Recover your basis tax-free but tax-free zero cost or index loan are far better.
Why?
In this episode, I am going to address the question.
How does IUL, index universal life provide tax-free income?
Get ready, you'll gonna learn something that most financial advisors do not understand.
So, I'm Doug Andrew and I began in the financial services industry clear back in 1974 and from
1974 when I got my series one securities license and my insurance license.
I ended up being responsible for over 3,000 clients in 13 western states by 1980 and I
sold a product that was term insurance with annuity rider.
Where people could save money two-thirds of every dollar they set aside.
Accumulate it at 7 and 1/2 to 8 and 1/2 percent in an annuity or most of my clients will assign
the annuity cash over every 90 days to a mutual fund of their choice and sort of utilize quarterly
dollar-cost averaging if you know if that is.
So, the point is this, when people began to come to me they usually wanted a vehicle that
they accumulate their money on a tax-favored basis.
Hopefully, totally tax-free to be able to use for goals such as retirement to working
capital for business or real estate management emergency fund and so forth.
Well, universal life back in 1980 with the brainchild of E.F Hutton.
They weren't an insurance company they were a brokerage firm and they realize that under
three sections of the internal revenue code.
There's only one instrument that allows you to accumulate your money tax-free under section
72E of the internal revenue code All interest, dividends, and growth are totally tax-free.
But then you can access money while you're alive totally without triggering tax if you
do it the smart way under section 7702 and when you ultimately die anything left behind
blossoms, increases in value, and transfers income tax-free under section 101A and that's
life insurance.
But see, most people they either bought term insurance to cover in the event of premature
or untimely death or they bought whole life insurance when the whole life is built on
a chase but it's not the best if you're gonna be using it for income.
Universal life is a superior instrument to use it for tax-free income for retirement.
So, I'm gonna explain how this works simply and there's a lot of other educational videos
on this channel that will also help you understand.
I'm gonna gift you a copy of one of my most recent books at the end of this episode.
So, stay with me.
So, for years, I've had thousands of people reposition serious cash and lump sums or in
periodic deposits monthly, annually, or whatever into max funded universal life policies in
order to increase the liquidity, safety, and the rate of return.
Now, on this channel, I talk about why universal life and index universal life passes the liquidity
test, the safety test, and the rate of return test, with flying colors.
Let me talk about accessing money for retirement.
Coz a lot of people use max funded universal life or index universal life for that purpose.
Now, universal life with the brainchild of E.F Hutton back in 1980.
That was a high-interest environment and I never earned less than 11 in three-quarters
percent.
Even as high 15 and 1/2 percent on my universal life policies from 1980 to 1990 and my clients
were never happier than when I got them out of the volatile market for that.
But then in the 1990s interests rates starts to come down and they came out with variable
universal life.
But then in 1997 indeed universal life.
Now, I never owned a variable policy I never will.
Because your money is subject to market volatility.
Index universal life came out in 1997.
If you don't understand that search that on this channel.
But index universal life allows the policy owner to able to have their cash in the policy
whether it's 100,000, 1 million, 10 million.
Let's use a million-dollar as an example here and you're gonna retire and you have a million
box in there.
So, I have a million dollars and I wanted to be available for me to create tax-free
income which a lot of people do.
You can use it anytime you need it for other purposes, emergency funds as I explained in
the book that I'm gonna gift you.
But let's say you accumulated a million dollars and now you wanted to retire and start taking
out income.
Now, in the internal revenue code since 1986 tax reform there's only three types of income
American's state incomes on.
Earned income, that would be salary and wages.
Passive income, that would be like rental income or a lease income.
And then portfolio income, which would be like interest and dividends and that's usually
how a lot of people have their IRAs and 401k's but you have to pay tax.
If you have income that's not one of those three then that's not subject to tax.
There's nowhere in the tax return to put it and so money out of the insurance policy you
can take it out the smart way by using zero cost or indexed loans.
So, with indexing, I get to participate when the market goes up by linking to an index
but not lose if the market goes down coz I'm not an authorized insurance company to use
my million dollars to invest out of the market.
The interest on my million, the general account portfolio rate of the insurance company.
Which as a recording of this episode is around 4%, 5%.
So, let's say 40,000, you can accept the 4% which is sometimes much higher in banks and
credit unions pay or you can tell them to take that interest.
That 40,000 to buy upside options in that year in the S&P 500, the Dow Jones, the Russell
2000, and they do that.
So, your return is linked to an index but that gives the insurance company that wherewithal
if the market goes up it pays you 8%, 10%.
Even in this year that I'm recording this 2021, we've had clients that had been credited
32%, 61.33%, even 153%.
That's locked in.
If the market crashed the next year they don't lose the money they made.
But if the market were to go down and you choose to link, the options simply expire
worthless.
You don't lose your million, you just didn't earn any interest that year.
So, If I have my million based upon what the American company does.
Usually, in the 10 year period, there's usually 7 up here compared to 3 down years and the
great recession 2000.
You go 2010, there were 5 down years and only 5 up years.
Using index universal life, our clients averaged 7.23% if they never rebalance.
They just sort of put their heads in the sand and left it like it was.
You don't have to do that.
A good advisor will tell you when to just move over to the general account portfolio
rate or when to link to a particular type of index.
By doing that most of our clients were credited 10.07.
So, through the years I've earned you know sometimes as high as 25%, even 61%, other
years zero.
But zero becomes your hero because you didn't lose.
But I've generally been able to earn at least 8%.
Now, by using arbitrage, If I borrow 100,000 out of my million.
The insurance company is charging me nominal interest rates maybe 2% on that 100,000.
But they're crediting me on 100,000 of the cash value that collateralized that, they're
crediting me the same interest rates.
So, it's called the zero-cost loan.
But you know, what I do?
And what do most of my clients do?
They do it much smarter.
Before I explain the smartest way to access money.
If this is intriguing you share this video with somebody who you think ought to hear
this and watch it.
But I would recommend to put a comment, click like, but subscribe.
It's free and clicks that little bell when you do coz you'll be notified every time I
post a new episode which I do almost on a daily basis.
I don't want you to miss out.
But stay with me to the end, I want to gift you a copy of my most recent best-selling
book the laser fund.
It retails 20 bucks and I'm gonna gift you a copy.
So, let's pick up where I talk about the smartest way.
Most of my clients they understand how many works maybe because I've trained them.
But they use what is called an index loan.
So, when they borrow their 100,000 a year day out they can say, "You can charge me a
higher rate when I tell you", and that would be the years that they feel bullish about
America.
They think the economy is gonna go up and I sort of coach them on this.
So, then they may be charged 5% instead of 2%.
Why would they do that?
Because they're being charged 5 when they get credited on the million that they left
there.
That's collateralizing this loan and they're borrowing the equivalent of the interest.
They're being credited the index rate.
So, like in 2017, I had clients that they borrow 1 million dollars at 5% and the insurance
company charged 50,000.
Now, they don't have to write a check for that this is just automatically deducted out
of what?
Out of the money that's growing on that million.
That year they earned 25%.
This year that we've recorded the video, we have people earn as much as 61.33%.
So, you borrow out of 5 and you get credited at 61 and you're netting 56%.
Hello?
This is where people understand how many works are able to earn a higher rate of return on
their money while they're using their money in retirement.
So, let me connect the dots and help you understand how this works on an insurance policy ledger.
So, let's say you retire you have a million-dollar of the cash value in your IUL policy and you
start pulling out 100,000 a year.
And so, when we use a zero cost loan 2% is what you're charging they're crediting you
two, or some years you use an index loan.
You're taking out 100,000 in a form of a loan.
They will charge you the appropriate rate if you borrow and when you do that then over
on your million dollars your full million.
They're crediting you either the zero cost loan, 2%, or if its index they'll credit you
8%, 12%, 15%, 25%, 61% on that money.
And these people made a ton of money on their cash value even though they're using the money
for income or for business or whatever.
So, let's say you do that for 20 years.
So, if you have this 100,000 a year for 20 years is 2 million and [inaudible] loan balance.
I say phantom, this is not doing payable during your lifetime.
You'll be washed away with the death benefit when you die.
So, it's compounding with whatever interest but over here is more than offset with the
same interest or higher interest and so, there's usually arbitrage there.
It's usually of at least 2%, that's not guaranteed but what does that allow you to do?
If your index universal life policy only average 8.
If you didn't want to deplete principle you probably should only access about 80,000 a
year to keep your million stable.
But by using indexed loan smart way, usually, I found people can access maybe 2% as points
higher, 10%, 100,000 a year coming out.
Even though they're only earning 8% because of the arbitrage by using smart ways to access
money that indexed loan.
A million-dollar nest egg can generate 100,000 a year tax-free and if down the road you come
across the money and inheritance and windfall and you're wondering what you will do with
it.
You never have to pay back that loan but it doesn't mean you can't.
You can put that 2 million back in and the interest that the insurance company was [inaudible]
and the IRS says, oh, there's paying back a loan they don't have to pay back.
The insurance company says, oh new money you hit the ground running and you're earning
tax-free interest without having to jump through the TEFRA, DEFRA, and TAMRA on that grandfathered
policy.
This is the most least understood and the most incredible financial instrument to retirement
that most advisors do not understand and here is the best part.
The IRS and Congress have left this alone it's a tax-free cash cow in the internal revenue
code now for over 180 years.
Why?
Because they leave you alone because when you take ownership of your future, you're
taking pressure off the government to help you during retirement if you outlive your
money or if you live behind orphans or whatever.
That's why it's tax-free.
So, if you want to accumulate access and transfer your money tax-free and you wanna generate
income that will never show up on your 1040 tax return considered a max-funded IUL.
I would recommend between 40 to 60% of your income not even show up on your 1040 tax return
when you retire.
I've been doing this for years.
You wanna read some stories?
I wanna gift you a copy of this book and it's actually 2 books in one.
You click on the link below, go to laserfund.com.
Now, you contribute a nominal amount towards the shipping and handling.
I'll cover the rest of that cost and I'll pay for that book.
You don't have to pay a $20 retail price for it and this side is about 200 pages with all
the charts and graphs and this side is about 100 pages.
If you flip it over and this has 12 chapters with 62 actual clients' stories showing how
you can access money the smart way.
So, do it the smart way, generate tax-free income for as long as you live so that you
will not outlive your money, and be sure to check out other learning opportunities there.
On this side, you'll see some educational webinars and events like retire by design.
Check that out and join us on a virtual workshop.