Let’s say you have a business venture that is just too good to pass up, but you’ll need quick access to $50,000 to get it started. Or surprise! Your daughter gets engaged and her $20,000 dream wedding is in three months.

Liquidity is critical for managing life’s unexpected financial needs. It’s the ability to access your money when you need it, ideally without incurring penalties or taxes.

It’s so important, in fact, that it’s the very first criteria for what I call the LASER Test–a valuable way to rate how well a financial vehicle can provide:

  • Liquidity
  • Safety
  • Predictable Rates of Return
  • Tax Advantages

My favorite vehicle for all of the above is a properly structured, maximum-funded Indexed Universal Life policy, or what I call The IUL LASER Fund. For a specific look at how it can provide you unparalleled liquidity, read on.


Life is unpredictable, and things happen where sometimes we need to access money in an emergency. Or for an unexpected opportunity or life event. When these moments come up, you can often arrange to access money quickly from an IUL policy. In fact, for most emergencies, depending on the cash value of your policy, you could access money, $10,000, $50,000, $100,000, even $1 million dollars or more within three to five days. 

Let’s go through a few scenarios.

Many times when folks need money right away, their first thought is, “Well, golly, I don’t have access to any. I don’t have time to apply for a loan and get approved from the bank or credit union.” And so they look at their resources where they have money. 


Now, most Americans, unfortunately, have most of their money trapped in traditional accounts like IRAs and 401(k)s, 403(b)s, annuities, or maybe their money is in mutual funds, stocks, or bonds. So can you go get money in those? Yes. Are they liquid? Yes, you can access money, but what normally happens?

When you access money out of an IRA of 401(k), for example, if you’re under the age of 59 and ½, what’s going to happen? The IRS will hit you with a 10% penalty. On top of that, you’re going to have to pay tax. If you pull out, say $100,000, you’ll have to pay a $10,000 penalty, in addition to potential taxes that year on the money that you withdraw. 

If you are in a 30% combined federal and state tax bracket, plus the 10% penalty, you’re going to pay 40 cents on the dollar. So when you pull out $100,000, you’re really only netting $60,000, thanks to taxes and penalties.

(As a side note, there are scenarios where you can borrow money out of an IRA or 401(k)–if your employer’s 401[k] policy allows you to do that. But you must pay it back, which makes this option hard if you don’t have the wherewithal to do that.)

Now, what about money in the market? If you have money in a mutual fund, stocks, bonds, or the like, and you need to access some of that, the market may be down. If you redeem your mutual fund shares or sell your stocks, it may be poor timing. You may be tempted to think, “I’ve got to time the market. I’ve got to wait until the market comes back. We had a crash yesterday and it dipped 10%. I don’t want to sell my shares low.” So sometimes market timing interferes or causes frustration when you access money you have in the market. 


Here’s why I love accessing money from an IUL policy. For one, it was designed to accommodate this very thing. It’s one of the best emergency funds ever, because with what’s called an Alternate Loan, you can borrow money from your insurance company at one rate, while your money is still technically in your policy as collateral, often earning a higher rate. 

As for taxes, you won’t pay any taxes on the money you borrow. It’s completely tax-free. (There is, however, a way to access your money that could trigger a taxable event and cause your policy to lapse–what I call the Dumb Way in my book, The LASER Fund. For a brief overview of the Sad Way, Dumb Way, and Smart Way to access your money in an IUL policy, see my article, “What Is the Smartest Way to Access Cash out of an IUL?”)

What about having to repay the loan? Loans on IUL policies are not due during your lifetime. You can choose to repay them (which I often recommend), but you don’t have to. The loan balance can just be deducted from your death benefit before it passes along to your heirs income-tax-free.

You might ask, “Well, what if I haven’t maximum-funded my policy yet? What if I’m only in Year 3 of putting money into my policy; can I still borrow money from it? The good news is: yes.

Let’s say you’re funding a $500,000 policy over five years. You’ve only put in 20% so far, or $125,000. You can still borrow up to about 90% of your cash value in the policy. 

There’s so much more I can tell you about all of this, and I do in my book, The LASER Fund, and on my YouTube Channel, so be sure to dive in there. But the bottom line is: When you set aside money and accumulate it in an IUL LASER Fund, it passes the liquidity test with flying colors. On a scale of one to 10, I would rate The IUL LASER Fund at nine or 10. 


As an example, let’s look at a healthcare emergency. We had a client, whom we’ll call Beth, who put $200,000 into her policy and made an oath, “I will not touch this for twenty years.”

Not long after, she was involved in a horrific car accident on a trip to California. Beth called from the hospital and said, “Remember I told you I wouldn’t touch it for twenty years? I’m going to be in critical care for a while; I almost died. I need $120,000 right now to cover all of this medical care.”

Doug said, “Beth, I’m so glad you survived! Okay, you need $120,000? No problem.”

About five days later, she called to ask how long it would take to get that $120,000. Doug replied, “Oh, that’s right, you’re stuck in the hospital. 

You wouldn’t know—it’s probably already in your mail box.” She called her son to check, and sure enough it was right there, in her mail box. 

She couldn’t believe it was that easy, and that it was income-tax-free. If her money had been in another type of vehicle, things would have been much more difficult. If she had invested that $200,000 in a piece of real estate, she would have had to put the property up for sale (which would have taken much longer than a few days to access for liquidity) and pay capital gains on any profit.

If she’d had her money in a 401(k), she could have had relatively quick access to her money, but she would have paid a 10% penalty for withdrawing her money before age 59½, and she would have owed income taxes on that $120,000 (and the additional income could push her into a higher tax bracket).

The IUL LASER Fund’s ability to provide liquidity without taxes is huge—it can make a big difference in your overall financial well-being. Then there’s also the fact that with an Alternate Loan, your money is still working for you, even when you take out a loan on your policy.

In this example Beth used an Alternate Loan, so technically, Beth’s $120,000 was still IN the policy. She simply took out a loan, and the original $120,000 was acting as collateral for that loan. The $200,000 she had put into the account a few months earlier was still earning the current interest rate, say 7% on average. The $120,000 loan was being charged interest, say 5%. 

So let’s say she was averaging 7% on $200,000; was being charged 5% on $120,000; then she was averaging a 2% spread on that $120,000. All of her money was still at work in the account. Contrast that with other types of financial vehicles, where whatever she withdraws would be deducted from the account value and would no longer be capable of earning interest.

As you can see, liquidity can not only give you peace of mind, but it can fuel life’s important endeavors. 


Watch the Video – Watch the related YouTube video to see me explain “How Liquid Is Money In An IUL” (and while you’re there, be sure to subscribe to my YouTube channel so you don’t miss a thing!).

Elevate Your Financial Dimension – Find out how you can improve your Financial Dimension journey and seize the liquidity, safety, predictable rates of return, and tax advantages of a IUL LASER Fund. Explore the in-depth financial strategies and learn from real-life client experiences by claiming your free copy of “The IUL LASER Fund” book at LASERFund.com. Just pay for shipping and handling, and we will send it to you, absolutely free.

Join a Webinar – Want to find out if a IUL LASER Fund (a maximum-funded, properly structured indexed universal life insurance policy) is right for you? Join us for an upcoming webinar where you can explore these strategies.