- You can access money out of an IUL,
the sad way, the dumb way, or the smart way.
So in this educational episode,
I'm going to address the question, what are the differences
of the three ways that you can access money
out of an IUL policy?
"What do you mean, Doug, by the sad way
versus the dumb way versus the smart way?"
Get ready, I'm gonna give you insights
that a lot of people don't understand,
even insurance agents.
(gentle music)
So I'm Doug Andrew, and what do I know?
Well, I've been a financial strategist
and retirement planning specialist now for five decades
helping people optimize assets,
and minimize taxes, and empower their authentic wealth.
My favorite financial vehicle, Bar None.
If you read any of my books
or watch very many of these YouTube videos
is a max funded, indexed universal life insurance policy,
but it must be structured correctly and funded properly.
If it is, then it can perform
like an incredible tax-free cash cow,
and it's what I call a "LASER Fund" okay?
Which is the title of my 11th book.
I want to gift you a copy of this
at the end of the episode, so stay with me.
And so when it's structured correctly and funded properly,
it is a superior capital accumulation tool
for all kinds of goals, usually, like retirement,
it knocks the socks off of IRAs and 401(k)s,
but you can use it for college funding.
It knocks the socks up of a 529 college savings plan.
It's way more flexible.
Working capital for business, many savvy business owners
use this for their working capital.
Many savvy real estate investors use this
to be able to accumulate their money
while they're buying and selling properties.
And they don't send extra principal payments
to the mortgage company.
They put it into an IUL, and it will compound
and grow to a bigger sum to pay off their mortgages
if that's their goal,
two and a half years faster than giving it
to the mortgage company.
It's an excellent tool for pension maximization.
If you're a school teacher, a police officer, firefighter,
it's better than having an emergency fund
in a banker credit union.
This is where banks and credit unions
will take your money and put it,
so just bypass the middle man.
Good for lump sums, capital transfer for settlements
to reposition assets like money out of IRAs or 401(k)s,
doing strategic rollouts.
It's like a financial Swiss army knife.
So people say, "Well, okay, Doug,
so I put in, you know, my money,
and I've had many clients who will put in, you know,
10,000 a year, 100,000 a year, 200,000 a year.
I just met with a young man in this morning,
he's 38, he's put in 400,000 a year.
He's got a nice business.
I've had some people put in 2 million a year.
It doesn't matter what you begin with,
it's what you end up with.
So let's fast forward to where you end up.
So let's say, you started out and you started stock away
100,000 a year, and you maximum funded in five years.
You put in 500 grand, and in seven and a half years,
that 500,000 doubled to a million,
which has happened for many of our clients.
And so now, you have a million.
So whatever it is, every million you have
in your insurance policy, I often say on this channel,
you can get a 10% payout for as long as you live
based on actual historical performance.
And if you understand how that works,
you're using an index loan,
you're taking it out the smart way,
you're not taking it out the dumb way.
So let's explain the differences, because if you have,
let's say a million dollars in the policy,
and that's your cash value, usually, at that point in time,
if you structure it correctly,
the death benefit equals the cash value.
Your cash value has now grown to equal
or exceed the death benefit.
So the cost of the insurance now is next to nothing,
because your cash value now has grown
to equal the death benefit.
If you happen to die,
the insurance company's gonna pay out 5% more,
but they're only charging you
for a dinky amount of insurance,
and the interest you're earning on a million
dwarfs the cost of the insurance.
That's why a property structured IUL
gets cheaper as you get older.
A lot of agents don't know how to do this.
So I've got a million bucks in there.
Now, if you understand index universal life,
when I say this, people go, "How can they do that?"
How can an insurance company
on their general account portfolio,
where they have their billions or trillions of dollars
invested in AAA and AA bonds and mortgages,
on skyscrapers and shopping malls, and so forth and so on,
all of this general account portfolio,
maybe they're earning, you know, 6%,
they need one of those percentage points for themselves,
and so they're only able to pay you five, okay?
So that's called the general account portfolio rate.
From 2000 to 2010 or 12,
the general account portfolio rate was a net of five.
Then interest rates went down, down, down.
And so the general account portfolio rate
from 2012 to 2022 has been maybe around four.
Now, it's going back up again,
'cause interest rates are going up.
Back in 1980 to 1992,
the general account portfolio rates
were 11 3/4 to 15 1/2% net.
Well, whatever it is,
this interest rates are relative, by the way.
So when interest rates are high for borrowing,
they're high for earning.
But let's go back to this example.
We have an insurance company,
and let's say the general account portfolio rate is five.
Just to keep it simple.
Now, people ask me, "Doug, how can an insurance company
earning on their portfolio 5% afford to pay you 8%?"
Now if you don't understand that,
you don't understand indexing.
Because with an indexed universal life,
on the million you have there,
you're telling the insurance company,
if you're bullish about America in any given year,
which most years, 7 out of 10 years, the economy's going up.
You are saying, "Don't invest my million in the market,
but take that 5% general account portfolio,
that 5% interest on my million,
and you can do whatever you need to do
without to have the wherewithal to pay me, whatever the S&P,
or whatever index I choose that you offer.
So you have the wherewithal to pay me
what it does if it goes up.
But if it goes down, if I guess wrong in the market crashes,
10, 20, 30, 40%, I don't wanna lose.
I want my million still."
Because if you had your million in the S&P in 2008,
you would've lost 400 grand.
It would've gone down to 600,000.
Our clients didn't lose a diamond 2008,
because their million was still safe
in the insurance company.
They didn't make anything, but they didn't lose,
because the 5%, the 50,000,
those options just expired worthless,
but they didn't lose their million.
And so, you do that because most years,
it's gonna go up 70% of the time it goes up,
30% it goes down.
From 2000, 2010, there were actually five down years,
and our clients still doubled their money.
1 million doubled to 2 million
when most Americans weren't even back
to break even at the end of 2010.
That's why you use indexing.
So, I just explained how you can earn
a better rate of return, because if you're willing
to not demand that the insurance company
keep crediting you 5% each year,
you're saying, "No, I'll give up the 5%,
so that you can pay me when the market goes up."
But if the market goes down, that's a no-brainer.
They buy upside options,
the number one purchaser of options in the world.
So, I've always earned a rate of return of about 3% higher
than the general account portfolio rate by using indexing,
but that's if I do not rebalance or diversify.
Most of the time, my clients,
we put 'em 25% into a one year point to point,
maybe with a 9% cap, another 25% in a two-year,
another 25% in a five-year,
maybe another 25% and a one year point to point with no cap.
We just diversify and we rebalance every year.
That's what takes the rate of return
frankly up to more like 11.17%.
But also, when they're ready to take out the money,
they take it out in the smart way.
So let me tell you just a simple example.
Let's say, an insurance company is only crediting you
eight on the index, because you're not diversifying
and doing what I just said.
So, they're earning five, but they're giving you eight,
because you're using indexing,
but you're not diversifying rebalancing.
But you can pull out 10%, 100 grand, 10% payout,
out of a million dollar nest egg,
and not deplete the principal,
even though it's only earning eight.
Now I say that to most people.
How can you pull out 10%, 100 grand a year
out of a million dollar nest egg
if the insurance company is only creating you eight?
That's by doing it the smart way.
Do you wanna know how?
Okay, let's go through the sad, dumb, and smart.
If I have a million dollars in there and I die,
it's gonna lead me behind, it's gonna blossom.
Now if I'm self-insured
and my cash value equals the death benefit,
if I happen to die, that's the sad way,
but it blossoms instantly.
It may only blossom 5% up to a million one.
Earlier, when I put in 500,000 if I die,
it pays out a million.
I didn't do it for the death benefit,
but that's the sad way.
It's one heck of a return, but I don't recommend it.
So that's the sad way by dying.
The dumb way is with universal life,
you can actually, under the internal revenue code,
access your money without paying tax
until you've recovered your basis.
Most investments are taxed life out.
So like an annuity, if I put $500,000 into an annuity
and if it was earning, let's say, 10%,
and I start pulling out 50 grand a year,
I have to pay tax on that 50,000 every year,
'cause that's the last money I'm earning,
the interest is the first money coming out.
Only if I gouge get into the principal,
and start lowering that is that portion tax-free.
And so that's LIFO.
With insurance, you get treated FIFO.
So the first money in is the first money out.
If I put $500,000 into an IUL policy
and if it grows to a million,
and I start pulling out 100 grand a year,
then the first five years, it's tax-free,
because it took me five years to get my basis recovered.
100,000 times five years is 500 grand,
which is the basis I put in, that is tax-free,
because the first money in is the first money out.
But that's dumb because after that,
if I keep pulling out a hundred grand, I have to pay tax.
Now, a good insurance company
will say, "Hold on, that's dumb, don't do that."
The IRS says, "That's dumb."
You don't have to pay tax if you simply change
the nomenclature.
Call it alone, borrow your money out.
And people go, "Borrow?
I have to borrow my own money?"
And they're gonna charge me interest.
No, here we go.
When you do it the smart way, that's by borrowing.
There's two ways to borrow.
If I have a million in there and if I start borrowing,
I could borrow 900,000 out of there.
But let's say, we just wanna borrow the equivalent
of our interest.
Now, if I'm only earning 8%, I can borrow out,
let's say, 80,000 a year,
and then I can use a zero wash loan.
So what happens is I have a million in there
and I borrow out 80, so they carve out 80,000,
which is the interest that I'm earning,
and that's the collateral for the loan.
And so, they charge me 4% on 80,000,
but they credit me 4% on that 80,000 of collateral.
But the remaining, okay,
920,000 is earning whatever the index does.
And so, you can sit there and borrow for years,
and this is accruing at 4%,
but this one is also accruing at 4%.
It's a zero wash at the end of the day when you die.
This one equals that one.
It washes away when you die,
and your family gets what's left over, which is tax-free.
So it's a zero wash loan.
But the problem with that is that you're only getting eight.
What's the real smart way?
An alternate loan, an index loan, a variable loan.
So we'll call it an index loan.
This is the smart way,
because I can tell the insurance company
I want my whole million to always be growing
at the index rate, and I want it to collateralize the loan,
but I'm willing to pay a little bit higher interest.
I'm willing to pay 1% higher, 5%,
but I want the entire balance, the entire million.
I don't want you to carve out a piece,
and credit me whatever you're charging.
You can charge me 5% on the loan balance,
the 100 grand this year, but I want to have you credit me
on the entire million.
Well, some years, maybe at zero, but most years,
it's gonna be, you know, averaging 11%, netting 10.
So far, so good.
So if you're gonna average 10, you're borrowing at 5,
and you're earning 10, how much more is 10 than 5?
Is this starting to make sense?
It's 100% more, you're making 100% rates of return.
But I have clients who have borrowed on their IUL
for retirement or business purposes,
and they borrow money at 5%.
On a million bucks, the insurance company charges 50,000,
and they credited them that one year, 25%, 250,000.
How much more is 250 than 50?
It's five times, it's 500% more.
So going back to the beginning,
you can access money out of an IUL the smart way,
and you could be earning golly 100% to 500% more.
But that's the smart way, why?
Because of that spread.
Conservatively, because the spread is usually 2% higher,
historically, then the cost if you borrow at five,
the chance that you'll be credited seven
is almost like a given that allows you to be able
to pull out 2% more than what the interest crediting,
the index crediting rate is.
Are you getting it?
So if the insurance company's only crediting you 8
and you're pulling out 10,
but you're doing it with an index loan,
you're able to pull out 2% more
without depleting your million dollar nest egg
in the example I've been giving,
because you're pulling it out the smart way.
Now, your eyes might be glazed over right now,
if you don't understand this, you're gonna miss out.
Because we have clients who take it out the smart way,
and if every million dollars they have,
they know very predictably
that they can generate a 10% payout,
$100,000 a year tax-free, even if the index crediting rate
is only 5, 6, 7, or 8.
And now you know how an insurance company
only earning 5% of their general account portfolio
can afford to pay you seven or eight by linking to an index.
But now you know how if they only earn 8% of credit,
you eight, you can pull out 10 without depleting principal
by using that arbitrage or spread by continuing to earn
a rate of return greater than the net cost
of borrowing against the cash value.
Is it making sense?
If you wanna learn more, study it in this book,
especially on this left brain side,
it's chapter seven and eight.
And so, this is actually two books in one.
It's been flying off of our warehouse shelves.
A property structured index universal life
is deemed a LASER fund.
And so, this book is actually two,
because this side is the left brain side,
about 200 pages, 14 chapters that gives you all the charts
and graphs and explanations of detail.
If you learn more by stories, examples, you flip it over.
This is about 100 pages, 12 chapters
with 62 actual client stories.
You'll see examples in here of actual index loans
that I've been talking about,
and when you really study it, you're gonna be blown away.
If you wanna use your whole brain, read both.
Now you can go to Amazon and pay 20 bucks
and another 10 bucks in shipping and handling.
If you do, thank you, but I'll give you a copy for free.
You simply go to LASERFund.com or click on the link below.
You contribute a nominal amount
towards the shipping and handling.
I require a little bit of skin in the game,
but I will cover the rest of that cost,
and I will pay for the book.
I will fire out a hard copy to you via priority mail.
When you're in there, claiming your free copy,
check out the audio and video formats
if you'd like to listen and learn and watch and learn.
There's also educational webinars
we teach on a regular basis, they're free.
But you can even schedule an appointment
to talk to an IUL professional
that knows how to do this correctly
at no cost or obligation, because this is not about me.
This is about you and your brighter future.
And so I want you to do it the smart way,
because I just cringe when I see people
doing it the dumb way.
Don't make that mistake.
(upbeat music)