Universal life was created for living benefits. Whole life is primarily
for death. In this episode, I'm going to answer the question, "What is universal
life versus whole life insurance?" Frankly, I
ought to know. I've been doing this for more than 46
years. So, get ready. You're going to understand some
differences that many life insurance agents don't even
understand.
So, my name is Doug Andrew. I've been a financial
strategist, a retirement planning specialist for more than 46 years.
Generally speaking, when people prepare for retirement
and then retire they draw retirement income from maybe 4 different sources.
A lot of people have way too much money at
retirement in yet-to-be-taxed IRAs and 401Ks in the market. And I go, "What are
you thinking?" And so, I have to do a strategic roll-out
from their IRAs and 401Ks to get the taxes over and done with sooner than
later. And put it into an environment where
they earn tremendous rates of return when the market goes up but they don't
lose when the market goes down. Because if your money's in the market, you can't
create predictable cash flow. See, the market, Wall Street was designed
to have your money stay there forever. If you ask a stock broker or an asset
manager, "When is the best time to sell and liquidate my stocks?"
They will say, "Never". The purpose of accumulating money is to be able to take
distributions. So, at retirement planning is often way
different than maybe what you did for retirement planning.
What I do with a lot of clients is I help them transfer
40 to 60 percent of their income during retirement to totally tax free
income where they can earn 6 to 10 percent
rates of return. And this is best achieved with maximum
funded indexed universal life insurance because
it was designed for living tax-free income benefits. Whole life
insurance can do it but it's usually at about
half the net rate of return. Because whole life
was designed primarily for death benefit. You can
use it for living income. But the income is much lower
they're not as flexible as universal life policies. You can fund
universal life faster and put in more money. You can tweak the rate of return
so that if you earn a 9 and you net 8. You earn
11, you net 10. With whole life, it takes you your whole
life until age 95. That if you earned 8, you would
barely net just under 6. My heavens. I can
net 8 easily. I've been doing that for uh 46 years with universal life.
My favorite vehicle is maximum funded universal life because it was designed
in the first place by EF Hutton for living benefits.
To use it for tax-free income whereas whole life
has always been really first and foremost, for the death benefit
and it has certain tracks you run on with the guarantees.
And so, if all you need is death benefit, you can accomplish that with
whole life or universal life. But if you want
something that's universally applicable where you can use it not just
for death but also for life or maybe primarily for
living benefits, by far, I would choose the universal life over the whole life
insurance. So, let me explain why and some of the
differences. So, let me tell you a little story. For 4
years, I had over three thousand CPAs, tax
attorneys, financial advisors, insurance agents, real estate agents. All kinds of
professionals in the financial services industry
come through an intensive 3-day training
on how to optimize assets and minimize taxes. And I had many of the nation's top
whole life insurance agents. They won awards for this.
And they were selling whole life insurance with some very reputable
companies like northwestern mutual and mass mutual and so forth. And they would
come because they had been sort of indoctrinated,
they had these blinders on. And they said, "You know, Doug? Our
whole life insurance has had an excellent dividend paying
history." And so, I'd say, "Well, what is the history?" "Well,
close to 8%." Now, they haven't been doing that recently. But let's just
say 8%. I said, "I want you to show me what the best
net internal rate of return is on a whole life policy."
If somebody started one out at age 30, 35 up to age 65
retirement and then age 95. Now, they went, "Internal rate of return,
what do you mean by that?" They were never taught it. Because
their head, okay? Their agency manager did not
want them to even understand what internal rate of return
was. What is it? That means cash on cash, after all
costs are taken out; if i put this much money --10,000 a year,
100,000 a year, 1 million a year into a whole life policy versus a
universal life policy and you are using it primarily for the
living benefit, okay? Tax advantaged income and retirement.
You take the least amount of insurance the IRS will let you get away with.
Right off the bat, universal life, if I wanted to put in a half a million,
I can get that in in four years in one day in a universal life.
A whole life takes 7 years. I can put the money in
faster so it will grow to a bigger sum quicker. I can get away with less
insurance. I can reduce the cost of the insurance
down on universal life that I can't on whole life.
In other words, my goal is to if I earn 8, I want to net 7. If I earn 9,
I want an 8. If i earn 11 which I've earned many years, I want to net 10.
I want the cost of the insurance that the IRS says
has to be there or it won't be tax free. I want it to drain out 1% or
less. You can't do that with whole life insurance. See, what I
want to calculate is if i put in a half a million and it's
earning 11 and netting 10, I want to have the cost of the insurance
only drain out one of those percentage points.
Now, when I say that to a whole life agent, I say, "So, what are you what's your
internal rate of return?" And they go, 8%?" I go, "No, no, no.
Well, how do you calculate it so what you do
is you take... This is the complicated calculation.
You take the premiums that you paid in and sometimes they're sporadic in
different amounts. With whole life, they usually require you
must pay a certain amount. Universal life has all kinds of
flexibility. I mean, I can put in 300,000. I don't have to put in anything for 10
years if I don't want to. You can't do that with whole life. You have to keep
paying a certain amount. But if I put in 30,000
I can put in the other 270,000 anytime. And so, there's more flexibility
with universal life. But basically, when i put the money in
then you calculate. So, based upon these deposits,
premium payments up until age 65, how much cash value
do you have? Well, that's easy. They go, "Well, you would have this much cash value."
That's the money inside the insurance policy. And so, you back into it and say,
"What rate of return would you have to get to end up with
that much money?" And all of a sudden I did that and it
was like at 8%, they were only netting 5%.
And I go, "You're really only netting 5% after the cost of the insurance."
They went, "I've never calculated that before. They never taught us this.
Well, So, what's your universal life policy policy doing?" i'm going,
"Well, if I earn 9 which I have been earning. And I'm netting. If i'm
earning 11, I'm netting 10." And all of a sudden, they'd get this big
a-ha moment. And, I'd say, "So, when does yours go down
to the smallest amount and even some of these very reputable
companies, that they were assuming would pay
8% dividends, it took until age 95 at 8%
before they would net 5.95. Let's just say 6.
You had to wait till you were 95 years old and
earn 8% to net 6. And I'm going,
"I only have to earn 9 to net 8 tax-free in a universal life.
And that happens within 10 or 15 years into the policy."
And that's when they would go, "Oh, my heavens. I didn't know what I didn't know."
Why is that? Because universal life has more flexibility and allows you to put
in more money and squeeze down the cost of the insurance
very, very low. Whole life, you have a certain track you run on in
order to meet those guarantees. And it takes forever to have your net
rate of return come to within 2% of the gross rate
of return. 2 percentage points maybe even age 95. So, let me ask you
a question. So, let's say your primary goal is to not outlive your
money and have the highest net spendable income. So, that means every million
dollars of cash value inside of a whole life policy versus a universal life
policy, in a universal life, based on actual
historical rates of return when you maximum fund it, I can generate
60 thousand, 70 thousand. Usually 80 to a
100 thousand dollars a year of tax free income from age 65
to age 120 without depleting principle. I would dare you to show me a whole life
policy that can come close to providing that kind of income. A
whole life agent may say, "Oh, well, based on guarantees, we can give you
40,000 a year of income." Well, what would you prefer? 40,000 or
80,000 or 100,000? How much more is
80,000 than 40,000? Twice as much.
So, in that situation, the universal life generated twice the income to age 120.
And you can put in guarantees and no lapse guarantee riders and so forth. You
can have that similar type of guarantees that maybe whole life agents say, "Oh,
but whole life has these guarantees. Well, they charge you
an arm and a leg for those guarantees with whole life."
And so, what are you paying? You're giving up half of the income you could have
been getting. You could have been getting 80,000
instead you only have 40,000 because you want to be guaranteed
that it will never lapse. Well, I can basically accomplish the same thing
based on actual history with a universal life. So,
in summary, a max funded indexed universal life insurance policy was
primarily designed and created for living benefits.
You can put in the money faster, you can get away with less insurance, you
can keep the cost lower. They're more flexible as far as putting in a ton of
money and then coasting for years without
adding money. You have all kinds of additional benefits
for a universal life policy. Whole life, you just sort of are you have to go down
a certain track, so to speak. Now, if this is intriguing you and you
want to learn more, please click on the link below or take
advantage of reading this book. This is my 11th book. It's a bestseller.
The Laser Fund: How to Diversify and Create The Foundation for a Tax-Free
Retirement using max funded IUL. I call it The Laser
Fund. Laser means liquid assets safely earning returns. It's an acronym.
It's actually 2 books in 1. This is 300 pages.
This side is for the left-brain thinkers who want charts and graphs and
explanations, the the engineers. If you learn by stories,
you flip it over and read this one. This is 100 pages, 12 chapters with
62 actual client stories. I'll tell you what, this retails for
20 bucks. You claim a free copy. I'll pay for the book.
You go to laserfund.com. Pay 5.95 shipping and handling which
frankly doesn't quite cover that. But nonetheless, I will pay for the
book. You pay $5.95 towards shipping. And handling I want you
to claim your free copy and begin to learn
how universal life can far out perform whole
life if your primary goal is living benefits.