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What's The Difference Between An Indexed Annuity And Universal Life? - YouTube
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IUL is totally tax-free. In this episode,
we are going to address the question,
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"What's the difference between an indexed
annuity and an indexed universal life
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insurance policy?" You're going to be
blown away.
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So, my name is Doug Andrew.
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I've helped people optimize their
financial assets, minimize taxes and
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empower their true wealth for more than
45 years. Helping people prepare for
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retirement.
I would off time show them different
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savings vehicles and how they would rank
based upon the key elements of a prudent
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investment. Number one, liquidity. The
ability to access your money when you
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need it. May be with an electronic funds
transfer or phone call. 2, would be
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safety. Not only the safety of the
institution but the safety of the
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principle that when you set aside money,
principle is protected. You don't want to
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lose what you invested. And number 2,
every year you make money, you want that
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to become newly protected principal. You
don't want to lose in future years the
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money you made in past years. Does that
make sense?
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Number 3 would be predictable rates
of return. They don't have to be
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pie-in-the-sky rates of return. I have
averaged 7 to 10 percent on my IUL
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insurance policies for years. And there
are critics out there that say, "Oh, I've
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never seen one that does that." Well, then
you haven't seen one structured
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correctly. That is the worst reasoning
I've ever heard. It's like you ever seen
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your brain? Well, no. Well how do you know
that exists? Come on. And then the last
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feature would be tax advantages. Now, out
of four different financial vehicles
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that most people draw from for
retirement, my favorite by far is the
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tax-free bucket is what I call it. And
among the tax-free buckets, you have
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municipal bonds, you have Roths that are
tax-free when you take out the money. But
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what I call the Laser Fund which is a
max funded IUL, indexed universal life
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insurance policy, it knocks the socks off
of Roths.
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The laser fund has six benefits compared
to Roths that have only 2 benefits.
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Municipal bonds are usually low yielding.
And some municipalities aren't as safe
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as you may think they are. They've
actually gone bankrupt many many times
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throughout the country. And so, when we
start looking at different financial
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instruments, sometimes people are told to
put money in an annuity. Now, an annuity
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is simply a savings account with an
insurance company. Why are they
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recommended? Why do some state, government
pensions guarantee income for life by
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using an annuity? It's because of the
safety of the multi trillion dollar
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insurance industry in this country that
is whether the Great Depression with
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flying colors. We've also had many
periods like 2008 where not one legal
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reserve insurance company went under
during those critical time periods when
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some times banks were failing left and
right or never opened their doors again.
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So, I like the insurance company, the
annuities or savings accounts. Life
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insurance people think, "Well, that's just
a death benefit. Why do i want the
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expense of life insurance when I don't
really care about the death benefit?" So,
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they assume the annuity will perform
better because it's cheaper. It doesn't
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have the cost of insurance. Wrong. Let me
tell you why. So, as I shoot straight with
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you, an annuity is the same as account
with an insurance company. I've never
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owned an annuity. I don't think I will
ever own an annuity. There are thousands
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of them out there. And the vast majority
I wouldn't touch with the 10-foot Pole.
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If I were going to put money into an
annuity, it would be for predictable
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income so that if I ran out of money at
age 85 in the annuity, the annuity would
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keep paying me income and keep up with
the cost of living increase if I live to
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be 120. And there's only a handful of
annuities that do that. And those
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annuities have the average more like 9
10 and 11 percent. But the biggest reason
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why I would not own an annuity is
because it's only tax-deferred. If it's a
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non-qualified annuity, one that's not an
IRA or 401K, you're funding that annuity
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with after-tax dollars. And it's
accumulating tax deferred. But as soon as
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you start taking income, now you're
paying tax. And it's taxed LIFO. L-I-F-O.
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Last in first out. I'll explain that. But
if it's a qualified annuity, it's like an
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IRA or 401K. And when you start taking
the money out, you will pay tax on 100%
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of it. Let's go back to the non-qualified
deferred annuity. If I put in
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$500,000 (let's say) into
an annuity. And let's say I was earning
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10%. And unfortunately most don't pay
that. But let's say you were earning 10%.
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10% of 500,000 would be 50 grand a year.
If I start taking income out of that
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annuity at 50,000 a year, that's taxable.
Because the last money I'm earning is my
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interest and that's the first money
coming out. That's called LIFO tax
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treatment. Unfortunately, most investments
are taxed LIFO. There's only one vehicle
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that I'm aware of in the Internal
Revenue Code that is taxed FIFO. That
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is life insurance. In other words, the
first money in is the first money out.
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Using that same example. If I put in $500,000 into a max-
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funded IUL. And you can't do it all at
once now if you want to have tax-free
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income. But let's just simplify this. Once
I get my 500,000 in there,
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if I was earning 10%, 50 grand and I
started taking that 50,000 out, the
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first money in is the first money out. So,
the 50,000 is part of my basis,
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my original 500,000. I already paid
tax on that. So, it's tax-free. I could
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take 10 years of income of 50 grand a
year and not pay any tax because I'm
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recovering my basis first instead of
last with the annuity. But see, insurance
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contracts allow you to continue to take
out money tax-free forever.
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You want to know why? So, with indexed
universal life insurance, what you're
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allowed to do under Tefra, Defra and
Tamra tax citations and subscribers to
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this channel
often have questions about those tax
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citations and the sections of the
Internal Revenue Code as it relates to
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indexed universal life. And so you can
search through my channel and get
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answers to those questions. The point I'm
making is right now is that you're
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allowed to put in more money into the
IUL and cut the cost or expenses down.
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People say, "What? I thought you had to pay
for the cost of the insurance and the
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annuity doesn't do that?" Yeah, there's a
handful of annuities that will increase
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in value a little bit if you happen to
die. But see most annuities don't blossom
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with life insurance proceeds when you
die. And so people assume that's a cost.
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Well, when you're using indexing, most
annuities have to keep the caps very low.
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And so, usually they might cap it at
maybe 8 or 9 percent, maybe. But
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we're the same insurance company and
there's some huge companies that offer
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both indexed annuities and indexed
universal life. You will notice that caps,
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the most you can earn on the indexed
annuity in a given year might be 7% or
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8% or 9% whereas indexed universal life
with the same company that caps our 11,
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12, 16. How come? Because they are able to
structure the life insurance in a more
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optimal fashion than they can with an
annuity which is simply a savings
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account. And so, you're able to take the
money, the cash value that is totally
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tax-free in the insurance policy. Not
just tax-deferred. And you're able to
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accumulate that money so that when at
the end of the day, if you've been
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averaging 10%, 10% on a million dollars
in an IUL would generate about
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100,000 a year of tax-free cash
flow. You will be very hard-pressed to
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find an annuity that even comes close to
that kind of predictable income. We have
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run illustrations all day long for years
showing the difference between indexed
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annuities that are taxed LIFO and
totally tax-free indexed universal life.
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They're more flexible. The caps are
higher. The costs are actually less even
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though
there's an insurance component because
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the insurance component gets cheaper as
you get older. If it's structured
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correctly and subscribers through this
channel find out the answer to that
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question on some of other YouTubes.
But when you understand this, you'll
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realize, "Why would I ever owned an
annuity when I can have the few benefits
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of an annuity, indexing with higher caps
and it's totally tax-free instead of tax
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deferred? And at the end of the day if I
die and there's a million the million,
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blossoms to 2.5 million." See
if I died right now, every million in my
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IUL would blossom to about 2.5 million tax-free. People say,
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"Well, that has a cost." Well it's not free.
But I'm not paying for it. It's being
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paid for with a minuscule portion of tax
that you would pay on an annuity when
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you took out your money. So, why don't you
redirect some of that otherwise payable
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tax and have a death benefit? It's not
really costing me at the end of the day.
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It is required. And that's what qualifies
it to be totally tax free. So, the message
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is in the key takeaways, what's the
difference between an indexed annuity
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and an indexed IUL? The best way is to
have somebody who really understands
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that 2. And take the same insurance
company that offers both. And put in the
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amount of money you want illustrated in
an indexed annuity. And look at the
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income stream and the indexed options
that are available to you. Then look at
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the index options and the caps that are
afforded in the IUL with the same
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insurance company and create the maximum
income that you can till age 120. And you
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will see you will have higher income. Now,
if you want absolute guaranteed income,
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even if you run out of money, maybe an
indexed annuity and only a handful would
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be recommended for that situation if you
want guaranteed income. That's fine for
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some people. But most people are like me.
They want to have the highest payout
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instead of having 70,000 a year, they
want 90 or 100 thousand a year of
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income. And they know based upon historic
averages that that will last if they're
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120. But if all heck broke loose, maybe an
annuity would give you peace of mind for
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a base. But the difference is the
flexibility, the indexing options and
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it's totally tax free. I mean the IUL.
Whereas annuities are taxable and their
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tax LIFO.
If you want to understand the difference
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and see a comparison, you will learn a
lot from reading this book The Laser
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Fund. I'll gift one of these to you for
free. It's 300 pages. And it has also 62
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actual clients stories because it's
actually 2 books in 1. This is for
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the left brain. You know, the charts
graphs and explanations. This is for the
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right brain. You read it this way. And in
this, we talk about liquidity, safety,
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rates of return and the tax advantages.
You'll see that most annuities on a
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scale of one to ten in these 4 scores.
Four usually only around 18 to 22. And
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IUL will score 34, 35 ,36.
It totally dwarfs and indexed annuity.
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