IUL vs Whole Life-Net Amount At Risk In Max-Funded IUL Is Far Less - YouTube

Guarantees are not a significant factor.  In this episode, I'm going to address  

IUL, index universal life versus whole life; the  net amount at risk in max funded iul is far less.  

And this is a game-changer once you understand  this. And many whole life insurance agents do  

not get this. I want to educate you so you won't  be confused by those who tout, "Oh, whole life is  

the cat's meow. The best instrument ever." Maybe  for death benefit. But not for living benefits.

-So, my name's Doug Andrew and I've helped people  optimize their financial assets and minimize taxes  

now for more than 4 and a half decades. I started  in 1974. I got my insurance license and my series  

one securities license. And from 1974 to 1980, I  ended up being responsible for over 3,000 clients  

in 13 western states. And I was a big proponent  of buy term and invest the difference. Because  

most whole life insurance policies... Because back  then, there were basically only 2 types of life  

insurance. Term and whole life. Mathematically,  I could prove that if you bought term insurance  

and did in fact, invest the difference and you got  an average return that the markets were actually  

performing at back in the 1970s and '80s, you  would outperform a whole life policy even with  

its tax-free accumulation. Because most of those  policies were only really earning about 2.5, 3,  

3.5, or 4 percent. The biggest problem with buy  term and invest the difference is most people  

who were told to do that never invested the  difference. So, they would have been better off  

putting their money in a whole life policy.  Well, that all changed in 1980. In 1980,  

EF Hutton... They were not an insurance company,  they were a brokerage firm. And they came up with  

the idea of universal life. And they said, "Wait  a minute, whole life is good for death benefit."  

That's what it was designed for that you can  put in this amount of money and you can actually  

overpay the early years and underpaid the later  years and it builds cash value and it's tax-free.  

And it has guarantees. And maybe those guarantees  are 4 percent. And it means that if you pay the  

required minimum premium... I'm super simplifying  this. That the insurance policy will not lapse.  

And if you pay that, they will guarantee the  insurance policy will be there when you die  

because it was designed primarily for death  benefit. That's what the guarantees were primarily  

there for. When EF Hutton came up with universal  life, it was primarily for living benefits. Let's  

self-insure. Let's take the least amount of  insurance the IRS will let us get away with  

and put in the most money the IRS allows as fast  as they will allow. And it turns into a tax-free  

cash cow. Because money inside of a life insurance  policy a permanent life insurance policy grows  

tax-free under section 72e of the internal revenue  code. It's been that way for over a century,  

since 1913. You can access the money tax-free  under section 7702. And when you ultimately die,  

anything in there blossoms and transfers tax-free.  But hutton said, "Why don't we just self-insure?"  

This is like buy term invest the difference  on steroids under a tax-free umbrella.  

This is what happened. We had people back in  1980 who would put in 500,000 into a universal  

life policy in one fell swoop. And back then, I  never earned less than 11 and 3 quarters percent  

even as high as 15.5 percent on my universal  life policies back then. But if I earned 11,  

I was netting 10. I had many clients who put in  a half a million and they started pulling out 10%  

or 50,000 a year tax-free. They're still doing  it to this day. It was incredible. It was for  

the living tax-free income benefit. It wasn't  about the death benefit. They put in a huge  

amount of money into a dinky little life insurance  policy. They self-insure. Long story short, the  

IRS came in and said, "What are you doing?" And  they said, "We're not doing anything wrong." And  

they went to court. EF Hutton won. But in 1982,  under the tax equity fiscal responsibility act,  

they said you've got to have a certain amount of  life insurance attached to this tax-free account.  

Or it's going to be taxable under the investment  section of the code. If you want it to be tax-free  

here, it's got to not exceed the definition of  life insurance under these sections of the code.  

They didn't understand totally what they  were doing. How surprising is that? So,  

2 years later in 1984 under the deficit reduction  act, it dictates the minimum amount of insurance  

that must be attached to the insurance account so  that your money accumulates tax-free, you can take  

out tax-free income, when you die it transfers  tax-free. But the objective is living benefits.  

Now, there's a massive exodus of money leaving the  banks and the brokerage firms back then because  

these were safer, they paid higher interest.  They were tax-free, they blossomed when you die.  

And uh in 1988, June 21st under the  technical and miscellaneous revenue act,  

it spells the acronym Tamra. They wanted to  slow the flow. They didn't want to kill these  

because this is where banks put their tier 1  assets, 30 to 40 percent of their tier 1 assets  

for liquidity and safety. What I just said maybe  went over your head. Before I explain what I meant  

by that, if this is intriguing you, you ought to  share this video with somebody who ought to watch  

this and learn more about max-funded IUL compared  to whole life. And click share. Like, comment,  

subscribe. Click the bell because I post an  in-depth answer to a financial question almost  

on a daily basis on this channel and stay with  me to the end and I'll gift you a free copy of  

my most recent 300-page, bestselling book  called The LASER Fund which is what I call  

a properly structured max-funded indexed  universal life policy, okay? So, under Tamra,  

what happened is they wanted to slow the flow  but they didn't want to kill it because banks  

in the las 10-15 years have been paying what?  A measly 1%. Every million that we collectively  

deposit into a bank, they pay us one percent  interest. Ten thousand? And they turn around  

and loan it back out again at 5 or 6 percent.  They're making 5 times what they're paying you  

using your money. OPM, other people's money.  In 2008 when 400 banks went under and 900 more  

were on the brink of going under, there wasn't  one single legal reserve insurance company who  

went under. In fact, the federal government  asked the 5 major banks in america to disclose  

where they had their tier one assets. That's  money they have to have on hand liquid and safe  

in the case of a collapse or a run on the bank, so  to speak. Guess where the 5 major banks have about  

30 to 40 percent of their tier-one assets for  liquidity and safety? In insurance companies. The  

multi-trillion dollar insurance companies are the  backbone of America and the backbone of the world,  

okay? This is why many times teachers pensions are  with annuities with insurance companies because of  

the safety. They weather the great depression  with flying colors, okay? This is where banks  

will take your money turn around and put it into  the insurance company and earn 4 or 5 percent.  

Again, that's 5 times what they're paying you.  They pay out 10,000 on every million. They borrow  

from us. And they make 50,000. Would you invest  10,000 on a widget machine or an employee that  

makes you an extra 50,000? That's called a 500%  return on employment cost or equipment cost..  

So, what happened is back in 1988, they said  we got to slow the flow but they didn't want  

to kill it because this is where they put  their money. So, Tefra and Defra have to  

do with a minimum amount of insurance. When  you talk about Tamra, this has to do with how  

fast you can put the money in without sort of  messing up the ability to take tax-free income  

which is what EF Hutton designed universal life  to be used for is living benefits for tax-free  

income. Tax-free growth, tax-free income. The  death benefit was secondary. With whole life,  

the death benefit is primary, okay? I would  compare it to a bucket. And basically, you  

want to create a receptacle a container for your  money. And you want to be able to put in money  

but you want the least amount of insurance the irs  will let you get away with under Tefa and Defra  

tax citations. This gives parity. Meaning,  a 60-year old gets the same rate of return.  

They can earn 11 and net 10 just like a 22  year old athletic marathon running female.  

Or even an 80-year old. I had an 80-year old  friend who had 3 blocked arteries adult onset  

diabetes a prostate cancer episode. But we  were able to squeeze down his death benefit  

on his universal life so that he could earn  11, net 10. Because you're able to squeeze  

down the death benefit because it gives parity  if your objective is tax-free growth and income.  

So, you might put in 500,000. If you're 60 years  old, the minimum death benefit would be 1,250,000.  

You can buy way more life insurance  than 1,250,000. With 500,000 bucks,  

that's not the objective. That's the least  amount of insurance under Tefra and Defra.  

Tamra came along and said, "Oh, you can only put  in 100 grand a year." 100,000 the first day of the  

first year. And finally, 4 years and 1 day later,  you can put in the entire 500,000 in this example.  

There's nothing magic about 500,000. I'm just  using it as an example. If you comply with Tefra,  

Defra, and Tamra; this bucket of 500,000 can  double to a million. A million can double to  

2 million. 2 million can double to 4 million. 4  million can double to 8 million. I actually have  

clients who have done that. They started out with  500,000. They now have 8 million dollars tax-free  

in their bucket generating between 640,000 to  800,000 a year of tax free cash flow if they want.  

The spigot on the bucket is the cost of the  insurance that the IRS says has to be there  

in order for it to be tax-free. But a maximum  funded index universal life is the only policy  

when it's designed this way where the cost  of insurance gets cheaper as you get older.  

Have you ever seen a church policy that gets  cheaper as you get older? This is what a lot of  

whole-life agents don't understand. If I put in  500,000 and the original death benefit required  

was a million and two-fifty, 500,000 of  the million two-fifty is my money now.  

The insurance company is only charging me  on that spigot for the remaining 750,000.  

If I earn rates of return like I have in 7.2  years, the half a million doubles to a million.  

Now, the net amount at risk is only 250,000.  The spigot on the bucket is getting cheaper.  

When the million doubles to 2 million, 2  million is twice as much as I had 7 and a  

half years earlier but it's more than the death  benefit. Why in the world do I need guarantees  

that my life insurance won't lapse in a whole life  policy when I'm self-insured? EF Hutton designed  

universal life so you would self-insure. So, let's  do the math here. Maximum funded whole life versus  

universal life. So, let's do apples to apples.  Let's take a 65-year old who 5 years earlier  

started to pay the maximum amount allowed. Now,  frankly, in a universal life, you could put in  

100 grand a year for 5 years. Whole life, you  have to spread it out over 7 years. And that's  

why it doesn't perform near as well. The minimum  death benefit if you started this at age 60 is  

1,250,000 under Tefra and Defra. So, you put in  100 grand a year for 5 years. Now, you have a  

half a million in there. It will have grown with  interest but I'm just going to simplify this.  

This 500,000 of cash value that was funded over a  five-year period, you could do that in your whole  

life policy too. But it would take you longer  than 5 years to get it in there. Let's just  

assume you could get it in there. And let's  just take a snapshot in time and say, "Okay,  

we have 500,000 now of cash value and a whole life  policy. And we have 500,000 in a universal life  

policy." What's the difference? Well, I have found  that most whole life policies unless it's variable  

and you put your money at risk out in the market,  you might be lucky to earn six and net five,  

okay? The only policies that ever touted years  ago 8% only netted you 5.99% by the time you  

were 95 years old. I was netting what most whole  life was grossing for years on my universal life.  

If you're earning 5% on 500,000,  okay? That means in 14.4 years,  

a half-million is going to grow to a million.  If that is part of the death benefit,  

then the net amount at risk is only the remaining  250,000 because a million of it now is your money.  

The insurance company's net amount at risk is all  they're charging you for. You are self-insuring.  

But do you know what I've earned on my universal  life average? 10.07. 10% on 500,000 means  

that it's going to double every 7.2 years. So, in  14.4 years, instead of having a million, I'm going  

to end up with 2 million in my universal life.  I've seen it over and over and over again. Now,  

wait a minute, if in 15 years... I've had many  clients that the death benefit that was originally  

a million two-fifty in this example now is totally  gobbled up by 2 million of cash value. Tefra and  

Defra says the death benefit has to stay ahead of  it by at least 5 percentage points. So, the death  

benefit now grows to 2.1 million. The insurance  company is only charging me for the last little  

hundred thousand. That's a minuscule portion of  the interest that I'm earning on 2 million dollars  

because I've self-insured. What am I worried about  guarantees that guarantee the policy won't lapse  

when I have 2 million of cash value which  is far more than the death benefit? In fact,  

it caused the death benefit to go up because I  have self-insured. The net amount at risk is 120th  

what it was when I was 15 years younger. In  other words, the older I get, the cheaper  

the insurance becomes on universal life when  it's maximum funded. So, stop talking about  

whole life has guarantees. Because under the  new section 7702, it looks like those guarantees  

won't be 4% anymore because whole life  policies are complaining they can't afford it  

with the low-interest rates. It might go down to  2%. I don't worry about guarantees because I am  

self-insured in as little as 15 years. I don't  need guarantees because I now have the money in  

my policy tax-free far greater than the original  death benefit. And I can prove this to you many  

different ways with different examples on clients  that we've helped for years. If you want to read  

examples of this, let me show you how you can read  and learn watch and learn or listen and learn. So,  

if this is intriguing you, I call a max-funded  indexed universal life structured correctly and  

funded properly The Laser Fund. You can own an  indexed universal life insurance policy. But  

if it's not structured correctly or if you  have not funded it to the maximum amount,  

it would not qualify to be called a Laser Fund.  Laser means liquid assets safely earning returns.  

And so, I wrote a book about it. It's 300 pages.  But it's actually 2 books. This one is 200 pages,  

14 chapters with all the charts and graphs  explaining max funded index universal life. If you  

learn more by stories, you flip it over and read  this 100 pages, 12 chapters, with 62 actual client  

stories of how max-funded IUL, the Laser Fund can  be used for retirement, college funding, working  

capital for business, real estate management,  emergency funds, estate planning on and on and  

on. It's the dream solution for many financial  goals. I call it a financial swiss army knife.  

How do you get your free copy? You can claim your  copy by going to Laserfund --LASERfund.com. Click  

on the link below and contribute a nominal amount  towards the shipping and handling. I'll cover the  

rest of that cost. I'll pay for the book. I'll  fire out a copy to you. And if you like to listen  

and learn or watch and learn, there's different  opportunities for master classes online and what  

have you. And you can join us for educational  webinars. This is about you and your brighter  

future. And so, I would love to gift you a copy  of this and here is to your brighter future.