Life Insurance Done Right Does Not Cost Money
Life insurance can double your money every 7 to 10 years. In this episode,
I am going to address life insurance done right does not cost money. Hmm, how? Watch, I’m going to
blow you away. So, I’m Doug Andrew and I’ve been a financial strategist for more than 4 and a half
decades. And I’ve helped thousands of people use life insurance for living benefits as a superior
dream solution so to speak for all kinds of financial goals. Be it retirement planning,
college funding for their children, working capital for business, real estate management,
and so forth. A lot of people do not realize that you can structure a life insurance
contract to where it does not cost money, it makes money. See, many times when people say,
“Where is the best place, Doug where I could sock away some money and be able to achieve a
safe rate of return that is tax-advantaged?” And I would say, “Well, it’s not where you maybe think
like an IRA or 401(k).” No. It’s in a max-funded indexed universal life insurance policy. Because
I’m able to self-insure to where the actual cost of the insurance goes down as I get older
until it no longer costs me anything. So, let me simplify this for you. I’m going to share with you
what a 60-year old could do. And it doesn’t matter if you’re 30, 40, 50, 70. This applies
to everybody. But I’m going to use an example right now to show you how you can self-insure
in less than 15 years to where you’re basically not paying for your life insurance. It’s being
paid for with a minuscule amount of interest that would otherwise go out the window in unnecessary
income tax that most people shell out without even knowing it on their traditional investments. So,
a 60-year old… We’ll use a male for an example because life expectancy is a little bit better for
a female at that age. A 60-year-old male who wants to use a life insurance policy more for living
benefits for the tax-free accumulation and tax-free access and that’s provided under
2 sections of the internal revenue code, section 72E and 7702. And then when you ultimately die,
life insurance blossoms and transfers out totally income tax-free under section 101A.
If that’s your objective, what, you’re trying to do is the opposite of what most people do when
they purchase life insurance. See, most people think of it as death insurance. They want to get
(let’s say) this amount of insurance coverage for the least premium.
What you’re doing when you’re using it primarily for living benefits is you’re flipping that, okay?
You’re trying to get the least amount of insurance that the IRS will let you get away with under
their tax citations and you’re trying to put in the most money as fast as the IRS allows
and it turns into a tax-free cash cow. So, let me give you an example. A 60-year-old who wants to
accumulate money totally tax-free, they have to take at least $1,250,000 of life insurance
if they want to be allowed to invest let’s say $500,000. Now, you don’t have to put in
500,000. But let’s say that’s the most that you would like to put into that contract. The
fastest you can put it in there is in 5 years. So, let’s say that a 60-year old wants to reposition
from IRAs and 401(k)s that are subject to tax and they want to convert to tax-free. Let’s say
a 60-year old has money in banks and credit unions earning a pathetic 1% or less. And so, they want
to increase the rate of return. Let’s say they have some real estate properties that they’re
tired of taking out the trash, fixing toilets, evicting tenants. And so, they want to sell
and they want to know what to do with the money out of their real estate. See, you can take money
from any source that’s underperforming or totally not performing at all. And increase the liquidity,
safety, and rate of return and the tax benefits by using a max-funded insurance policy. So, let’s say
the 60-year old wants to sock away $100,000 a year for 5 years. A total of 500,000. Now, they can do
that in one fell swoop but it wouldn’t be tax-free when they access it. And so, the IRS says you have
to spread out the funding over at least 5 payments four years in one day if you pay the first 100,000
on the first day of the first year. The first day of the fifth year which is actually 4 years
in 1 day down the road, you can put in the last 100,000. So far, so good? So, let’s say you put
in 100,000 a year for 5 years. That’s 500,000. The five 500,000 is what the IRS calls the GPS in the
uh insurance industry, guideline single premium. For 500,000, to be able to accommodate that,
a 60-year old has to have about $1,250,000 of life insurance. That’s under two tax citations called
Tefra and Defra. They’re acronyms, okay? They were passed back in the 1980s. But here’s the Math:
So, I put in 100,000 a year for 5 years. And so, now I’m 65 and I have my 500,000 in there.
Now, it’s going to grow while we’re putting it in. But let’s just say I have 500,000. That 500,000
is netting because I am taking the least amount of insurance. I could buy way more life insurance
than 1,250,000. That’s not the objective. I want the least amount of insurance. Here’s why: When
you put in the money, every time you put in money, that can qualify as part of the death benefit.
So, when I finally have 500,000 in there, the actual life insurance that is at risk to the
insurance company is no longer the a million two hundred and fifty. Yeah, that’s what they would
pay out if I died. But 500,000 of that is my own money if I want it to be. Well, that means they’re
only charging me for 750,000 of insurance 5 years later. Even though I’m 5 years older, the cost
of insurance is getting cheaper. 500,000 earning the rate of return I’ve been earning will double
in 10 years to at least a million, or a million five? It has done that for many, many clients.
So, let’s say when it doubles to a million, now, the amount of insurance is only 250,000 they’re
charging me for. It’s getting cheaper because the amount at risk is going down. The cost per
thousand of insurance goes up as you get older but the amount that I’m actually being charged for is
going down because I’m replacing it with my own money inside the policy. Does that make sense? So,
hello? If I have a million, that’s going to double in 7 to 10 years to 2 million. “Well,
wait a minute. I have 2 million of cash tax-free. The death benefit is only a million two fifty.
There is no risk. In actuality, the insurance, as soon as the cash comes up to equal the insurance,
the insurance will grow with the cash and stay just a little bit ahead of it.
That means that the cost of insurance is getting cheaper. I’m now self-insuring. It is my own money
now. This is actually the cheapest way to buy term and invest the difference. But listen to this: So,
as I get older, the cost of insurance is getting cheaper. Have you ever seen a life
insurance policy that gets cheaper as you get older? Well, it’s probably because you haven’t
seen one designed like this. Now, before I share with you what this means and can mean for your
brighter future, if this is resonating with you, click like, make a comment, share this with other
people that need to learn this information. Please subscribe and click the little bell so you’ll be
notified every time I post a new financial answer to a in-depth question that is asked 300 or 3,000
times a month. I don’t want you to miss out. So, what this means is if I earn a rate of return
which I have traditionally earned for 45 years 8.2%. That means that the cost of insurance is is
getting cheaper as I get older. On the average, it uses about one of those percentage points.
But the older I get, the cheaper it becomes. So, for example, on some of mine, I have earned
an average of 11% and I’ve netted 10% on the average. Now, in order to net 10% after tax
in a tax-deferred IRA or 401(k) in my tax bracket 33% between federal and state tax, I’d have to
be earning 15%. Now, very few investments earn 15%. If they do, it’s for a short time period,
it’s pretty risky. I don’t want the risk. But I’d have to earn 15% to be able to net 10 after tax.
Does that make sense? If I have a million dollars and if it was earning 15 which most places where
you put your money does not, that’s 150,000. I pull out 150,000 and I pay tax of 50, a third
on 150, I’m only netting 10, right? Well, with the insurance contract, it’s tax-free. I can earn 10%
tax-free. I’m actually earning 11. What’s the 1%. It’s the cost of the insurance
that the irs says has to be there in order for it to be construed as a life insurance
contract and be sheltered as tax-free in those sections of the internal revenue code. But I
just got through sharing with you that the insurance can get cheaper as you get older.
Yep. See, I have policies that I’ve had for 30 years. So, to be honest with you,
if I earned 11% this year, I would net 10.95. Because the amount of insurance is so negligible.
And anything that goes to the cost of the insurance is money that would otherwise go out
the window in taxes if I put my money where most Americans put their money. So, guess who’s paying
for my life insurance? Uncle Sam. No, indirectly. But I’m not paying for it. People say, “Well,
this is incredible. How come I’ve never heard of this before?” Well, yeah, you can redirect
otherwise payable taxes to causes you support but I’m not paying for the insurance. Nothing’s free
but it’s being paid for with a minuscule portion of money that would otherwise go
out the window an unnecessary income tax. So, let me ask you this question: So, this portion
that goes out the cost of insurance, C-O-I is what it’s called in the insurance industry. So, when
you structure an insurance policy primarily as a living benefit, pretty soon your cash value in
less than 15 years if you maximum funded as fast as the IRS allows, in this example, in 5 years.
My heavens, your cash now equals and exceeds the original death benefit. So now, the death benefit
just grows with your money. And that’s why the rate of return gets better as you get older and
the cost of insurance goes down. But a lot of times people go, “But I don’t need insurance.”
So? Why don’t you choose the investment that is growing and generating the most? Can you
agree that this outperforms all these other places where you used to have your money? Oh,
yeah. I don’t need insurance. Okay, why don’t you make me the beneficiary then? It’s coming along
for the ride. This is net. And people start going, “Oh”. Because sometimes they think insurance is a
necessary evil. They think that once you have enough money you don’t need insurance anymore.
Look at what it does instead of what it is. I ask audiences –men, women, “What are some uses for
baking soda?” And usually the women will chime in, “Oh, you can take odors out of the food in
the refrigerator”, okay? “You can uh soak in the tub with it. It takes a the pop out of a pot of
beans.” All kinds of uses. And then finally somebody goes, “Oh, it’s good for baking.”
Yeah, life insurance is for life. Most people think of it as a necessary evil in case you die.
So, let me frame it this way. If I were your employer and I came to you and said, “Hey,
we’ve had a great year this year. We have some good profits. And so, we’re going to
offer some additional benefits to everybody here at the company. Free life insurance.
How much would you like?” Now, guess what answer I get 95% of the time? “Oh, as much as I can get.”
Yeah, we don’t object to the insurance benefit. We object to paying for it. If I can get it paid
for with otherwise payable tax, I’ll take as much as I can get if it doesn’t cost me anything. So,
before I ask you that question and I’m going to act like I was your employer when I ask you this
question. I need to frame it first. So, if this is intriguing you and you’d like to learn more,
I would strongly recommend you claim your free copy of my most recent bestselling book, book
number 11. This is flying off of our warehouse shelves. You don’t need to pay $20, the retail
price for this. I’ll gift you a copy. Now, it’s a 300-page book but it’s actually 2 books in one.
This side is 300 pages, 14 chapters with all the charts and graphs and explanations.
But if you want to learn by stories and examples, you flip the book over and you read this side.
This is for the right-brain thinkers. And this has 62 actual stories of how what I call the
Laser Fund. Can be used for all kinds of financial goals. What is the Laser Fund? It’s a max funded
indexed universal life insurance contract designed for living benefits like I’ve been talking about
in this episode. So, to claim your free copy, just go to laserfund, LASERfund.com.
Contribute a nominal amount towards the shipping and handling. I’ll pay for the rest and fire out
a copy for you. And you begin to learn how you can own your life insurance and be self-insured.