- Market downturns are when to look
for a possible five year strategy, a no cap strategy,
or maybe using a multiplier.
In this educational episode,
I'm going to address what should you do
with your IUL insurance policy when the market dives?
Get ready, I'm going to share insights with you
that maybe you have never had before.
(upbeat music)
So I'm Doug Andrew.
I've been a financial strategist
and retirement planning specialist now
for north of 48 years.
And if you've watched very many of my educational episodes
on this 3 Dimensional Wealth channel,
you'll probably understand
that one of my favorite financial vehicles
as a retirement planning specialist is a Max-funded indexed
universal life insurance contract
structured correctly and funded properly.
When you do that, it can perform far superior
to most IRA or 401ks invested in the market.
You will learn that this is where I've earned
average returns over 20 year periods of 9.62%,
some years 11.17, even 25 and 61%
and even 158% returns using multipliers.
Now those opportunities are few and far between,
but the reason why a property structured indexed
universal life insurance policy can perform so well
is that it allows you to accumulate your money
totally tax free.
You can access that money tax free and turn on income
that you receive that does not show up
on the front page of your 1040 tax return.
And at the end of the day, when you die,
anything left in there blossoms
and transfers income tax free,
nothing else does that in the Internal Revenue Code.
So I'm assuming in this episode
that you sort of understand what IUL is,
but a lot of times people who set them up
or take them out with an advisor,
they don't understand some of the options
that may be offered by the insurance carrier.
And when there are triggering events in the economy,
that may signal when to switch your strategy.
So basically a lot of people understand,
hey, if we have a recession or the economy is down,
like happened from 2001
after the 9/11 terrorist attacks,
we realized the economy went down for three years in a row.
And so many of our clients just said, you know what?
During this downturn in the market
that's gonna last a few years,
while we're waiting for people to get confidence
in the economy again and what have you
and start to travel and eat out at restaurants
after that horrible terrorist attack,
people just hunkered down
and settled for the general account portfolio
on their IUL policies back then netting them maybe 5%
or earning five and netting four
after the cost of insurance
because that was better than earning zero.
You don't lose when the market goes down,
that's the benefit of indexed universal life,
but you may not make anything because zero is the bottom.
And so sometimes you just settle
for the general account portfolio rate.
But there's other times when anxiety spells opportunity.
And so I'm gonna share with you
three different strategies that you may want to consider
when we have a market downturn
or a dive in the market.
Now as of the recording of this episode,
we are in midyear of the year 2022.
I'm going to use some examples of when we've had downturns
in the past, but as I'm recording this video,
the market has been very volatile.
And so this is when you wanna watch for opportunities.
So let's say that you have an IUL policy
and you have an anniversary date coming up
or maybe you're just hanging out
at the general account portfolio rate.
Maybe you have money there
that's being dollar cost averaged every month into it
which is a wise strategy when you're putting in a lump sum.
And so let's say the market takes a dive.
Now I'm talking about more than a 3 or 4% dive,
unless that's in one single day and that's signaling uh-oh,
we're headed for panic or selloffs or what have you.
So if the market continues to go down
and I would say, and when it starts diving 10, 15, 20%,
what usually happens?
The general public is really, really nervous.
And unfortunately, a lot of people when they see the market
dive 25 and 30% or more,
that's when they panic and say enough already.
And that's when they sell and they get out of the market
and they're selling low.
And then they wait, wait, wait,
until the market goes back up and they buy high.
Whereas institutional investors do the opposite.
Well, you don't wanna get emotions involved
in those decisions, buying and selling,
trying to time the market.
What you do when you own an IUL is you can sleep at night.
You don't have to worry.
And even if you just settled and waited,
you're not gonna lose if the market drops 20, 30%,
because zero will be your hero, right?
But hello, that spells opportunity.
So generally when the stock market,
or let's say an index like the S&P 500, the Dow Jones,
the Russell 2000, whatever,
let's say the market drops 15, 20, 25%.
You may want to look at seriously considering
doing a a strategy starting from that month.
Many companies may link on the 15th of the month
or whatever, but watching that many of our savvy advisors
will tell their clients to link to a one year point to point
with no cap, or a five year strategy or allocate 40 or 50%
of their cash value in their IUL policy
to a two year or a five year strategy,
or maybe even employ a multiplier.
So let me cover those three different options
that many of our savvy advisors use with their clients
where they have helped them capture 25%, 61%,
even 158% gains when the opportunity happened
in March of 2020, for example.
So in March of the year 2020,
the COVID 19 pandemic had just started.
And there was a panic
and the market dropped anywhere from 20, 25, 30%.
And so my two sons who are advisors
got hold of many of their clients
who had an anniversary date coming up
or whatever they were doing.
And they said, hey, switch and link your return.
Maybe some or all.
Now some of them chose to just allocate half of the money
in their IUL policies to these strategies.
Some did a hundred percent.
And so they said go to a one year point to point
with the insurance company with no cap.
And so if you do that,
that's normally not a strategy you would choose
in a normal market because they're usually gonna subtract
like five percentage points
or seven or eight percentage points.
That's called a threshold.
So if the market were to grow, you know,
12% and they subtracted five, you would only net seven.
So it's normally not used in just normal markets.
But in March of 2020, when they told their clients,
hey, linked to a one year point to point with no cap
and golly the chance of the market being higher
a year from today 'cause it's dropped 30% is really good,
it's worth having a 5% charge to do that.
Well, sure enough.
One year later in March of 2021,
the market, the S&P was up 66.66%
minus five percentage points.
The net that was credited was 61.33%.
Okay.
And so there are many clients,
one had about $850,000 in his IUL policy.
He didn't add a dime to that policy.
One year later, he got credited 61.33%.
And that was 535,000 or so.
And so his account value is worth a million three hundred
eighty two thousand or thereabout one year later.
Now that is one strategy.
When the market goes down that you may want to consider,
that's called a one year point to point with no cap
but they're gonna subtract a threshold.
Okay.
Another strategy when the market is down
is to say, hey, the chance that the market five years
from today will be up dramatically is really great.
And if you don't really need to access the money,
even though it is liquid for at least five years,
if it's for retirement or whatever,
many times savvy advisors will tell their client,
you know what, you might wanna link 40% of your IUL policy,
maybe 50% to a five year.
Sometimes my son will tell his clients take 40%
and link it to a five year and another 40% to a two year.
And then the last 20% to a one year,
maybe a one year point to point with no cap
if the market is down.
Well with the five year,
you wait five years to measure the increase
in the S&P from five years earlier.
And the chance is gonna be higher is really good.
And there is no cap.
So that's a really popular strategy
if you are looking at this for a longer term,
like five years or longer.
A two year usually has a cap like 19%.
And so you are capped at 19,
but you wait until two years to see what's gonna happen.
You may wanna trigger that during a downturn.
But sometimes a multiplier makes sense
if the issuing company offers a performance factor
or a multiplier, basically how they work
and there's other episodes on this channel
that explain these,
that's where you're willing to allocate
more of your cash value to fund an options budget
for the insurance company.
You may understand that let's say you have a million dollars
of cash value in your IUL policy.
And the general account portfolio rate is 4%.
Well, 4% on a million would be 40,000.
So normally you're saying to the insurance company
you can use that 4% general account portfolio interest
on my million to buy upside options
if I choose the S&P or whatever.
And then if the market crashes,
those options expire worthless,
but you still have your million.
But they are able to give you a higher return,
8, 10, 12%, maybe up to a cap.
Well, when you use a multiplier,
then you're allocating more of that million.
You're saying, well, you know what,
I don't wanna lose 40% if the market crashes 40%, like 2008.
But I'm willing to give up seven and a half percent.
I'm willing for my million to drop down, you know,
$75,000 to 925,000.
And you can use an extra 75,000 on top of the 40,000
in this example for an options budget.
Well what will they do when the market goes up,
they'll pay you 2.7 times whatever the market did.
And this is why people who used the one year point to point
with no cap, they had 61.33% times 2.7.
And we had clients that got credited 158%
because when the market crashed in March of 2020,
they employed the one year point to point with no cap
and the multiplier on top of it.
And they got credited 158%.
It was unbelievable.
Now those opportunities are few and far between.
Sometimes you allocate maybe 5%.
So out of a million,
you allow them to use 50,000 that if the market crashed,
you would go down to 950,000.
But they will pay you about double, whatever the S&P does
if the market goes up.
Those are called multipliers.
Now if this is intriguing you and you want to learn more,
one of the messages here is you need an advisor
who understands when these triggering events happen
so that you can then during your reviews
decide when you may seize an opportunity
for a one year point to point with no cap
or maybe a five year strategy or a two year strategy
or a multiplier.
So this is one of the reasons why we have a coalition
called IUL Insiders.
But if you are intrigued with this,
you can learn more about it
in our most recent bestselling book called "The LASER Fund".
These are flying off of our warehouse shelves,
and this is the 300 page book I want to gift you.
You don't have to pay $20 for it on Amazon.
I will gift you a copy,
but you have to have a little bit of skin in the game.
If you go to laserfund.com
or click on the link below,
you contribute a nominal amount
towards the shipping and handling
and I'll cover the rest of that.
And I'll pay for the book and fire out a copy to you.
There's options there to listen
and learn and watch and learn if you would rather,
and check out some of the educational online webinars
and you can even chat with an IUL specialist
that will help you understand how this may apply
in your particular set of circumstances.
So this is about you and your brighter future.
I want you to get the most out of your IUL policy
so that you will not be left in the dust
and you can achieve its greatest potential
based upon what's going on in the economy.