- What are the disadvantages of an IUL,
Indexed Universal Life?
In this educational episode
I'm going to be telling you bluntly,
don't take out an IUL,
Indexed Universal Life Insurance Policy
if you're concerned about any of these 10 things.
(vibrant music)
So I'm Doug Andrew.
I've been a financial strategist
and retirement planning specialist now
for nearly five decades, helping people optimize assets
minimize taxes, prepare for a comfortable retirement
so they will not outlive their money.
(bell chimes)
And if you've watched very many
of my episodes on this channel,
one of my favorite financial instruments is
a maximum funded indexed universal life insurance contract
if it's structured correctly and funded properly.
If it is, it'll knock the socks off of traditional IREs
or 401ks or whatever, but it's not for everybody.
So in this episode
I am going to disclose 10 major disadvantages
or if these are concerns of yours
I would not take out an IUL policy.
Are you ready?
Okay.
Number one, don't take out an IUL
if you enjoy paying more income tax for as long as you live.
Yeah.
Now there are red-blooded Americans that want to
pay their fair share of tax.
I'm one of those
but I don't want to pay more than my fair share.
But if you would like to pay tax as more
and more the rest of your life as government spends
and continues to print money and you just love paying more
and more in taxes the rest of your life,
well I wouldn't take out an IUL policy
because they accumulate your money tax free
under section 72E of the Internal Revenue Code
and they allow you to access your money tax free
so that every million dollars of cash value
can generate 80 to a hundred thousand a year
of tax free income without depleting the principle.
And at the end of the day, when you die
it transfers income tax free.
So if you enjoy paying tax,
I wouldn't take out an IUL policy
'cause that'll sort of ruin all of that.
Okay?
What's the next disadvantage?
Well, don't take out an IUL
if you would rather not benefit when the market goes up.
Okay?
Now, some people
they're just adverse to the market.
I understand that.
So am I, I don't want my money in the market.
Back in 1974 when I started
I had a series one securities license
and I ended up by 1980 with 3000 clients in mutual funds.
But they were never happier
than when I got 'em outta the market into universal life
because universal life, especially indexed universal life,
allows you to participate when the market goes up.
You get to benefit when the market goes up.
Some years I've been credited 12%, 15%, 25%, 61%
158% on IUL.
But when the market goes down, I don't lose,
I may not make much of anything,
but if you don't like to benefit when the market goes up,
you think, "Golly, there's something immoral about that."
Do not take out an IUL policy because you know
you don't want to benefit when the market goes up.
Right?
Okay, you're ready for the third disadvantage.
Don't take out an IUL if you love the excitement
and the stress of market volatility (chuckles).
Some people just like that,
they just love to watch their money go up and down
like a yo-yo and see that fund go up
and have 20% gain years and then, oh, it goes down 40%
like in 2001 to 2003 or 2008 and they watched
that million dollars go down to 600,000,
but oh, oh they can't wait to watch it come back
in four years back up to breakeven.
And they saw that happen twice
in the decade from 2000 to 2010.
Wow. Is that exciting?
To have a million dollar nest egg go down to $600,000 twice
and barely come back to break even at the end of 12 years.
If you like that excitement and you enjoy that stress,
that high blood pressure, don't take out an IUL
because Indexed Universal Life,
you will not lose when the market goes down.
Okay?
You benefit when the market goes up
but you're not going to experience the heartburn
of market volatility.
So if you like market volatility,
don't take out an IUL.
What's the next big disadvantage of IUL?
Well, don't take out an IUL
if you would feel guilty about outpacing inflation.
Yeah.
If you're one that you would feel guilty
of having your money grow
at a rate equal to or greater than the inflation rate,
then I wouldn't take out an IUL policy
because IUL is designed and structured to do precisely that,
it's designed to outpace inflation
so that you do not lose purchasing power.
Let me give you some examples.
Back in the 1980s when Universal Life was first introduced,
it was the Carter years when inflation hit double digits
at 10% I was getting credited on my Universal Life
15 and a half, I earned five and a half percent greater
than the inflation rate.
Well, how about in the last few years?
In March of 2020 to March of 2021, what happened, Covid 19.
Because the market dropped down 30% in March of 2020,
many savvy IUL agents told their clients to link
to a one year point to point with no cap.
And what that meant was they're gonna subtract 5%
off of your rate of return, but there is no cap.
Meaning a year later in March of 2021,
the S&P was up 66.33% from the March of the previous year.
You subtract five percentage points and the net
crediting rate that many clients received was 61.33%.
We had a client that had 852,000 in March of 2020,
in March of 2021 that had grown to 1,382,000.
He made over 535 grand tax free.
Did that outpace inflation?
Inflation, the true rate of inflation,
not the rate that the consumer price index said it was
at eight or 9%.
The true rate of inflation was well over 15%
meaning the cost of living's gonna double
in 4.8 years.
When the true rate of inflation was over 15
our clients were locking in gains of 25%,
61% and using multipliers, performance factors,
some even locked in gains of 158%.
If you would feel guilty about outpacing inflation,
don't take out an IUL policy
because you're gonna likely way outpace the inflation rate.
Okay (chuckles).
Now you see here, this is tongue in cheek.
Well, what's the next disadvantage?
Don't take out an IUL
if you would prefer 4% payouts over eight to 10% payouts.
In other words, half the income when you retire.
What am I talking about?
The financial services industry,
they have what is called the 4% rule.
Why?
Because Dalbar, who studies investor behavior says
that retirees who have money in the market
are only actually really earning 3.49% on their money.
Because when the market is volatile during your golden years
and you're relying on predictable income,
when the market starts to go down 20 ,25, 30%,
people can't handle that stress on their nest eggs.
And they sell low
and then they wait, wait, wait, wait, wait.
And then they finally buy high.
And so Dalbar says the average retiree with money
in the market is only earning three and a half percent.
Now if you bought and held
and you didn't get emotionally involved in that,
you would only average nine, Dalbar says,
you would net six after tax, five after tax and fees.
But see, most people aren't experiencing that.
They're experiencing three and a half.
And so the financial services industry does not
want to be sued if you outlive your money.
So they tell their advisors
don't you dare illustrate more than a 4% payout
without people signing a waiver that they won't sue us
for outliving their money.
Okay?
That means if you had a million dollar nest egg,
they only want you to pull out 40,000 a year.
That's pathetic, that's unacceptable to me.
But if you like 4% payouts,
don't take out an IUL because you pull out 40,000
and you pay tax in a 25% bracket outta the market,
you're only netting 3% on that after tax.
IUL is tax free.
A million dollar nest egg can generate 80,000 a year.
And most of our clients, by pulling it up the right way,
they can get 10% payouts, a million dollars.
Every million dollars of cash value
in an IUL policy structured correctly
can generate a hundred thousand dollars a year
of tax-free income without depleting principle.
Okay?
Now that's more than double the income,
even triple the net income after tax
out of the market in IRAs and 401ks.
So if you prefer 4% payouts and you're super conservative,
rather than double that or more
then don't take out an IUL, okay?
And if you like paying tax on your distributions,
again don't use an IUL.
Okay? Here's the next big disadvantage.
Don't take out an IUL if you feel sorry
for those who lose money during market crashes.
Oh, I feel so bad for those people in 2001, 2002,
2003, 2008.
I feel so bad for them.
I'd like to join them
and commiserate with them on how bad things are.
So if you would feel sorry
and want to join them in that commiseration,
then don't take out an IUL
because people who owned Indexed Universal Life
in 2001 to 2003, they didn't lose a dime.
In 2008 they were cheering, go go,
'cause they didn't lose a dime.
The first 90 days of 2009
many of them locked in gains
of 16% tax free after not losing a penny.
So if you don't wanna lose when the market goes down,
(bell chimes)
then you ought to check into an IUL.
But if you sort of want to join those and you feel sorry
for those who lose and you want to commiserate
and and go, "Ooh wow, delight, we lost 40%
twice this decade."
We call it the lost decade.
If you wanna sort of wallow in that,
don't take out an IUL, okay?
Now don't take out an IUL if you would like to
feel the experience of outliving your money,
not only outliving your money but then being forced
to rely on Social Security, Charity, Welfare
or your children for support.
Okay?
If you sort of go,
"I'd really like to experience that
the feeling of running outta money before I run out.
And I'd like to see what it feels like
to live off of social security or welfare
or my children for support
and sort of have that experience."
Now, if you wanna have that experience
and you don't wanna be left out,
then don't take out an IUL
because an Indexed Universal Life is designed
for you to not outlive your money
so that a million dollars can generate
80 to a hundred thousand a year
of tax-free income if you live to be 120.
And what are the three big dangers that causes
most people to outlive their money?
Taxes, inflation and market volatility.
Indexed Universal Life is tax free.
So you don't have that danger.
You are linking your returns to the things that inflate.
So inflation helps you
instead of hinders you and you're immune
from market volatility 'cause you're using index
and you do not lose when the market goes down.
You benefit when the market goes up.
And what are the three big benefits
or strengths of Indexed Universal Life, liquidity, safety
and predictable rates of return.
The tax-free accumulation is icing on the cake.
So again, if you want to experience what it's like running
out of money, don't take out an IUL.
What's the next big disadvantage?
Don't take out an IUL if you prefer
that the government monitor your retirement accounts
for your entire lifetime.
Like IRAs, 401ks or the like, in other words
they tell you when and how much you can pull
out of those accounts for the rest of your life.
See, I'm talking about IRAs and 401ks.
You can't touch it before age 59
and a half without a 10% penalty.
If you don't take out what you're supposed to,
RMDs by age 72, what's the penalty?
50% penalty on top of the tax.
If you want the government to look out
for your best interest by telling you when
and how much you can pull out
or else they're gonna penalize you big time,
don't take out an IUL 'cause IUL is none of their business.
Your money is tax free.
It's been grandfathered tax free
in the internal revenue code for over 108 years.
So if you don't like the government meddling
into your money and your retirement accounts,
take out an IUL.
But if you really like the government
and having them monitor things for you,
don't take out an IUL because they do the opposite.
Okay?
Well, don't take out an IUL
if you think that recessions are a phenomenon of the past.
So if you think, "Oh, we're through having recessions,
we're not gonna have any more of those.
The market's just gonna keep going up infinitely now."
So if you think that recessions are not gonna happen,
the government's gonna be super responsible
and not have deficit spending,
they're not gonna be printing a bunch of money
to cover spending twice as much as they bring in or more
which causes indirectly a market volatility and recessions.
If you think that those are phenomenon of the past
I would not take out an IUL
because IUL policies are designed
to make you recession proof
so that when we have recessions,
which we normally have every seven to 10 years
at least in this country, ever since the great depression,
that Indexed Universal Life was created
so that when we have recessions, you can sleep at night,
you can continue to take out that predictable income.
You're not affected by the downturns, by the recessions,
you can still click along
and your million dollar nest egg can generate 80
to a hundred thousand dollars a year of tax free income.
If you don't understand this, you ought to check this out.
But you know what,
if you think all recessions aren't gonna affect me the rest
of my life, then don't take out an IUL.
So here's the 10th disadvantage
of owning an Indexed Universal Life Insurance Policy.
Don't take out an IUL
if you'd like to leave behind less money resources
to your spouse or your heirs when you finally check out,
when you die.
Okay?
So if for some reason you don't wanna leave behind very much
to your spouse or your kids and you want them
to just be on their own and so you want to
leave behind whatever's in your IRAs oR 401Ks
and then they have to pay tax on that or what have you,
then I wouldn't take out an IUL
because IULs are designed to maximize what you leave behind.
So IULs are designed to maximize your income for as long
as you live, but also maximize what you leave behind.
They blossom, increase in value
and transfer tax free when you die.
What do I mean?
I'm 70, okay?
If I die tomorrow in an accident
every million dollars I would have in my IUL policies
would immediately blossom to about $2 million in
totally tax free income,
tax free to my wife, my kids,
my grandkids, a church, a charity, whoever I want.
And people say, "Well how much does that cost?"
Well, nothing's free, but it didn't cost me anything.
It's being paid for with a minuscule portion
of money that would otherwise go out the window.
An unnecessary tax.
And so yeah, if you like paying tax
if you don't wanna leave behind very much to your spouse
or your kids, then don't take out an IUL
because you'll end up instead of leaving
behind this much in your IRAs or 401ks,
doggone it,
if you left behind that much in an IUL when you die
you'll leave behind about double that.
Why, if you don't wanna do that,
you wanna leave behind just this instead of this,
don't take out an IUL.
(bell pings)
Okay?
Can you tell that I'm saying all of these things
sort of tongue in cheek?
Yeah.
These are 10 major advantages
of a properly structured maximum funded index
universal life insurance contract.
And so if the opposite is true,
if you don't want any of these advantages
then they would be disadvantages if you owned an IUL.
But if you want the advantages
and you don't want those disadvantages, okay?
In other words
of other places where most people put their money,
you ought to check out an IUL.
That's the message here.
So here's what I'd recommend you do, study this book.
This is my 11th book
and it's been flying off of our warehouse shelves.
We're in the eighth edition
and we send out hundreds of these a week.
I don't want you to miss out.
You can go to Amazon and get this 300 page book
for 20 bucks and if you do, thank you.
But I'll tell you what, I'll gift you one free.
And so it's 300 pages, which is actually two books in one.
This side is about 200 pages
14 chapters with all the charts and graphs
of how a properly structured IUL policy is deemed
what I call a laser fund,
liquid asset safely earning returns.
Okay?
And that's for the left brain learner.
If you're a right brain learner, you learn more
by stories and examples, you flip it over to this side.
This has 62 actual clients stories.
So you can use your left brain or your right brain.
If you want to use your whole brain, read both books.
But you simply go to LaserFund.com
or click on the link below, you contribute a nominal amount
towards the shipping and handling.
I'll cover the rest of that cost and I'll pay for the book.
I'll fire out a free copy to you.
While you're in there
claiming your free copy of this book,
if you like to listen and learn or watch and learn
check out the audio and video education.
There's educational webinars we teach on a a weekly basis.
They're free, no charge.
You can even schedule an appointment
with an IUL specialist that can show you how
a properly structured IUL can work
in your particular set of circumstances.
And they'll do that at no cost or obligation to you.
Is that fair enough?
(upbeat music)