IUL is a sacred tax-free cash cow. In this episode, we are going to address the
question, "Why is money that grows in an insurance policy tax-free?" You're going to
learn why in this episode. This is episode 3 out of the 21 in a series
titled Secrets To A Tax-Free Retirement. This entire series would be an
investment of about 4 hours of your time that could make you an extra
million bucks that will generate $100,000 a year of tax-free income for
as long as you live. Is that worth it? Here we go.
So, my name is Doug Andrew and I've been doing this for more than 45 years. What's
THIS? Helping people accumulate their money
tax-free then accessing their money tax-free during retirement or maybe even
before retirement. For their business or any other type of purpose. And then when
they ultimately pass away, it blossoms. It increases in value and transfers income
tax free. Now, in the previous episode, I explained that there's only one vehicle
in the Internal Revenue Code that allows you to do that. And that is a maximum
funded tax advantaged insurance contract. So many times, people say, "Well, why is it
tax-free?" Okay, let's reason together here. For a long time, people have been able to
insure themselves in the event that they maybe had an untimely death. If I'm a 30-
year-old father and I have some young children and I want to make sure that if
I died in an accident or maybe even an illness as unlikely as that may be for a
30-year-old, if I want to be responsible and accountable, I insure myself. Now, the
insurance industry will actually allow you to get about 30 times your income if
you're insuring yourself and you would create that type of an economic loss
when you are like in your 30's. And so, if I was making $100,000 a year, I could
qualify for up to 3 million dollars of life insurance. Which would then give my
Widow my orphans if I left them behind, their money to be able to have their
education their music lessons and my wife to live in dignity. And that's being
responsible and accountable. So, what I'm doing is I'm taking pressure off of the
government to take care of those that I would leave behind if I passed away. And
so the government says, "If you're going to do that to take pressure off of us
having to provide welfare or support for those you leave behind,
why would we tax you for doing that? Why would we penalize you or take a piece of
that?" And so, it's been a sacred cow in the Internal Revenue Code, life insurance
is tax-free. As the money inside the insurance policy grows, it's tax-free.
When you take money out, if you do it the right way, it's tax-free. And when you
ultimately pass away, it blossoms increases in value. Meaning, if I put in
500,000 and died the next day I left behind a million two hundred
and fifty thousand. That is totally income tax-free so that my beneficiaries
would be able to have the wherewithal to live and sustain themselves without
being a drain on society. That's why it's a sacred tax-free cash cow. So, whether
you use a life insurance for a death benefit or a living benefit. If you're
going to maximum fund it and universal life was designed for living benefits,
primarily, that means that you are using the money to be financially independent
to have tax-free income and not rely so much on Social Security or government
programs. This is a tax advantage just like people who put money into tax-
deferred IRAs and 401Ks. The difference is this stays tax-free because you're
going to leave it behind to those you care about and provide the wherewithal
so that they can be financially independent.
So, this has been around for more than a hundred years when the Internal Revenue
Code that as we know it now came about. This is provided under three sections of
the Internal Revenue Code. So, when EF Hutton, the brainchild behind
the emergence of universal life first came up with the idea, they were looking
first and foremost at section 101 A. This is what provides a tax-free death
benefit. But see, you are self insuring. You're putting in a whole bunch of money
to self-insure. If I wanted to put in $500,000 which is
just an example, I am self ensuring that if I died, I would leave behind $500,000
and it's tax-free under Section 101A because you are self-insuring. This is
provided under the Internal Revenue Code so that you are being responsible and
accountable so that you do not have to pay for insurance from an insurance
company who assumes the risk. You can do that if you want. Now, I will share in the
next episode how you have to comply with certain guidelines. But this was the
first idea. This is self insurance. Now, money inside of an insurance policy will
earn interest or dividends. It will grow and it is a tax-free as it grows. It
accumulates tax-free and that's provided under Section 72E. So, if I put in a
$100,000 or 10,000 a year or 100 bucks a month or
500,000 or a million, we have people putting in 10,000,000,
whatever you put into the max-funded insurance contract accumulates with
interest totally tax-free. Now, I have averaged
returns between 7 and 10 percent. In fact, before indexed universal life came
out, I have reached 8.2 percent as soon as indexing came out in 1997. Which I
addressed in another episode in this series.
My rate of return went up to an average of 10.07% and I'll
explain why. So, I'm earning that money tax-free. At 7.2%,
under the rule of 72, your money will double every 10 years. So, if I put in a
half a million, it doubles to a million in 10 years. In another 10 years, it
doubles to 2 million and then four million then eight million. Do you know
that we have had many many people who started out with 500,000?
And it doubled to a million to 2 million to 4 million to 8 million?
And now that 8 million thirty years later is generating at a 10%
payout. 800,000 a year of tax-free income. As long as they live. Now,
that is afforded under maximum-funded insurance contracts.
That's because 72E of the internal new code allowed that money to
accumulate tax-free. Now, another section of the code 7702
shows you how you can access your money totally income tax-free. And there are
3 different ways that you can access money that I address in another episode.
But the beauty behind a maximum funded indexed universal life insurance
contract is it passes the liquidity and safety and rate of return tests with
flying colors and it's tax-free to boot. So, when this first came out, you're going to
learn in the next few episodes that this was incredible. I saw it immediately but
the IRS came in and said "Wait a minute here. We think here maybe abusing. You're
stepping over the bounds of tax-free insurance." And Hutton said, "No, we're not.
We're in compliance." And of course the IRS is think of "Well, who pays a half a
million dollars cash in premiums for a half a million dollars of death benefit?"
"Well, our clients do because they're self-insuring and it's tax-free." So, they
came in and they convinced congress to pass some additional tax citations. But
the message in this episode is that the money inside of the insurance policy is
tax-free as long as it stays under the definition, the umbrella of sections 72E
7702 and 101A of the Internal Revenue Code because that has been grandfathered.
That's a sacred tax-free cash cow for over a century because it's an insurance
contract. It's an insurance policy. If you move it over to a different section of
the code as an investment, investments are taxable sooner or later. And also
most investments are subject to volatility. I don't want to pay tax on
that. I do not want to subject myself to market volatility so I take particular
care and making sure my money stays protected under those 3 sections of
the code. And it stays tax-free. So, in the next episode, you're going to begin
to learn how you can keep protected under those 3 sections of the code
by adhering to three tax citations that were passed back in the 1980s. But this
is an incredible tax-free cash cow. So, I always tell my audiences and in my
book number 11, The Laser Fund, you'll see this statement and disclaimer. Life
insurance policies are not investments. And accordingly should not be purchased
as an investment. I'm okay with that, why? Because I don't want an investment.
Because they define investment as being taxable sooner or later and probably
you're going to have some market volatility. I don't want that. It's tax-free
insurance under those three sections of the code. So, I would implore you to
continue to watch other episodes in this series. Watch this one next if you can.
And also, if you want to learn get a free copy of this book, claim your copy by
going to laserfund.com I'll pay for the book. It's 300 pages of
charts, graphs, explanations. 62 actual clients stories. You just pay
$5.95 shipping and handling and I'll fire out a copy of this to you so that you
can study and learn and see actual charts and graphs. How incredible this is.