What is Indexed Universal Life (IUL) and How Does It Work? - YouTube

You don't lose due to market volatility. In this episode,

we're going to address the question "What is

indexed universal life and how does it work?" Put on your seat belt.

This is episode 7 out of a series of 21

titled Secrets To A Tax-Free Retirement. Invest about 4 hours in this entire

series and you could accumulate an extra

million bucks that could generate $100,000

a year of tax-free income for as long as you

live. So, get ready.

So, I'm Doug Andrew. And i'm a big proponent of universal life.

But especially for indexed universal life, it didn't even come about until

1997. It was a no-brainer for me and I began to employ indexed universal

life over just regular fixed universal life

from that point forward. And I tweaked my rates of return that

were averaging 8.2% up until 1997 to 10.07% by using

indexing. Now, let me warn you. There's a lot of financial advisors who do

not understand what i'm about to teach you.

And they think i'm talking about indexed mutual funds.

NO. Indexing is a strategy. And so, let me explain this as simply as

i possibly can. And at the end of this episode, i'll show

you how you can read my most recent book The Laser Fund

that will explain this in detail. Let's simplify it. I've been talking in

previous episodes that we put money into the insurance

policy and we maximum fund it. We want to get the most

money we could possibly put in there that the IRS will allow

with the least amount of insurance that they will let us get away with.

And we want to put it in as fast as we can. So, let's say I

put in 100,000 a year for 5 years.

And so, I got in $500,000.

And so that would be my basis or the guideline

single premium. And that was $500,000.

And let's say that i was earning 10%

which i have been earning the last 25 years. Some years higher, some of you know

but the average has been 10.07. And so, 500,000 earning 10%

double that in 7.2 years. So, let's say it's now worth a million. So now, I have a

million dollars of cash value inside my indexed universal life

insurance policy. So, let's take a snapshot in this moment

that I have a million dollars there. With indexed universal life,

you have the ability, the flex-ability to be able to just hunker down and play

it safe anytime you want and get the general account

portfolio rate. If the insurance company on

all of their billions or even trillion dollars of assets

on their general account portfolio... Let's say they're earning

6% and they need one of those percentage points for their overhead.

And so, the net is 5. Now, from 2000 to 2012,

the general account portfolio rate was at least 5% or greater. So,

let's just use that. Because that was the worst decade since

the great depression. So, if I feel bearish about America and i think we're

going to head for a recession, I can just hunker down and take the

general account portfolio rate of 5%. On my million, I would end up with

$50,000. So, that year on my million... If i say, "Just

pay me the 5." That would be 50,000 bucks. Now,

if i take it out, for income, it's tax-free. If i leave it

there, it compounds tax-free. Now, I've got a million fifty thousand

growing the next year. But let's say, I feel

bullish about America this year. Now, I'll use an example. In 2011,

November, I felt bullish about America. Any idea why? It was an election year.

What was different about that election year? An incumbent

was running for a second term, Obama. And I have found that in history, anytime,

republican or democrat, an incumbent is running

for office for their second term they will do all kinds of things to stimulate

the economy so they'll get reelected. So, I linked.

With indexed universal life, I am linking to an

index or indices. I can diversify of my choice.

Back then, I linked to the S&P 500. So, an index is a measuring tape, okay? So, you're

measuring usually one year point to point. November

15th of 2011, I linked to the S&P 500. A year later,

November 15, 2012, right after the election,

we measure the growth in the S&P 500 during that time period. Sure enough,

it grew more than even 16 during that time period.

But when you link, this is what you're doing: You're telling the insurance

company, "I want to link to the S&P or the Dow Jones or the Russell 2000

or the Barclays. Many insurance companies have

10 or 15 indices you can choose from. I could

actually say, "Take 200,000 and link it to the Dow. 200,000 to

the Barclays. 200,000 to the Russell. 200,000

of the S&P. And leave the last 200,000

in their earning 5%." I can diversify like crazy with this thing.

But I want to keep it simple. So, with the S&P, what i'm doing is I'm telling the

insurance company, "Don't risk my million. My million dollars

must stay safe in your insurance company earning 5.

But I want you to pay me whatever the S&P does."

How can they do that? You can't believe how many people ask the question, "How can

an insurance company afford to pay you 16% in that year when they're only

earning 5?" Are you ready for the answer?

What i'm telling the insurance company is

i'm willing to relinquish the for sure 5. Don't mess around with my million.

Leave it there safe earning 5. But i'm willing to give up this

50,000 or for sure 5%. You can do whatever you want without

interest to have the wherewithal to pay me

whatever the index does that I chose. So, let's

say the S&P went up 10%. That 50,000, the

insurance company is smart. They buy upside options in the S&P 500.

They do this hourly. They're the number one purchaser of options in the world.

And so, they have 50,000 of options that if the

S&P doubles, that 50 000 grows by 100 grand.

And they can pay me $100,000 or

10% that year if that's what it did. But do you know

in 2012, it actually was in excess of 16% but they have to

cap you. I actually earned 160,000 from 2011 to 2012

on the million. 16% return, okay? And people say, "How can they afford to

pay you 16 when they're only earning 5?"

It's because with options the 50,000 of options and the price of those

allows them to be able to have 50 grow by 160 grand. They wouldn't do it if they

didn't have the wherewithal. What's the trade-off?

The S&P actually was higher than that. But they kept it at 16

because they don't have my whole million to put at risk. My principal must stay

safe in the insurance company. And so, since they only have the interest on my

million to buy options, they have to cap me. But the

benefit is 0. If i guessed wrong and there was

a terrorist attack in 2012, my million still would have been worth a

million. If 2001 type of experience happened when the

world trade centers went down. And in three years the economy went down 40%

If i had my money in a variable

universal life or in the market, my million would have only been worth

600,000. That's what happened in 2008. In 2008, I did not lose a dime of my

money in there. I did not make anything. Zero

was my hero. Because i didn't lose. I didn't make anything but i didn't lose.

In the first 90 days of 2009, I locked in gained

16% the first 90 days after not losing a penny the year before.

Do you know most Americans had to wait four years from 2008 to 2012

to make back the 400 grand they lost? Not me.

By the end of 2012 with indexing, a million that I had

in the year 2000 was worth 3 million in 12 years.

Everybody else in America, their million dropped down

40 twice and it took 12 years to get back what they had lost.

You can have far more money by using indexing because your money is not at

risk in the market. Only the interest on your money buys

options. If the market goes down, the options

expire worthless. But you simply gave up the for

sure 5. You did not lose your principle. And

I have discovered that throughout history, if I

link to an index... Because most decades you'll have 7 gain years versus

3 loss years. That decade, 2000 to 2010 and another 2 years to

2012, we had 5 loss years. Okay? That means

you would have earned zero was your hero. 5 years. You only

made money the other 5 or 7 years. I only capped out twice. But my average

return from 2000 to 2010 was 7.23%. A million doubled to 2 million. But

because I used indexing and I rebalanced which i'll talk about

in another episode, I only earned zero in 2001

and 2008. Because i moved back over and earned 5% when the economy

went to heck in a hand basket. You don't have to sit there and earn

zero for 2 and 3 years in a row. You just move back over and say, "Okay,

just give me the for sure 5 next year." And then when you're ready to link, you

link. And you can participate in the upside

without the risk of losing if the market goes

down. So, the key takeaway to this episode is that with indexed universal life, your

money is safe in the insurance company earning

the general account portfolio rate. Whether it's 4%, 5%,

6%. Back in the 1980s, I was earning 11 to 15 percent. But any

time you want to link to an index, you can do that.

And now you participate with the upside but

only the interest on your principle did you relinquish or you put at risk.

The principle stays safe. So, that if the market goes down, you

don't lose. You earn zero. You may not earn

anything. But zero can be your hero.

Now, if this little episode intrigued you and you want to learn more,

you ought to get a copy. I'll send it to you. I'll buy the book.

You pay $5.95 shipping and handling. Chapter 6 of the Laser Fund talks about

the power of indexing. Well, this is a 300-paged book. 14

chapters with charts and graphs and explanations on this side.

You flip it over and this side has 100 pages 12 chapters with all kinds of

client stories and examples. And so, simply claim your free copy by

going to laserfund.com. You pay $5.95 shipping and handling. I'll

pay for the book, you pay that. And I want you to be

empowered on how this can work in your set of circumstances.