Doug Andrew Laser Fund Book Review | Chapter 4 What is LASER Fund
everybody it’s chris with life180 and uh today i’m
gonna be doing another breakdown analysis review
of doug andrews laserfund book we’re gonna be
doing chapter four today uh what does laser
fund stand for so let’s get into this i’m
just going to kind of pop right over here
and get right into this into this book so here’s
the deal this is an interesting so laser as you
can see it’s it’s capitalized here would make
me think that it stands for an acronym although
he doesn’t really get into what uh what the
acronym stands for laser he talks about liquidity
uh safety tax advantages but like i don’t see
where that fits into the laser maybe i’m missing
something um happy if anybody has a comment on
what that means definitely let me know but he
doesn’t really go into this uh and give an example
or give that acronym for what it stands for
um that said um looking through here um you know
i’ve just got some uh some fundamentals he tells a
story talks about the importance of liquidity
safety rates of return and tax advantages
um here’s the deal i would agree with all these
things being super important i think this is just
in whole life insurance this is another example of
taking the principles that make whole
life insurance amazing at what it is and
and basically twisting the story and trying
to make it applicable for index universal life
um i’m going to get into this and in a
little more detail as i go through here so
he uses some stories as he goes through
here and he basically says okay liquidity
as an illustration uh let’s say
we have a family the thompson’s
they have extra assets um they don’t have a lot of
extra assets they do have a house they safeguard
what they have they’re basically going through he
tells this story about how they buy a house right
and like the idea of controlling your money having
liquidity when you’re when you have your mortgage
when you have a mortgage the idea is pay the
mortgage off as quickly as possible that’s
what a lot of people that’s kind of like the dave
ramsey’s of the world that’s the probably a core
financial principle that they have is just get out
of debt pay down that principle but the problem is
you have all your money tied up inside of your
mortgage it’s not very liquid and so this is the
conversation about liquidity and the importance
of having control of that money and liquidity uh
can lead to opportunity um and he gives examples
about what would happen if you took that hundred
thousand dollars of equity and instead of having
it there put it aside in a financial vehicle that
provided liquidity with no income taxes right um
so that’s basically where he’s going with this
and and if you haven’t done it i have a video that
i’ve done on how to pay off your mortgage the idea
breaks down all the math behind all of this stuff
so what he’s saying here is actually very accurate
uh philosophically um the problem is putting
it inside of a inside of a index universal life
policy um it is not a predictable like that’s
the part about this that he he misses um that
he’s talking about is liquidity safety rates are
returned tax advantages those are all really good
but those need to be done on a predictable basis
and they are not being done on a predictable
basis inside of an iul i don’t care what they’re
saying like and i’ll go through exactly why as we
go through this chapter so um here’s the deal um
let’s see here what is i got this circled in red
i gotta figure out why i read this chapter like
a week ago and now i’m circling back to it but
um oh yes so he’s saying you do you don’t have to
pay uh the government any penalties if you choose
to cash out your policy earlier so basically what
he’s saying is listen this is this a whole li
or a an iul is what he’s saying a laser fund uh
which is ultimately a properly structured um iul
as he’s saying gives you um benefits and and you
can cash it out you can borrow against it there’s
a lot of ways to access the capital ultimately
without having tax ramifications right so safety
he talks about uh he tells a story um from the 70s
he uh is sharing um a couple actually he shares a
story about a couple who is in their 70s um you
know they they’re growing um their mother passes
away oliver money was in lehman brothers and guess
what it was 2008 lehman brothers failed the money
went up in smoke um so he tells a story about um
ultimately how money can just evaporate and all
obviously like if you haven’t done your research
on this financial institutions in the life
insurance industry historically speaking are
the safest financial institutions in the world
now i’m a little concerned um that index universal
life companies are the companies that are really
focusing on that methodology are not as stable
as the companies that have been around since
the 1840s right like because when you’re when
you’re focusing on having a whole life platform
and and focusing on the principles that go along
with whole life insurance versus index universal
life it’s a completely different methodology on
how you’re managing things right and so the risk
and um the strategies and how you manage your
general account are completely different right um
if you are focused primarily on iul that’s one of
my biggest concerns that i say is like typically
speaking what happens is when you it what always
happens is when you put your money inside an iul
you’re not really participating directly in the
index you’re giving your money to the insurance
company putting it in the in the general fund
and they’re allocating your money according to
the index that you choose inside of that iul now
we live in an environment right now with the world
is just where it is where we’re at all-time
low income rate or interest rate environments
right and so insurance companies right now are
having a hard enough time getting four to four and
a half percent on an annual basis in their general
fund right so all these people like doug andrew
who are out there saying that you can expect a
life insurance company to be able to get you six
percent on a predictable basis from here forward
listen if it were that easy if it could be done
the life insurance company would be doing
that for themselves because if it worked
and it worked predictably right mind you
the life insurance company could do this
without all the insurance charges and fees and all
that stuff the only charges they would have would
be the cost of the options to be able to do it
right so if it worked really well with you paying
for the insurance charges the life insurance
company would do it without those insurance
charges being incurred by themselves right so just
use common sense it’s all i’m asking people to do
here is like really think about this everybody
who wants to bang on me and hate on me for
for all this if you if you assume an iul is gonna
perform at a four and a half percent interest rate
i’m okay with that risk and you may even have
performance that’s a little above that but if you
assume and you and you base an illustration on six
percent or or higher even five and a half percent
or higher you’re setting yourself up for failure
and that that’s my biggest problem it’s not the
problem of an iul chassis it’s the problem of
the expectations around them and how they’re sold
so safety here’s the thing so this is what
he’s talking about safety has two components
uh the safety of the principal and the safety of
the institution in which the money is entrusted so
i.e lehman brothers failed that money went up
what went up in smoke so by having your money
with an insurance company it’s much safer i’ll
agree that it’s safer than an investment bank
even with an iul i’ll agree with that um but the
problem is it’s not as safe as as it could be
and the principle is not actually as protected as
you would think it would be because there there
are uh internal charges in these in these policies
and and that’ll make sense as i go through this
book i’m not going to get into that because
i’ll get off track here but as you go through
this book he’s going to get into more of those
topics and i’ll address them as he does because
i’m sure he’s going to go there so what he talks
about is he gives an example of what would happen
um you know if you if you well i’ll just read now
when you talk about safety of principle ideally
what you want to be is able to protect
your principle from loss even more
you want any gains you’ve experienced to
become newly protected principle in other words
save a hundred thousand in a financial vehicle
that earns a net rate of of seven percent this
year at the end of the year you want to have 107
000 as your newly protected principal which means
even if the market drops uh and the rate of return
is less than zero next year your principal of 107
000 would be intact you wouldn’t lose a dime due
to market volatility so that in summary is just
categorically false because you have expenses and
charges inside of the iul so it’s not that clean
as he explains if you have a hundred thousand
dollars and you’re getting you’re participating
in the index right and it’s a cap of let’s
say ten percent and it’s a floor of zero
and let’s say it does seven percent you’re not
participating in realizing all seven percent
of that you i mean think about it this way if
you do if you buy an iul here’s the thing that
people need to understand iul’s typically have
about a 10 year to 15 year surrender charge but
for the sake of argument let’s just talk about a
10-year surrender period right so what happens is
at the beginning of these policies and i know a
lot of people out there right now have policies
that are under 10 years old what happens is they
have all these different levers that they move
inside of these policies when you have a a policy
that’s five years or less old you’re in the higher
portion of the surrender period so even if you
have cash value growing up in them uh you’re
it’s not as liquid because it’s in the surrender
period so the the amount that’s being credited
from an indexing perspective is higher than you
can actually have liquidity in accessibility to
so when you think about that that’s the other
thing where he’s going to go to next um actually
is that this section right here no he’s talking
safety there so that actually gets into the point
of of the liquidity thing where he’s talking about
after so i’m just gonna hop ahead there right now
is that he talks about later that
these are like the most liquid vehicles
that exist but that’s just not accurate at all
because when you design these the way that i’ve
seen him design them um you’re not extremely
liquid you’re you’re you’re you’re in fact i
mean you you don’t have a lot of access to that
capital and and what he’s talking about here with
you know 100 000 in the market going up seven
percent you’re not participating in all that 107
that seven percent because think about it this way
if i had a ten thousand dollar policy annually and
then ten years from now i had put ten thousand
dollars a year in and had a hundred thousand
dollars if i’m participating at all seven percent
of that then it’s it’s you would i would have you
know more money and on a compounding basis i
would have almost two hundred thousand dollars
right because seven thousand compounding uh
even in simple interest terms i’d have a hundred
seventy thousand right so i’d have probably over
two hundred thousand dollars in that scenario so
in this in this situation you know when when you
look at a properly structured iul you’re looking
at year 10 if you have a one to two and a half
percent internal rate of return annualized over
that period of time that’s a really impressive
thing so if you put a hundred thousand dollars in
you know after all the surrender charges after
everything comes into the in into the equation you
take everything into consideration you’re talking
about the fact that over a 10-year period you’re
not even going to be beating inflation typically
in one of these policies now not that i would
have a problem with that because when you do with
whole life in all fair comparison with whole life
insurance it’s pretty similar um the the fees
work differently the surrender charges you can
design to have a lot more liquidity in a whole
life policy that’s why i love whole life for
entrepreneurs and for real estate investors and
stuff of that nature and people of that sort
um but the reason i don’t mind it with a
whole with a whole life policy is because
whole life has guarantees that equate
it to more of a banking alternative
index universal life has fees and non-guarantees
that equate it to more of an investment
alternative and when you compare the two why am
i gonna go to get the results that i would get in
a whole life policy after 10 years you know and
and take on the risk of an investment portfolio
which is ultimately what you have in you know
with when you’re participating in this index
no you don’t you don’t you don’t have the risk of
losing 20 30 of your account value overnight but
when these don’t perform the way that they’re
illustrated and they don’t eat into that net
amount at risk from a life insurance perspective
as he talks about later your fees get higher and
higher the cost of insurance they can’t increase
your insurance tables most of the time anymore
but as you get older the cost of your insurance
does get more expensive right just look at the
illustration that you were given and and ask for a
cost of insurance breakdown if you haven’t already
because it will show you that on an annual basis
your cost of insurance does go up because you
are getting older it’s like annual renewable
term and so if the early stages of your policy
don’t perform well or what he does is he likes
to fund these things in like five year increments
typically and tries to just really jam a lot of
money in because it gets them more commission
but then what happens is you’re not through the
surrender period yet so after you’re done that
fees and expenses eat into the the performance
of the contract and and it goes from there now
should you keep funding if you follow him
and you do a strategy worst case scenario
if you go that direction you should just keep
funding the policy that way it doesn’t like blow
up on itself but the bottom line is he’s this
even in this book he talks about and it’s in
the next section i’ll get into it but he talks
about the fact that you know you you should you
can fund these you can have these fully funded
in five years and he presses on that and listen
his i’ve dead the doug andrew exposed video i did
talks about the lawsuit that literally and you can
look in the complaint in the filing of the lawsuit
24 000 people complained about the way that he
structured policies and they ended up lapsing
because he really leans on this five-year period
of of of you know funding mechanism and that
leads to a lot of problems so rate of return
i just kind of touched on that is like yes rate
of return is really important the goal is to earn
a competitive rate of return that’s historically
beaten inflation um you know it’s just not doing
it in an eye in an iul after after you talk about
the fees and the expenses and while you’re going
through that surrender period my problem with
this is that you don’t get through the surrender
period for about a decade god only knows where
the world’s going to be in a decade so uh and
and once you get into this you are stuck like i
i’ve i’ve talked to four or five people you know i
can’t sell them anything people call me asking for
for help with these things their policies are not
performing the way they wanted them to be after
three four years and the problem is they’re stuck
even if i could sell them anything i couldn’t
in good faith say hey it’s the best thing for
you to do to move it you either gotta take it
on the chin and pay the surrender fees which
these insurance companies know they’re gonna
do like they know they got you just trapped
when when they get you into these policies because
three four five years once you put two years into
this if then you realize you’re like oh my gosh
if i’ve been paying twenty thousand dollars a
year on this for two years i either basically have
to light that that forty thousand dollars on fire
or at least like thirty thousand of it maybe
maybe twenty five thousand of it on fire
or i have to just keep contributing and
hopefully more and more will become liquid
and and hopefully continues to do well and
the market performs and the index performs and
they don’t drop my cap rates and all these
different variables that come into consideration
hopefully that stuff doesn’t happen so it’s kind
of crazy so uh liquidity safety rate of return tax
advantage so the laser rating once again okay so
then he goes through this chart um where he talks
about um what he’s looking for i’m not going to
get into that like because i don’t want to break
down that’s his stuff whatever so at the end of
the day um top five takeaways um that he looks
for so number one the four fundamental the four
fundamentals of prudent financial strategies are
liquidity safety predictable rates of return and
tax advantages i would add in there that control
is one of the most important parts and you
know that goes along with liquidity and by the
way these are not the most liquid because of the
surrender schedule that follows him the fact that
you know he’s able to say this is is just to me
is horrible now can you structure them to be more
liquid yes you can there are ways to do it um but
the thing is i’ve i’ve probably met two or three
iul agents in my life that actually structure them
where you can do special dumpings and not every
company can do it will allow you to do special
non-commissionable premiums that you can put in
but agents typically don’t do that because they
got to make a living they make money by selling
insurance and so to sell non-commissionable
premiums goes against flies in the face of
what they would do and what i would say is even
if you can do that uh get your money in there
in non-commissionable premium uh capacity
it still doesn’t work out over the long run
um as as good as you would look at as you
would think it would because of the fact that
you’re not in control a lot of the variables
of a lot of the variables in the policy so
safety i would agree safety is super important but
once again these are not the most safe vehicles
that upside potential downside protection if it
were that good i talk about cash value lines of
credit there are banks that go out and lend um
lend money to whole life policyholders leveraging
their cash value at four lines of credit and
saying hey we’re gonna use your cash value in your
whole life policy as collateral and we’re gonna
give you a line of credit tied to that they won’t
do that for index universal life insurance why
because it’s not as safe it’s not safe at all
and so um and they know that and so
there’s a ton of risk and banks are smarter
than your life insurance agent when it comes
to managing risk like that and so if they’re
not willing to do it like to me it’s just common
sense predictable rates of return once again um
it’s not predictable it’s it’s that that’s one of
the biggest problems with this is that it’s far
less predictable in fact than than they will ever
tell you tax advantages yes there are great tax
advantages this if you can happen to accumulate
the cash that you want my biggest challenge with
this overall philosophy what i’ve seen and i
can’t i don’t know this is a bit conjecture on
my point on my perspective right now but from what
i’ve seen is they deal with a lot of people that
are 55 plus dealing with the retirement iul’s
you you know how i feel about them in general
but using an iul for retirement planning when
you’re 55 plus for income purposes is really bad
i mean i think it’s horrible there are other
vehicles that you can use because there’s going
to be so many fees you’re during the surrender
period and you’re not going to give your your
policy enough time to even get any momentum going
for you at all before you’re going to need to tap
into it for retirement income and it’s going to
end up blowing up in your face so i would say if
you’re 55 and older and looking at one of these
things totally steer clear of it uh liquidity is
the ability to access your money when you need
or want it i agree that is a great definition
and these things because of the surrender fees and
the surrender charges during the surrender period
um are not as liquid as you’d think safety
relates to your principle uh protecting your
money from loss due to volatility in the market
and uh the safety of your financial institution
working with reliable companies that
can weather economic storms yup that’s
working with great companies is important um but
that doesn’t mean your money’s safe because those
companies the whole idea of iul is companies are
shifting to selling more indexed universal life
because it shifts the burden of risk when they
have we’re selling whole life insurance all that
risk is on the insurance company to meet those
guarantees when they do iul’s look at the contract
all the risk is shifted to you the policyholder
they can change the fees the cap rates the
internal expenses all these different things to
make it so your policy doesn’t perform to protect
the insurance company so the insurance company
doesn’t go broke but you instead have your
policy have problems in the process right when it
comes to the rates of return you want to earn a
competitive rate return that’s historically beaten
inflation and ideally you want the rate to turn
under taxpayer favorable circumstances i agree i
agree uh ius should do this for you quite frankly
if you structure them max cash value minimum death
benefit um they will beat that but i would say if
you are looking at an iul make sure you call them
out and you say do not run this at more than four
and a half percent if you run it at four and a
half percent and you’re happy with what you see
get it and and you’ll have some upside and you’ll
at least be able to be comfortable and clear on
what your what your realistic results are because
once again that’s what the insurance company is
getting in the general fund you it you cannot
separate the performance long term in an iul from
the general fund and think about common sense if
an insurance company could get six percent for you
using this strategy they would be doing it
for themselves in in in today’s low interest
rate environment but they can’t so uh take that
into consideration uh tax advantage financial
strategies help you avoid paying unnecessary
taxes yup that’s true i talked about the taxes
in the last chapter if you haven’t watched it go
back watch chapter three um really good i actually
agree i think he does a really good job quite
frankly talking about a lot of the tax stuff um he
takes these principles and essentially bastardizes
them it’s it’s really uh it’s it’s horrible um
but anyway that’s my breakdown of this section i
still don’t get what laser fun stands for quite
frankly i i don’t understand um but at the end
of the day i guess that doesn’t really matter so
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blessed inspirational day and i look forward
to seeing you on the next video take care
