when an advisor is proficient rebalancing when opportunity presents itself can reap substantial
rewards in this episode i'm going to address how several iul policies locked in gains of 61.33
tax free in the year 2021 by using a no cap option you'll understand this by the
end of this episode you're gonna see how incredible this is and how people that had
eight hundred and fifty thousand dollars in the year 2020 ended up with a million three
hundred and eighty thousand one year later on their indexed universal life policies
so let's start out with explaining what indexing is i'm doug andrew and i've been doing this for
more than 48 years but actually indexed universal life i started in 1997. uh universal life was
introduced by ef hutton they were not an insurance company they were a brokerage
firm and that was in 1980 and they actually uh thought about hey we can take the least amount
of insurance on a life insurance policy that the irs will let us get away with and put in the most
money the irs allows as fast as they allow and we can use a life insurance policy for living
benefits for tax-free income now back in 1980 with universal life from that year until 1990 a decade
i never uh earned less than 11 and three quarters percent on my universal life policies i earned as
high as 15 and a half percent but then interest rate started coming down and so in order to
compete uh they introduced indexed universal life or indexing now i'm not talking about index mutual
funds your money is still at risk in the s p 500 index if you choose an index mutual fund your
money is not at risk in the market with indexed universal life it's safely tucked in the insurance
company earning the general account portfolio interest rate which you can settle for if you want
uh back in 1980 that was you know eleven and three quarters to fifteen and a half percent
but after the turn of the century interest rates came down and so
that rate became four or five or six percent and sometimes people wanted a higher return than that
so they came out with indexing so let me explain how this works this is going to blow you away and
i'm also going to throw in a little bonus aha on how this can be used as a working capital account
not just for retirement planning or death benefit or college savings because i i compare iul like
it's a financial swiss army knife has all kinds of uses it's the dream solution for many financial
goals so let's simplify indexing here let's say that uh you uh have been saving 500 a month in an
iul policy and if you do that you know in 30 years at average rates of return you'll have a million
bucks in there uh most of my clients and i have thousands of them they might start out with a a
monthly deposit or a lump sum i had many clients who put in five hundred thousand dollars
and that doubled in seven and a half years or ten years to a million so let's just take a snapshot
in time and let's say you have a million dollars of cash value accumulated at this snapshot in time
in your iul policy and now you want to be able to participate and link it to an index so here's
how it works if you have a million dollars of cash value and you can extrapolate from this number you
don't have to have a million you can have 10 000 or 10 million so if it's sitting in the insurance
company and their general account portfolio which is usually made up of triple a and double a bonds
uh sometimes insurance companies will loan uh 10 or 15 percent of of their billions they have
into mortgages on skyscrapers and shopping malls but they only loan about you know 50 60 loan to
value uh they don't loan 80 loan to value like you know a bank does in fact that's why banks put
a lot of your money you have on deposit in them into insurance companies because they're safer
and they pay higher interest so and let's say that the insurance companies general account portfolio
now some of them have trillions one company i put my money in has a three and a half trillion
that's as much as the irs collects an income tax in an entire year that's one insurance company
so they're huge a lot of insurance companies may not have a trillion but close to it maybe
maybe 800 billion or what have you so they they diversify into these conservative investments
very few stocks and if they are they're very conservative and so they need money that's
liquid and safe and that is not subject to market volatility so that's why the general account
portfolio rate might be four or five percent so they might be earning an average of five they need
one of those percentage points for them they're in business and make a profit and so the net they pay
you is four so four percent on a million would be 40 000. now anytime you want you can just settle
for the 40 000 and at the end of the year you'll have a million forty thousand and it will compound
but seven out of ten years in any decade in american history back to the great depression uh
seven out of ten years the market will have gone up higher than probably a four percent
or the general account portfolio rate but the other three years uh maybe the market crashes
i'm going to use the worst 10-year period since the great depression we call it the
great recession 2000 to 2010. we had five down years in that decade and only five up years
okay so if you were earning a general account portfolio a rate of four percent net that's 40 000
if you feel you know bearish about america that we're headed for a recession or
another dip you can just settle for the four percent but anytime you feel bullish about america
you can link some or all of that million in this example to an index or indexes or indices
of your choice that they offer most of these insurance companies offer you know 10 12 15
different indices that would be like the s p standard force 500 the dow jones the russell 2000
the barclays u.s dynamic balance index is called the bud b let's keep it simple let's say it's
the s p what are you doing this is the least understood concept by many financial advisors
you uh when you link to that s p 500 index are not authorizing the insurance company to take
one dime of your million bucks and put it at risk in the market in the s p your million has
to stay safe in the insurance company earning four so what are you uh giving up you're giving
up the for sure forty thousand or four percent you're telling the insurance company you can use
that interest on my million four percent forty thousand dollars to fund an options budget and
if you link to let's say the s p 500 then they will buy upside options in the s p 500
i could take three hundred thousand of the million and link it to the s p three hundred thousand to
the dow three hundred thousand of the russell two thousand and leave the last hundred thousand
sitting in there earning four i could diversify like crazy let's say you you link all million
to the s p that forty thousand dollars of options if the market goes up gives them the wherewithal
to afford to be able to pay you whatever the s p does if the s p uh grows eight percent
they'll pay you eighty thousand people say how can they afford to do that because options double
okay uh wha what if it does twelve percent well they'll they'll have a hundred and twenty thousand
they can pay a hundred and twenty thousand on your million uh they're big boys and girls they
they're the number one purchasers of options in the world uh but a lot of times they'll cap
it and that means that they might cap it at 12 or 16 or whatever or 25 but the trade-off is if you
guess wrong in the market crashes the options expire worthless you didn't make anything but
you didn't lose the million see will rogers once said people get more concerned about the return of
their money and so the return on their money when things get bad so far so good so they can credit
you 8 12 up to a cap but you can choose no cap but if you choose no cap to what they'll pay you
um they usually have to charge a fee because they have to buy the options a little bit different
so it may be what is called a five point spread they're going to subtract five percentage points
off of whatever the s p does so uh you don't lose your millionaire principle if the market goes down
well let me tell you what happened in the year 2020. that was the first year uh serious year
of the coven 19 pandemic if you recall in march of 2020 people panicked the market dropped 30 percent
and when there's anxiety there's opportunity my two sons co-authors with me on the book i want
to give to you at the end of this episode so stay with me i want to gift you a copy of my book this
book explains a lot of what i'm talking about here now they realized that that was an opportunity the
market was down 30 in one month and so they called up their clients who had indexed universal life
uh that could link and they said link but linked to a one-year point-to-point was no cap
there's gonna be a five percent uh subtraction at the end of the day but they did that and
what happened is one year later in march of 2021 the market was up hello 66.33 percent
subtract five percentage points and the net was 61.33 percent tax free yep what did that mean
so you can't read this this is actually a photocopy of a statement and this client
had money diversified into three different strategies but the one that i'm talking about
he got 61.33 percent the beginning in 2020 he had 18 745 dollars is what it says here one year
later that account was was worth 29 000. okay what about this client this client had 872 000 in 2020
and got 61.33 percent made 535 000 tax-free ended up one year later with a million 387 000
and if that next year uh 2021 if the if the market crashed going into 2022 he wouldn't
have lost one dime of the half a million he made the year before because you lock in the gain and
you reset every year so if the market crashes you don't lose what you made in previous years
this is incredible okay so what does this mean this client i just showed you uh needed some money
and so they borrowed a million dollars out of their policy okay you can take money out
anytime now they could have withdrawn it but they borrowed it why because uh just like a client i
had in the year 2017 that borrowed a million uh to pick up a piece of property he needed that for
an earnest money for a huge apartment complex he borrowed a million at five percent they charge you
50 000. he could have borrowed it or withdrawn it and not cost anything but why did he do that
because the million dollars of cash value he left in his iul policy as collateral
that year made 25 he capped out at 25 in 2017. he made 250 grand the difference was 200 000
or 20 percent tax free on his million even though he was technically using his million
for an investment outside of his policy this is incredible so folks if you want to learn more
about this uh and not miss out you need to study this and you can watch you can listen and learn
but i want to have you claim a free copy of my most recent best-selling book it's called the
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video there's an 18-hour masterclass but check out some of the online virtual courses that we
teach on a regular basis like retired by design here is to your brighter future