Explosive Growth in an IUL
It is funny that we don’t know what we don’t know. Actually in this case, it’s not funny. It kinda sucks. I really wish I had heard about IUL arbitrage years ago. It can be an absolute game changer.
The premise is quite simple. Invest a certain dollar amount into a properly structured IUL (Indexed Universal Life) policy. Once the policy allows, you take a ‘participating loan’ against the cash value. Then, a short time later (like 3 weeks), you redeposit that money into the policy - but not as a payment on the loan. Rather, this money goes into the policy as premiums. Why is this a good thing? It can lead to explosive growth.
Well, lets just say you had $50,000sitting in an investment account. Instead of dealing with the volatility of the market, you put it in a properly structured IUL. You take a participating loan of $40,000. Because it is a participating loan, you are still credited based on the $50,000. And then when you deposit the $40k back into the policy as premiums, that base value is now $90,000. Lets just say that on average you earn 6.5% annually based on what the S&P has done. So you are credited roughly $5850 at the end of that year (90,000 x .065). But you still have a loan out, and so you are charged interest at 5% annually which equates to $2000 (40,000 x .05). That nets you a gain of $3850. Your surrender value is now $93850.
The beginning of the next year you once again you take a participating loan of 80% - which is $75,000. 3 weeks later it goes back into the policy. Cash basis is now around $168,000. Interest credit is $10,980 (based on 20 year S&P average returns). Loan balance is now $115,000 with an interest charge of $5750 - netting you $5230.
You continue to do this year after year for 8-10 years. The numbers compound. The cash value grows - like it was on steroids. The results are explosive. Imagine taking $50,000 and building it to $13,000,000+ in cash surrender value. Yes, you have a loan balance - around $12mil. But that means you are earning around $245,000 after loan charges. Eventually, instead of redepositing that loan into the account, you take a that loan - or even a lesser amount - say $100,000 each year and use it as retirement funds. 100% Tax free - because it’s a loan on your IUL, not a withdrawal. Yes, as time goes on your cash value might decline, but if structured correctly and monitored regularly, you can still leave a sizable (tax free) death benefit to your heirs upon your passing - after you have lived 30+ years on tax free policy loans….. and all from that original $50,000. Compare that with the expected returns from investing in the stock market and the reality is, there is no comparison. We believe a properly structured IUL is hands down the best retirement vehicle out there. But, the key variable is time - so you have to get started early. And you have to be health enough to qualify. If you ever want to know what your numbers might look like, give a shout. We’ll be more than happy to create a plan an explain your options.
