It Could Be Right at Your Fingertips
IUL is the Swiss Army Knife of financial vehicles – even ideal for working capital
Imagine you see a piece of real estate you’d like to invest in.
Typically you’d turn to a lender and wind through their red tape for a few weeks to borrow the money. Or you might pull money from an investment account, pay taxes due, and put the net amount into the real estate.
But what if instead all it took was a quick phone call to fill out a brief form, and you could have the money in just a few days? No complicated loan application. No taxes on money from an investment account.
That’s possible with properly structured, maximum-funded Indexed Universal Life (what we call IUL LASER Funds).
Money Right When You Need It
IUL LASER Funds can provide working capital for real estate investments
Our clients do this all the time. For example, a few years ago, one of our clients who renovates and flips commercial properties, apartment complexes, and strip malls came to us. He was looking to buy a big property and needed $1 million for earnest money right away.
We walked him through the simple form, where he indicated the amount he wanted to access with his IUL, as well as how to access it. His choices: He could withdraw money (up to his basis to avoid triggering taxes), or he could go with a tax-free Zero Wash Loan or Alternate Loan (also called an Indexed Loan).
He went with an Alternate Loan that had a 5% interest rate, which on $1 million was $50,000 for the year.
The $1 million in cash value that is collateral for the loan earned up to his index strategy cap of 25%, or $250,000. So after subtracting the $50,000 in loan interest, he netted $200,000. This was in addition to the multimillion-dollar profit he made on the real estate he flipped!
Money for All Types of Business Ventures
IUL LASER Funds can fuel your next big venture
Now what if it’s not real estate, but a new business venture you have your eye on?
Again, you could approach a lender and go through their process to qualify for a business loan. Or you could draw from other taxable investments, give Uncle Sam his portion, and put your net amount into the new business opportunity.
Or you could turn to your IUL LASER Fund and have the funds quickly and completely tax-free.
One of our clients, for example, is an entrepreneur who invests in multiple opportunities with his business partner. They were now looking at buying a handful of chiropractic clinics, and he needed $200,000 for the deal.
He reached out to ask about taking a policy loan on his IUL and was amazed at how easy it was. No big loan application. Just a phone call where we helped him complete a short form, and the insurance carrier issued him the money within a few days.
In the two years since, his policy has earned up to the 10% cap on the S&P 500 one-year point-to-point he’s chosen as his index strategy. So that $200,000 he borrowed with an Alternate Loan has earned $20,000 each year, which has out-earned his loan rate of 5%.
He’s thrilled that not only was he able to take advantage of the business opportunity, but he’s also been earning more than he’s being charged in loan interest, which is helping him come out even farther ahead.
(Note: These are just some of the real-life client stories we recently shared on a podcast episode, titled “Why Borrowing the Wrong Way Keeps Business Owners Stuck.” Click here to watch the podcast now.)
How Policy Loans Work
So how does the IUL policy loan thing work?
When you borrow money, you’re borrowing from the insurance company, with your cash value acting as collateral for the loan.
Your money is still in the policy, where it can continue to earn a rate of return. By choosing a Zero Wash Loan, your money earns a guaranteed rate of return that is equivalent to the loan interest rate (typically a low rate of around 2% to 4%).
With an Alternate Loan, you borrow at a rate that’s higher than a Zero Wash Loan, typically around 5%.
That higher interest rate allows you to put your money to work in an index strategy you choose, where historically it can earn 5% to 10% (or more with uncapped strategies and/or multipliers).
This allows you to earn a potential spread between your loan rate and index credited rate.
The caveat: If the market experiences a downturn, your money is protected by a 0% floor, but you’re still incurring the loan interest rate. For many of our clients, like the real estate investor and entrepreneur we’ve mentioned, that risk is worth the opportunity.
Now here’s another advantage of a policy loan: It doesn’t need to be repaid during your lifetime.
Unlike a traditional loan, there’s no strict repayment schedule — and no credit score fallout or legal consequences if you leave it unpaid.
The loan balance is simply deducted from your cash value and death benefit upon your passing.
On the other hand, if you choose to repay the loan, you’re essentially adding money into your policy that can then go on to earn indexed returns tax-free and transfer to your heirs income-tax-free.
It’s totally up to you.
Another policy loan consideration: You need to maintain sufficient cash value to avoid any situations (like over-borrowing) that could cause your policy to lapse. Work with your IUL specialist to make sure you are managing your policy, allocations, and any loans wisely.
Your Working Capital Account
So if you’re looking to invest in real estate, want to get into a new business venture, or need money to grow your current business, consider the advantages of IUL LASER Funds.
With tax-free policy loans, you can essentially become your own business banker — with IUL’s liquidity, safety, predictable rates of return, and tax advantages on your side.
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