Maximum fund an IUL for tax-free retirement income.
In this episode, I'm going to address the question, "How do
life insurance policies build cash value?" And I'm going to show you the best
ones that do that in order to have living
benefits like tax-free retirement income. Get ready. You're going to learn some
things that even insurance agents don't
understand.
I'm Doug Andrew. I've been a financial strategist and a retirement planning
specialist for more than 46 years. I actually got my
insurance licenses clear back in 1974. And I've taught over 10,000 life
insurance agents in America primarily. And many of them
paid 6,0000 to come through a 3-day training. They sat
there with their mouths open. And they had been selling insurance for 20 or 30
years. They didn't know what they didn't know.
So, when people ask the question, how do life insurance policies
build cash value? There's 2 types of insurance policies that have cash value.
They're both classified as permanent insurance. One is whole life, one is
universal life. In other episodes, I explained that whole
life was originally designed for death benefit.
"How can I have coverage or a death benefit if I die.
Whether I die next year or if i die at age 100,
I want to be covered for my whole life what is the
minimum premium that i can pay on a level basis to be covered for my whole
life?" Now, whole life insurance can be used to
access money or cash value for living benefits.
But generally the rate of return is far less, usually half of what a max funded
indexed universal life insurance contract
can actually create. Universal life was created in 1980
primarily for the purpose of living benefits.
To take the least amount of insurance that the IRS will let you get away with
so to speak and put in the most premium that the IRS
allows as fast as they allow under three tax
laws. And then it can turn into a tax-free
cash cow where your money can double every 7
to 10 years that every million you accumulate by the time you retire
can generate 80, 90, 100 thousand dollars a year of tax free income
into perpetuity, if you live to be 120. Whole life insurance can't even
come close to that. Maybe they might generate about 40,000 a
year on a million dollars of cash value. So, let's just assume that you want to
have the best rate of return for living benefits in this particular episode. And
so, and let me just be very simple as we
look at how life insurance is created and where cash
value comes from. Because the question is how do life insurance policies build
cash value? So, I'm going to super simplify this.
Let's say that this is the the actual cost of insurance. And it's
called C-O-I, okay? Cost of insurance.
And this is age. And we won't start at age zero.
We'll let's just start at age 30 and we'll go out here
and 10, 20... Okay, we'll go out here let's say this is age 65 and let's say this is
age 100. Now, common logic.
Just common sense would say. You know, if you look at the mortality table in
America back when I started in 1974, there was
approximately 2 deaths per 1,000 30 year olds,
okay? If you're a male. The insurance companies use actuarial
tables. And so, what happens is is there's only
so many the chance of a 30 year old dying is very low. And so,
that's the cost of the insurance if we had 1,000
in a in a fraternity and we knew that 2 of us were going to check out that
year. According to statistics, we don't know
who the 2 are. But we pass around a hat and everybody
contributes 2 dollars and we would have 2,000. So, that
we could award 1,000 to each of the surviving
beneficiaries. So, the cost of insurance per thousand would
be $2 if you're a 30 year old.
Now, every year that you get older you have to put more
money in the hat. $3 then $4 then
$5. See, that's the cost of insurance
because the chance of you dying the number of people out of 1,000
45 year olds or 65 year olds. In fact, based upon the mortality tables
back in the 1958 mortality, 1980 mortality tables, by the time you were 65
in America, one-third of american males were dead
that had been born, one-third were already gone.
And so, that's called the mortality table. So, that's the pure cost of insurance
which is inherent in term insurance, a whole life or
universal life. There's an actual COI. Basically, cash value was created when
whole life was introduced. And it says, "Hey, instead
of paying this and having super expensive insurance
costs as you're older, what could we pay in a level premium for
our whole life and have coverage for our whole life?"
Well, basically whole life says, "Well, if you
will pay this much during the early years and you keep paying that much in
the later years, what does that create?" Well, see
you're way way overpaying the early years for the amount
of actual costs. But you are under paying here in the later years.
So, you overpay then you underpay. That's what creates cash value. Because
this overpayment accumulates in the insurance company. And
under the internal revenue code because you're helping to take
pressure off of government to help widows and orphans or people
retiring. And so, they let you accumulate this
money inside the insurance policy tax-free. And that's the beauty of
it. But see most people up until 1980
we're trying to pay the least premium to be covered for
their whole life. Now, there's variations of this that
creates more cash value. Some people said, "Well, how much could we
pay in here just to 65 and then stop. And because of this extra amount in here,
that will keep this going because the
interest on this cash value will keep it going until most people die."
Well, then you could do let's say 20 years. You could pay for 10 years. Well,
what if you just paid one single premium? Well, if you wanted a
million dollars of life insurance maybe and you're down here in your early
years, maybe you put in 125,000 in one payment.
Now, 125,000 if it was earning 7% will double every 10 years.
The insurance companies are smart. They go, "Well, 125,000 in one payment..."
Based on when you are likely going to die based on statistics,
125,000 will double every 10 years. To 250,
to 500 to a million. And bingo. They say this is the premium. Universal life said,
"Well, why are we doing that for death benefit only?
Why don't we pay way up here? Why don't we pay a huge lump
sum and have so much cash value that this cash value is being used
for tax-free income?" And if the amount of
insurance qualifies as part of the the money, in other words, your cash value
as it grows, it qualifies as part of the death benefit is a better way to say it.
Then the cost of insurance does not go up the cost per thousand does. But the
amount that the insurance company is at risk goes down because
you're putting so much money into it that there is
no difference hardly between the cash value and the death benefit.
So, the answer to the question, "How do life insurance policies build cash value?"
It's by way, way over paying. Now, that sounds negative at first.
But let me show you why this is a huge positive.
So, when you're designing an insurance policy primarily for living benefits,
you can learn on this channel by watching other educational videos
why indexed universal life if you're doing it for living benefits,
knocks the socks off of whole life policy as far as creating
predictable income. So, let me give you just a few
brief examples of this. Let's say
that you could put money into a retirement account. Maybe not as much as
$100,000 a year. You can't put that much into an IRA or
401K. There's limits and so forth or a Roth.
That's why a maximum funded indexed universal life
which I call the Laser Fund (because it means liquid assets safely earning
returns) is my favorite vehicle. But you're
designing it with the least amount of insurance (again) that the IRS will let
you get away with and putting in the most money.
So, let's say you were going to put in 100 grand a year,
$500,000 and so you designed the policy to do that. So, that when you put in 500,000.
There is 500,000 of cash value. Now, most of the indexed universal life
policies that I've owned, I've earned between 8.2 to 10.07 percent
net. Let's just use the worst decades since the great depression,
2000 to 2010. Using index universal life, people would have averaged 7.23%.
That's without rebalancing. Other episodes teach you about
rebalancing that can take your rate of return to in excess of 10%.
But at 7.2%, rule of 72, 500,000 will double to a million in 10
years. Many people who had a million in the
year 2000 had 2 million in their index universal life policies 10 years later.
So, let's say it doubles to a million and you decide to retire. How much could that
million dollars generate in tax free income? If its whole life, it
could probably generate about 30, 40 thousand a year. If it's universal life,
it could generate 80 to 100,000 a year. So, which one would you prefer? Where can
you find anything in the internal revenue
code that a million dollars generates tax-free 80 to 100 thousand a
year? You say, "Well, my IRAs are earning I hope 10%." Yeah, show me. But
if they did, you're not netting 100,000.
You're only netting about 65,000 after taxes. So, that's why
it is probably the most dynamic instrument
for my choice to put serious cash to accumulate my money tax-free, be able
to access my money tax-free. When I die, it blossoms in value and transfers
income tax-free. But it passes the liquidity safety rate
of return test with flying colors. And that's why the cash value inside of
a max funded indexed UL is so incredibly advantageous during
retirement. So, my favorite is called The Laser Fund.
In fact, if this has intrigued you to learn more,
let me show you how you can learn by reading
this book. I will gift this book to you free.
You don't have to pay the retailer, $20.
Claim your free copy by doing this: If you simply go to laserfund.com, that's
L-A-S-E-R, laserfund.com and pay the nominal
$5.95 shipping and handling, I'll pay for the book.
You pay for the shipping. I'll fire this out to you and there's some other
alternatives if you like to listen and learn or watch and learn and so forth.
But this book is so powerful. It's 300 pages. Charts, graphs,
explanations. And this side of the book is actually 12
chapters with 62 actual client stories of how
the Laser Fund and the cash value inside of the max funded indexed UL can be used
for retirement, for for a business working capital, for
college funding that knocks the socks off of a 529 plan by
the way. Real estate management, emergency funds,
estate planning. All kinds of uses this. This is like a
financial Swiss army knife.