh, the cost of insurance is going to go through the roof and
those policies will crash and burn. No... So, let me explain how universal life actually gets
cheaper as you get older. As you pay premiums into a universal life policy you can have the premiums
and the cash value that is growing qualify as part of the death benefit. You don't have to do that.
Some people say, "Well, I want the cash added on top of the death benefit", well then, the cost
of insurance will keep going up. No, I'm using it for living benefits. I don't care about the
death benefit it's coming along for the ride. If it wasn't there then it wouldn't be deemed tax-free
life insurance in the internal revenue code. But I want the cost of insurance to get
cheaper. So, as I put money in and that money grows with cash value that becomes part of
the death benefit I am self-insuring. So, let me connect the dots but before I do. If this
is intriguing you and you can think of somebody that ought to watch this episode to get educated
be sure and share, click like, post a comment, but most importantly subscribe to this three
dimensional wealth Youtube channel. Why? Because I post an in-depth answer to a financial question
almost on a daily basis. I don't want you to miss out. So, click that little bell so you'll
be notified every time I do post a video. But stay with me to the end, I want to gift you a copy of my
300-page best-selling book the laser fund. Don't pay 20 bucks for it I'll gift it to you. So, here we go.
So, if I maximum fund a universal life policy which many of my clients and my students do. Let's say
that they want to reposition a hundred thousand dollars to increase the liquidity safety rate of
return and the superior vehicle if they understand it is a max-funded indexed universal life policy.
Indexed because you want to participate when the market goes up but not lose when the market goes
down and indexed universal life came out in 1997. This is where I have increased my average rates
of return on my universal life by usually about two and a half percentage points. So my average
returns have been between 7 to 10 percent probably closer to 9.6%. So, this is incredible
as your money grows. Now, at 9.6 percent your money will double every seven and a half years.
So, let's say that you designed a universal life policy to accommodate $500,000 and if you want
to comply with TAMRA so you can access your money tax-free anytime down the road retirement or for
whatever purpose. You have to do that in basically three years and one day or four years in one day
to comply with TAMRA. But let's just make this simple. If I'm going to put in $500,000 and as I
do that every time I pay 100,000 or 125,000 as I do that premium payment and
the interest that I'm earning on that in the policy qualifies as part of the death benefit.
So, if I open one let's say at age 60. For a 60 year-old male that wants to set aside let's say
$500,000 that's called the guideline single premium. That's the most that you can put in during the
first 11 years under TEFRA, DEFRA. The minimum death benefit is approximately 1,250,000.
So, I could buy way more life insurance than that with 500,000 that's not the objective. I want the
least amount of insurance the IRS will let me get away with. So, at age 60, that's about 1,250,000.
So, that's the death benefit I put in 500,000. Now, if I died what is the actual net amount at
risk to the insurance company? Because they already have 500,000 in that in there that's your money.
So, the difference is 750,000 at that point. So, they're only going to charge you okay the actual
COI, cost of insurance that goes up per thousand as you get older. But the amount of thousands they're
covering you for has gone down. Now they're only on the hook for 750,000 once 500,000 is in there.
Does that make sense? Well, at 9.6% rate of return that 500,000 is gonna double to a million in what?
In seven and a half years at 9.6. So, in seven and a half years when 500,000 of cash value has
grown to a million and many of our clients have experienced that and even higher. Now, how much
is the insurance company at risk for? The original death benefit was a million 250.
Now, you have a million in there, they're only on the hook for the remaining 250,000
not 750, not a million 250. So, even though the cost per thousand goes up the amount of
insurance at risk has gone down and so the cost of insurance is getting cheaper as you get older.
Let's go one more seven and a half years. That million of cash value doubles to 2 million.
Now you have two million of cash. Well, the original death benefit was a million two fifty
that's more than the death benefit. So, TEFRA, DEFRA, tells the insurance company you've got to have
the death benefit now come along with the cash value and usually there's about a five percent
difference. So, if I have two million of cash value 15 years down the road in the policy. Now, the death
benefit has increased from a million 250 up to 2.1 million but the insurance company is only charging
you for that last five percent or hundred thousand. If you do the math, when I have two million of cash
value the interest on that two million let's say it at ten percent is two hundred grand.
The insurance company is only charging me for a hundred thousand of death benefit. That's minuscule
and we've had clients that two million doubles to four million in another seven and
a half years and four million doubles to eight million in another seven and a half years. Now,
the cost of insurance is super cheap. In fact, it is so low that if you analyzed in one given year, okay,
30 years down the road. If the rate of return that year was 11% like a lot of clients have earned this
year that I'm recording this episode 2021. Some have earned as high as 32% and even 61%. Well, the
actual cost of insurance is maybe only one-tenth of one percent less than that. If I earn 11 I net
10.9, it's gotten cheaper. Whereas over the life of a universal life policy if I were to average
11 I would net 10. Only one of those percentage points I was required to pay for the insurance
that the IRS had had to be there in order for it to be tax-free. But hello, is it really a cost?
No, here's why. If I have a million, four million, eight million, and that money is growing tax-free
and if I am earning let's say an average of 9.6 or 10 or 11. Actually, I've been able to average
about 11.17 let's just round it down to 11. So, there are many people who might earn 11 gross and
net 10 over the life of their whole life policy and people say, "Well, yeah, that's one percent."
Well, hello, many asset managers charge 1% or more but listen. No, it's really not a cost
because I earn 11 and net 10. If I have a million dollar nest egg that allows me to generate a
hundred thousand a year of tax-free income without depleting principle. There's other episodes that
talk about this phenomenon of how you can get ten percent payouts even if you're earning just eight
percent by using the smart way to access money index loans. But this is the point, if you earn 11
a net 10 that one percent is money that would what? Otherwise, go out the window in what? Tax.
If you follow the herd like most people who put money in tax-deferred IRA''s or 401ks
you would have to earn 15% or higher in a tax-deferred IRA or 401k
to net 10% after paying tax when you pull out the money. In order to net a hundred
thousand you'd have to pull out a hundred and fifty thousand in a thirty-three percent bracket
pay tax of a third between federal and state on 150 to net 100 and by the way, your million dollar
nest egg will be gone in 11 years if you do that. With the universal life, I only have to pull out
a hundred to net 100 because it's tax-free. I'm actually earning 11 and netting 10 but that's
better than having to earn 15 to net 10 in a tax-deferred IRA or 401k. So, if this is intriguing
you I can prove to you mathematically a properly structured maximum funded indexed universal life
is the cheapest insurance policy you will ever own when you maximum fund it. It will not crash and
burn. In fact, it will outperform a whole life hands down and I can prove it to you mathematically.
If you want to learn by reading I want to gift you a copy of my book the laser fund. So, here's how
to claim your free copy. You go to laserfund.com or click on the link below laserfund.com and
you will be sent out this 300-page book. It's been flying off of our warehouse shelves. Now, you must
contribute a nominal amount towards the shipping and handling. You got to have some skin in the
game. I'll cover the rest of that and I'll pay for the book and I'll send this out to you and this
siDe is 200 pages 14 chapters with all kinds of charts and graphs and explanations. If you learn
more by stories you flip it over and read this side. This is 100 pages 12 chapters with 62 actual
client stories. Now, when you're in that site and I send you out this copy there's options there also
to listen and learn and watch and learn. But check out a few of our educational events like retire by
design, RBD. We usually teach one at least virtually or live once a month and you do not want to miss
out on those opportunities to do a deep dive into understanding this better for your brighter future.