Imagine a possible investment that would pay more than your bank and guarantee your principal. It could even make you as rich as the stock market. You’ll also have 100% liquidity, so you can cash it out whenever you like. Is that possible? Is it too good to be true? I used to be skeptical, but now I know that there is a way. We’ll be discussing it today, because this could be the best investment you’ve ever made.
Index Universal Life Insurance Policy
We are discussing what might be the greatest investment ever. It’s the best investment of all time. That’s what we’ll find out.
Remember that if you hear something too good to be true, it most likely is. We’ll be discussing some of the finer aspects of this investment, but they can also cause problems. So we’ll look at both sides of the coin today. How did this happen? This was my client. They were multi-millionaires. They had just inherited a lot of money and weren’t sure if taxes would be due next year.
The requirement they made was Jeff: We want to give you this large amount of money and we want to make more than our bank is paying. We also want to make sure our principles are protected and have access to the money.
We want liquidity. Let me tell you, that’s what I have heard many times in my career as a financial advisor. It seems like everyone wants it. They want a risk-free return, where my money can be put and I can earn 20% interest and never lose a penny. But that is not what it really is. Today’s topic is the closest you will get to it, but if you hear that the market doesn’t work, that’s fine. That’s why we’re here. This is why you are here and why you should subscribe.
You can take care of this right away. This was the reason my clients came to see me. They have over a million dollars and want to access the money they need, their principal protected, and to ensure that they are making more than they receive at their local bank. You might think, “That’s it.” I began to research the IUL policy and I called around. What does IUL stand for? It stands for Indexed Universal Life or Index Universal Life insurance policy.
Keep in mind, however, that I was a financial advisor and financial planner who worked with many different insurance agents selling whole life insurance and variable index universal life insurance.
They would always start with this as it was their first lead. It didn’t matter if your student loan debt was not being invested to a Roth, IRA or if money wasn’t going into your 401k. You need insurance policies because they are the best investment. You’ll see that there are some situations where it makes sense. However, I found it difficult to understand a lot of the times.
I felt skeptical when I heard about the IUL policy. Once again, I was skeptical when I began to understand how the policy worked and realized all the pros and cons. Then I saw how it could actually work. Let’s start with the pros. We have already discussed them a bit. The first thing we have to be proud of is that we have protection. We have our Principal Protection to make sure we don’t lose any money when we invest.
This is why so many people place their money in banks that offer FDIC insurance. We don’t have it with insurance policies, but we can talk about what you should look for.
The other benefit is Liquidity. Liquidity can be described as: Can I access my money, can my money be accessed like tomorrow? That’s Liquidity. Greater Return was another pro. This is what it offered.
The question now is, “Okay, so how is it offering that?” What does this actually mean? Protective life insurance policies do not have FDIC insurance. They are insured only by the company. What you want to look at is their insurance rating. This is the place to look at companies such as Moody’s and Fitch. They basically give a report card rating that shows how financially sound an insurance company is.
If you are looking to take out insurance, and they offer you a great rate, but their report card rating is like a B minus, then I don’t know how much I can trust them to pay me back my money in case I need it.
That’s the first thing you should look at. We’ll also be looking at Liquidity. The other aspect is return. Greater Return than what banks are paying. We have the option to get a dividend or market-linked return. The Fed keeps rates low.
This policy provided them with a greater return than what they were receiving at their bank, namely: Principal protection, liquidity and the Greater Return. There are also cons to all this. We’ll now look at the pros and how they work. What are the cons to all of these points? Protection, if we want to ensure that our principles are protected, we discussed the ratings of these companies.
This is the largest con, just like the rating of insurance companies. Liquidity is another big problem. The IRS is now aware of these insurance policies and knows that the super rich can and will use every loophole they have.
These policies don’t allow you to just throw a lot of money in there. You have to make sure that it makes sense for your savings, investments, age, and the amount of life insurance you need. It will cause a Modified Endowment Contract (MEC) to be activated.
All this basically means that you must pay income tax if you invest too much. This basically means you must treat it like income. If you fall within the 35% tax bracket, then you will have to pay 35% taxes on any money you withdraw. Another pro is that if you have this for a while, you can either take out a loan or withdraw tax-free. A Roth IRA Alternative is the best option because it offers all of these benefits.
The Modified Endowment Contract is another con. This is just to say that if you are 40 years old and want to put a large chunk of money into a fund, you will need $25,000,000 a life insurance. The IRS will look at your financials, look at your net worth, assets, liabilities and all the rest. And then they’ll ask you why you need $25,000,000. You only need this. You know they’ll catch on to this. The other problem is that this is a life insurance contract, so you have to pay the insurance premiums in addition to getting approved.
This isn’t a hello, I’m going to fill out the form. It’s an online forum. I’m going to send it off, and boom, it’ll be approved automatically.
This is a life insurance policy, so they will require you to pass a medical exam. They’ll also request blood work. If there are any conditions they’ll need some notes from you to determine what they are doing. Is that a guarantee that you won’t be approved? It doesn’t necessarily mean you won’t get approved. However, whatever the benefit, the approval you receive for it may just be lower for the amount you put in. Let’s discuss how this policy actually makes money. What was the attraction?
Returning to Greater Return than the bank is paying. There were two ways to make money with this policy. The dividend payment was the first.
Another way was the market-linked return. Let’s talk first about the dividend.
This is what you will have heard with whole-life policies. When you take out the policy, the agents and even the company’s representatives will say to you, “Oh, our company pays a five and half percent dividend” and that’s how much they pay into their policies. While it may be true, I find that this is not the truth. However, they fail to mention the cost of insurance and you should bring these up. Although it has been quite a while since I purchased this policy, the rate it was paying was about two to two percent at the time. If you look at savings accounts, you will see that there are online banks that pay very close to this amount, but it was not the case back then. It was paying two points two percent back in those days when interest rates were low.
This sounds great, but let’s talk about insurance costs. The cost of this policy was approximately five percent, so the net return was around point seven. That’s a lot. It’s not. It was much more than they got at the bank, and that was one requirement.
This is the second thing you should know. In any type of indexed investments, Index Universal Life, Index Variable Annuities, you have what’s known as the market link to returns. Advisors can misrepresent it all in many different ways.
The insurance company is trying to tie an investment to another that people are familiar with. Usually, this is the S&P 500. It’s the most well-known investment. This policy had a market return, so it was tied directly to the S&P 500. This policy basically says that it would examine the policy year in and year out, so the anniversary of the date you took it out would be when it would check to see which one paid more.
For example, suppose they invest a million dollars and then a year passes. Has the S&P made more, or has the two-point two percent dividend payment less the cost paid more? Which one paid more? The one that paid more would get you locked in, and that would be your starting point the next year. Let’s now look at it differently. If the S&P 500 goes down in the first year, then your principal would be guaranteed. What you get is the difference between the dividend amount and the cost of life insurance.
That’s how you win.
My clients took this out sometime between 2011 and 2014. This was what really worked for them. You can see the market has been strong if you look at any type of investment chart. They made seven to eight percent that year. I can’t recall exactly what they did the second year. It’s been a great investment and it has continued to work well. They were able to make a lot more than the bank paid. The thing to watch out for when we cash this money out is the MEC.
If you cash it out, any gains you make will be the reason you have to pay ordinary income. It’s not necessarily a bad thing. You pay taxes on the money you make. If you can reduce that, that’s even better.
It makes sense to hold the contract and take tax-free loans or withdraw tax-free from the investment. Let me end with one last thing. I want to warn you about the scammy financial advisors who are trying to sell you this. You’ve probably noticed that I didn’t mention any type of insurance company in this video. There is a reason.
Because I would have to tell the insurance company. They might contact me and issue a cease and desist letter for misrepresenting their policies. It does happen, so that’s why it’s not happening to me. However, I will tell you that I visited two places when I was looking for a policy for my clients. They were both offering different types insurance products to potential investors. In that process, I discovered that while they had the same investment product, they were both run by the same insurance company. However, their illustrations and sales proposals are very different. The one that was more beneficial to the client was more profitable for them, while the other was more beneficial for me. This is how I make my money. They would take a larger cut if I got paid more.
These policies can be structured in many ways. Some they can better structure for their clients, while others they can benefit from it.
You need to be wary of financial advisors who are trying to convince you to buy something too good to be true. Although it may sound like this at first, you will soon see that there are pros and con to each. If you aren’t sure that they’re telling the truth, get it in writing. If they offer it in writing, I’d probably go somewhere else.
Have someone else look at it. If you are working with a divisor and have never done so, run a background check.
You can search online for the advisor and do a Google Search. I wouldn’t invest with them if there were. However, you can find out if there has been any complaints against the advisor.
You can just sort of do the math and see if this makes sense. I hope you enjoyed the video. If you do, please like, subscribe and share it with anyone who needs it. Hacking wealth is all about information. You need to get the information.
Peace, and good health until the next time.