Access your money the smart way not the dumb way. In this episode, I'm going to
answer the question, what is the best way to get money out of an IUL policy?
That's an indexed universal life policy. This is very powerful. I don't want
you to miss out. Stay with me through the end of this episode, you're going to be blown away.
So, I'm Doug Andrew and I started in the financial services industry clear back in 1974. In 1980,
when EF Hutton first introduced universal life. They were sort of the brainchild behind
using universal life as a concept to buy term and invest the difference
on steroids because it's under a tax-free umbrella. When EF Hutton came up with the idea some people
used universal live as a cheaper life insurance policy than whole life because on one end of the
spectrum because of high interest rates back then you could pay a lower premium into a universal
life policy than a whole life policy for the same death benefit. But EF Hutton really designed it
originally to be maximum funded. This is where you put in the most premium the IRS allows and
try to get away with the least amount of insurance the IRS will let you get away with and those are
under tax citations TEFRA, DEFRA, TAMRA. Which I explain in other episodes. So, when you
max fund an iul policy and you do it as fast as the IRS allows. That is usually done within three
years in one day maybe four years in one day if you're older. So, if you wanted to reposition
let's say 500,000 dollars. It could be 100,000. It could be a million.
But usually, the fastest you can fund that would be in five payments or installments basically
you could do it monthly but five years. But you can actually, fund it the first day of the first year
and so you do that for four years and one day into the fifth year you could actually put in the last
amount. So, let's just keep it simple. Let's say you wanted to reposition 500,000 dollars
into an IUL policy to generate and create more liquidity safety and rate of return. Did you hear
that liquidity was number one? So people always say, "Well, how liquid is it, and what's the smartest way
if I need money?", well, in related episodes I talk about when you have an emergency or a business
opportunity or if you're a real estate investor many of my clients use an IUL policy as a working
capital account to be able to access money a faster smarter quicker better than some bank
or credit union that pays you next to nothing just because it has a drive-up window. They think that
means liquid. No, that's convenience. I can actually access money out of an IUL policy without ever
getting in my car. I can do it in a matter of 15 minutes by online filling out one form it even
doesn't take that long. So, I'm going to explain this to you and show you how powerful a max
funded iul policy is to access money and I don't care if it's the first year when you're only 20%
funded after it's fully funded or after it's grown to a million, doubled to 2 million, double to 4
million, double to 8 million. Anytime you can access money but you want to do it the smart way. So, I've
been very blessed in my career to have authored 12 books thus far and many of them address
insurance and especially IUL, index universal life. Indexed universal life came out in 1997. So, if you
are going to be max funding an IUL policy and it's totally full of the cash you wanted to reposition
within five years or at whatever point in time. You can access money if you need it and so, I usually
say in my books well there's three ways to access money, the sad way, the dumb way, and the smart way.
The sad way is by dying. Now, it's one heck of a return but I don't recommend it. But see, if I put
in the first ten thousand or a hundred thousand and if I were 60 years old the minimum death
benefit under TEFRA and DEFRA tax citations would be 1,250,000. If I were a 22 year
old athletic marathon running female to be able to put in let's say a hundred thousand a year
the death benefit might be five million it doesn't matter. But if I die anytime the
insurance company is obligated contractually they must pay out that death benefit and it's tax-free.
It's one heck of a return but it's the sad way to access it. But I have had clients who have
died unexpectedly and it was actually a blessing to their spouse, their children, to whoever they
left it to as beneficiaries. Now, the dumb way is by withdrawing the money and a lot of people go,
really? Well, yeah, let's say your money has grown to a million and we'll use that number because it's
a nice big round number. It doesn't matter if you have 10,000, 50,000, 100,000
ten million. So, if I have a million dollars in there and if I go and withdraw money probably
well you could withdraw all of it but then the policy would lapse. You want to leave enough
in there so that the policy cost of insurance is covered by the interest on the money that's
remaining. But if I go access 90% which usually you can access at least 90 percent of your money.
900, 000 now there's a hundred thousand left in there and that is going to hopefully keep the cost of
insurance covered for the foreseeable future. The next few years or whatever. But if you withdraw
it that limits how much you can put back okay and the irs says, "Well, you can only withdraw up
to your basis", so let's say you put in 500,000 into that policy and that's it that's what you paid in
premiums that's your basis and now it's grown to a million. If you pull out 900,000 the first 500,000
is tax-free because it's FIFO instead of LIFO, first in first out. You get the first 500,000 back
without paying taxes you already paid tax on that. Whereas so many investments like IRA's & 401ks
it's taxable when you pull it out it's like LIFO. The last money you're earning is the first money
coming out. That's like an annuity, if you put in 500,000 into an annuity and you were earning
let's say 10%. Most annuities don't pay that high but that would be 50 grand a year you'd
have to pay tax on that because the last money you're earning your interest is the first money
coming out that's called LIFO, last in first out. See, insurance is taxed FIFO. So, the first money
you put in is the first money coming out. But in this example I just used you would have to pay
tax on anything over and above your basis. That's not smart. You don't have to do that. In fact, the
IRS goes, why are you doing that? You're triggering unnecessary tax. Now, they may not tell you that but
in the internal revenue code, they say, "You do not have to do it that way. You can do it the smart way."
Now, if this is already intriguing you and you can think of somebody who ought to watch this
episode be sure and share it, click like, post a comment. But stay with me you're going to be
blown away with what I'm going to teach you next. But subscribe to the channel. I post an in-depth
answer to a financial question almost on a daily basis. So, when you subscribe click that little bell
you'll be notified every time I post a new episode. But stay with me to the end, I want to gift you a
copy of my most recent 300-page best-selling book. Most of my students my clients they access it the
smart way, that is by borrowing. Now, some people go, borrow? Why would you borrow your own money?
Now, hold on. See, when you borrow money out that is cut and dried not taxable income. There's only
three types of income Americans pay income tax on in the internal revenue codes this 1986 tax reform,
earned income, passive income, and portfolio income. When you borrow money from anywhere you don't
have to report that as income on your tax return, okay. So, you borrow it out. So, let's say you have
a million dollars and you want to pull out 10% a year which many of my clients they actually get 10%
payouts without depleting principle by using the smartest way to access money. Usually, there's two
choices when you borrow money out of an insurance policy. One is sometimes referred to as a zero cost
or low-cost loan wash loan and the other is an indexed loan sometimes it's called a variable loan
or what have you. Now, the zero cost or low-cost loan simply means this. In order for it to be
construed as a true loan therefore tax-free the insurance company is required to charge you an
interest rate like anybody that would loan you money but it can be a very low-interest rate.
So the insurance company can charge you let's say two percent interest but they are allowed to
charge you two percent on what you borrowed. So if you borrow out 100,000 a year and
that goes to 200, 300, 400,000 they're charging you two percent on that loan balance. Now, I call
it like a phantom loan it's not doing payable during your lifetime. It's washed away with the
death benefit when you die. But you're accumulating 2% interest on the loan
balance but what's happening to the money that is collateralizing the loan? Because if you went to a
bank and you had a million dollars sitting in the bank and you said, "I don't want to withdraw
my million but could you loan me a million because I have a million sitting in your bank", yeah, they'll
do that. The problem with the bank is they're probably only paying you one percent interest
and they're gonna charge you four or five. With the insurance company it's actually different
because if you choose the zero or low cost loan they they're charging you two percent on the loan
balance but they're crediting you the same two percent usually on all of that money that stayed
in the policy as collateral. So, they charge you two they credit you two on this as it's compounding
and it's a zero-cost loan. It costs you nothing to get a tax-free distribution out of your policy, one
time, annually, or whatever. I've had clients do this for years and I'll show you why this is a benefit
that if you withdrew the money you would not have. Let's jump to the index loan. So, with an index loan
you're borrowing usually at a higher interest rate and so you might borrow that money a
hundred thousand a year or sometimes I've had clients borrow five hundred thousand a million
and they say you can charge me five percent. But then the insurance company is crediting
the million of cash that you did not withdraw it collateralized the million-dollar loan.
They're crediting you whatever the index is earning year by year. So, in 2017, I had a client
that borrowed a million they charged him 5% or 50,000 but he earned 25%, 250,000. 250,000 of growth
on that million minus the 50,000 of cost because he borrowed a million he netted 20% or 200,000
by using the smart way. That happened again in 2021, we had people borrow at 5% and they
earned 32% and even 61.33% on their cash while they were using it for something else.
This will blow you away. But let me give you one last little insight that a lot of insurance agents
don't understand. Let's say you do what a lot of my clients have done. You have a million dollars
in your policy and you want to start taking out a hundred thousand a year. Now, you do it under
the loan provision index loans. So, they're charging you. Now, you don't have to keep it that way. Every
year you can change from zero cost to indexed or whatever based on whatever the market is doing.
But if you're borrowing out the money, okay. A hundred thousand dollars a year is accumulating
in a sort of a phantom loan, it's not doing payable during your lifetime on your ledger. So, they're
charging you interest and they're crediting you interest on this side. I have discovered
that by using that arbitrage most of my clients will usually average at least two percent higher
payouts than what the average crediting rate is on the policy. If the policy has been averaging
eight but they pull out money the smart way they're getting that arbitrage and that means
instead of a million-dollar nest egg in that policy generating eight percent payouts, okay,
80,000 a year they can pull out a $100,000 a year because they're earning
interest higher than they're being charged and so they pull out a hundred grand a year.
So let's say they do that for twenty years a hundred thousand a year for twenty years. Now
they have this two million dollar phantom loan balance plus compounded interest but
they have way more money over here that's been growing. They have in their cash minus the loan is
much more than had they been withdrawing it. But let's say they all of a sudden sold at property.
They had a windfall. They inherited some money and they go, "I'm no longer insurable Doug. What
am I going to do with this 2 million dollars?", and I go, "Well, you can put it back in the policy", "I can?".
Yeah, the IRS is calling it a loan repayment. The insurance company just says oh new money
and that 2 million goes in there pays off this phantom loan that you didn't have to pay off.
But now you hit the ground running with two million dollars you didn't have to wait five years and
go through the TAMRA qualification and that two million begins to earn tax-free interest instantly.
Because your grandfather to pay back loans even though you're not obligated ever to do it.
Think about it. If you want to read and learn more, here's what I would like you to do.
Go to laserfund.com... or click on the link below and this is a 300-page book
actually, two books in one this site is 200 pages with all the charts and graphs and explanations.
If you learn more by stories you flip it over and you'll see how people use maximum funded IUL which
I call a laser fund for all kinds of financial goals especially for liquidity and using this
strategy accessing their money for any purpose the smart way. So, go to laserfund.com there's options
there to listen and learn watch and learn and even to attend webinars and classes. Check out retire
by design, we teach those live and virtually and you'll be blown away with the insights you gain.