Why Borrow My Own Money In An IUL Instead Of Withdrawing It? - YouTube

Do what millionaires and billionaires do. In this episode, we are going to dive

deep and answer the question "Why borrow my own money in an indexed universal

life instead of withdrawing it?" This is episode number 12 out of 21 in a series

titled Secrets To a Tax-Free Retirement. I would advise you to watch the entire

series invest 4 or 5 hours educating yourself. Would that be worth

an extra million bucks that would generate a hundred thousand a year of

tax-free income for as long as you live? I think you would agree. Stay with me and

you're going to be blown away with how money works.

So, my name is Doug Andrew and I've been teaching people about how money really

works for more than 45 years. And so, if you watched the previous episode about

how to access your money tax-free out of an indexed universal life insurance

policy, you learned that there were 3 ways, the sad way, the dumb way and the

smart way. Now, I wouldn't recommend the sad way. That's by dying even though it's

one heck of a return. And the dumb way would be to trigger unnecessary tax

because life insurance allows you to access your basis under FIFO tax

treatment. The first money in is the first money out. So, you can recover all

your basis first tax-free before you would have to start paying tax.

That's dumb. The IRS actually says, "No, no, no. You can withdraw the money tax-free

just change the nomenclature to a loan" as I explained in the previous episode. So, a

lot of times people ask the question, "Why? Why would I borrow my own money when I

could just withdraw it and there wouldn't be any fees?" Because when you

borrow your money they have to charge you a fee. Folks, here's how it works: In

the simplest form in the previous episode, I talked about, well, if you got a

million dollars in your insurance policy and if it's earning 10% to keep this

simple. Because I have earned an average of over 10% for the last 25 years.

That means I could pull out my $100,000 of annual interest

without depleting my million-dollar principle, right? Well, if I withdraw it

after I've recovered whatever I invested into that, I'm going to

have to pay taxes on that 100,000 every year. It will be tax-free

if I simply borrow from the insurance company the equivalent of my interest. So,

if my interest is a hundred grand, I borrow $100,000, why? Because

loan proceeds are not deemed earned passive or portfolio income ever since

1986 tax reform. Those are the only 3 types of income people in America pay

income tax on. So, I have 100,000 of cash flow. I borrowed it.

The insurance company in order to have it qualify as a true loan has to charge

a nominal interest rate. So, if you just want to do a zero wash loan, they might

charge you 2%, it's stated in the contract. So, on a million bucks, they

charge a 20,000 but they credit you 20,000. The loan interest

and the loan balance is not doing payable in your lifetime. So, your cash

value that is collateralizing the loan amount is earning the same rate they're

charging you. It's called a zero-wash loan. But all of the rest of your million

bucks is still earning the indexed rate --10%

So, only the portion that is growing that collateralize the loan,

you're charged to, you're credit into. It's called a zero-wash loan. But here is a

smarter way to do it. This is what millionaires and billionaires do. They

understand how money works. Now, there's basically 4 things you can do with

money. You can spend it, lend it on with it or give it away. When you put your

money into a bank or credit union or an insurance company, it's an a lended

position. They're not just a benevolent institution paying you interest. What are

they doing with your money? Banks for quite a while have been paying a

pathetic 1%. So, every million that they borrow from us O-P-M, other people's money,

they might pay 1% interest a year. That would be $10,000. They pay

$10,000 to use our money. And what do they do with our money? If

you've watched other episodes in 2008, they disclosed that they put 30 to 40

percent of their tier 1 assets. What are those? Those are assets they have to have

on-hand liquid and safe in case of a major catastrophe a run on the bank, if

if people wanted all their money all at once. Guess where they have it. In BOLI.

Bank owned life insurance contracts. Corporations do it in COLI, why? Because

they can settle for the general account portfolio. From 2000 of 2015-2020, the

average general account portfolio rate of an insurance company was 5%. Let me

ask you, how much more is 5 than 1? Don't say 4. It's 500%. It's 5 times.

Would you hire an employee for 10 grand that made you an extra 50 grand?

Would you buy a widget machine for 10,000 thousand they made you an extra 50,000?

That's called a 500% return unemployment cost or

equipment cost. In a business owner, millionaires and billionaires understand

this concept. It's what makes the world go round. So, when we talk about the smart

way to access money, do you know anytime you want instead of a zero-wash loan, if

you think the economy is going to be growing at a rate greater than the

general account portfolio rate, you can opt every year to do what is called an

index loan or a participating loan. It comes under several different names and

let me share with you how that works. So, let's say that you need to borrow

100,000 a year. Or sometimes I have many business owners they use

maximum-funded indexed universal life insurance policy for working capital. So,

I'll use that as an example. I have a dear friend and he finds pieces of real

estate usually multi-unit apartment complexes. He buys them and fixes them up

and turns around and flips them or sells them. So, he may call me and say, "Doug, I

need a million dollars out of my Universal Life to tie up with an

earnest-money a piece of property I want to buy and fix up." And so, I go, "Okay. When

do you need it?" He goes, "Oh, in the next week or so." Sometimes he says, "I need it

tomorrow." No problem because I can access that money out of his insurance contract

with an electronic funds transfer or a phone call. But most the time, he says,

"Yeah, just email me the form." It's a one-page form and on that farm he puts

his name and his policy number which is his account number. And then it simply

asks, "Do you want to withdraw a million out of your policy or do you want to

borrow a million?" Guess which box he checks?

Oh! Yeah, he's smart. He borrows a million, why? Because if he borrows a million, then

his million is still there. Growing tax-free while he uses his money for

getting this piece of property and fixing it up and turning around and

flipping it and making money. So, he's making money on the money he's using to

make other money. Did you hear that? So, he borrows the million out of the insurance

company and they're fine with that. Because his million is there as

collateral. Now, in order to do that, they may charge

him a little bit higher rate. Maybe 4.6%, maybe 5. Let's say

5. Now, why is he willing to be charged 5% on this kind of an indexed

loan? Because if he does that, it's not a zero-wash. They don't charge

him 5 and then discrediting 5. They charge him 5. 5% on a

million would be 50 grand, right? They credit him whatever the indexed earns

that year, okay? The the index strategies that he chose. So, like me he's averaged

about 10%. So, he borrows a million, they charge him 50,000

and they credit him 100,000. 10% on his million. Oh, wait a

minute. How much more is 100 than 50?

It's 100% more. Would you hire an employee for 50 grand that made

you an extra 100 grand? That's all he's doing. He is making a net of

5% tax-free interest on his money while he uses it in his business

because he didn't withdraw it the dumb way. He borrowed it out at 5 and kept

earning 10. Can I tell you a secret? On the average, most of our clients who

incorporate the use of indexed universal life to become their own banker to run

their business, to use it for retirement use this strategy. Ad if they borrow at

5, generally speaking they earn at least 2 or 3 percent higher than

the borrowing rate. Not every year but on the average. On a million dollars, if

you're borrowing out 100,000 a year and they're charging you 5 and

you keep earning 7, you're making a net of 2% on that money. What

does that mean? It means if your portfolio

already earning 7 or 8 percent by borrowing the money out instead of

withdrawing it and therefore not having it in there to earn interest, you just

tweaked your rate of return by a couple of extra percentage points because of

the compound interest over here versus this simple interest over here. And what

happens is you're able to have a higher payout rate where you can take out

8, 9, 10 percent out of your million-dollar nest egg. Even if it's

only earning 8%, you can pull out 10% and not deplete your

principal because of this spread. It's called an arbitrage. So, the secret is

this: Do you know in the year 2017, we had many clients who borrowed money for

their business, let's say they say they borrowed a million dollars and they were

charged 5% on their index universal life. So, the insurance company

charged them 50,000 on that million dollar loan that year. But guess

what they earned? Many earned 16%. So, they made 160,000

on the money they didn't withdraw. They made 160

minus 50, they netted 11% or $110,000

tax-free on their money even though they were using it for something else.

You know we had others who locked in gains of 25% in 2017

with their indexing options? Wait a minute, on a million dollars, they

borrowed their money out used it. And while they were using it, that made

250,000 on the money even though they were using it for

business. 250,000 of interest minus 50,000 that

they charged, they netted 20%, 200,000 tax-free on their

money in their insurance policy. Even though they had borrowed out the entire

million and used it in their business at the same time. Is this slowing you away?

This is how millionaires and billionaires manage their money.

It's called arbitrage. It's creating the spread. This is how money really works. So,

this is episode 12 of 21. I would recommend you

watch this next episode for another reason why borrowing your money out is

the smartest way to do it. But in the meantime, if you would like to learn more,

this is a copy of my most recent best-selling book, The Laser Fund. It's

300 pages of charts graphs and explanations. You're going to be blown

away when you read about these concepts in here. And if you flip the book over,

this is the other book, 100 pages, 12 chapters with 62 actual

clients stories. And I would like to send a copy to you free.

I'll buy the book. If you go to laserfund.com, you can claim your FREE copy. You

just pay $5.95 shipping and handling. And I will fire out a copy of

this book to you and invest the time to watch the rest of this free course to

empower yourself to have a brighter future.