Can You Use Someone Else’s Life for Insurance? (IUL Edition)

What are surrogate insured and when should a surrogate insured be used? How do you do it? In this episode, I want to make it extremely clear that you should exhaust all possibilities of putting the life insurance on the primary, you know, premium payor or the owner if you can. Only when they are totally uninsurable would you seek to use a surrogate and that's where you're borrowing somebody else's life to insure. Don't assume that you should just jump to a surrogate because the surrogate is younger that the policy is going to perform better. If you understand how to structure a max-funded IUL correctly, it doesn't matter how old or how unhealthy the insured is. If they get approved, you can squeeze down the death benefit so it performs as well as somebody in their 20s, okay? So, get ready. I think you're going to be blown away with what you learn regarding the topic of surrogate insureds, when and how to use a surrogate. So, I'm Doug Andrew and I've been involved as a financial strategist and a retirement planning specialist now for five decades. And I've helped thousands of people prepare for long-term goals such as a comfortable retirement to not outlive their money, to have their retirement nest eggs immune from taxes, inflation, market volatility. And I use property structure max-funded IUL to do that. And so, once you understand the power behind structuring an IUL policy correctly so that you're taking the amount of insurance that you can get away with and then you're designing it to accommodate the amount of money, the most money that you want to put into it as fast as you're allowed under the IRS guidelines, it performs as a tremendous tax-free capital accumulation tool that knocks the socks off of most other savings or investment alternatives such as IRAs or 401ks or mutual funds or stocks or bonds or what have you. So, it's the only vehicle in the internal revenue code that allows you to accumulate your money tax-free and then be able to access that money income tax-free and when you ultimately die it blossoms and transfers tax-free. And if you structure it correctly you can earn average returns in the six to ten percent range pretty doggone predictably and some years much higher than that. And so, because of rebalancing and diversification on this channel you can see actual client policies that have performed and earned average rates of return of 11 percent and 14 percent and 16 percent. I like to be conservative when I talk about it usually between six to ten percent tax-free which would be actually the equivalent of earning 12 to 16 percent in a tax-deferred IRA or 401k and then having to pay tax on the back end. So, when people finally get it and they want to apply for an IUL policy and sometimes people apply for two or three or four simultaneously to diversify you don't have to do you don't have to overkill by by submitting to eight different insurance companies. But many times people will then see if they can qualify for the insurance because it's going to require underwriting. And so, I've talked on this channel about the medical underwriting guidelines to be able to pass physically. The financial underwriting guidelines you've got to be able to qualify based upon your income or your net worth. So, when you're applying for the life insurance generally speaking the people that are utilizing this the most are those people that are 55 to age 80 years old. Because if you understand how it works if you're 60, 65, 70, 75 years old sometimes most people think well if you're older the insurance is going to be really expensive. Then you're not understanding how to structure it correctly because it really doesn't matter how old you are up to about age 80 or how unhealthy you may be. If you submit the application to the insurance carrier and if you get approved even if you're rated table D or even I've had clients that have been rated not only double but triple and quadruple you just squeeze down the death benefit. You lower the death benefit that you applied for and now the cost of insurance is the same as if they were applying at age 25 in super health and there's a lot of agents that don't understand what I just said. So, you want to exhaust all possible ways of hopefully getting the older person that wants this. They want the tax-free accumulation tax-free income to get them approved. Don't just assume well I would rather use their kids or their grandkids because the policy's going to be cheaper. No, it'll perform if you can rebalance and diversify like we have and if you could earn an average of 11% which I've done since 1997. I've averaged 9.6% since you know 1980. What you're wanting to do is if you earned 11 you want to net 10. If you earn 9.6 you want to net 8.6 cash on cash. You only want one percentage point to be going out the window so to speak and the expenses of the insurance. The risk of you dying but it doesn't matter how old you are or how unhealthy because that you get you get away with less insurance for the amount of money you want to put in and so you're able to earn a rate of return of 9.6 and net 8.6 just like a 25-year-old does. The 25-year-old has to have more insurance coming along for the ride so to speak under TEFRA and DEFRA. So please understand that when you are tempted to use a surrogate you don't go that route until you've exhausted all possibilities of getting the older person in this case every opportunity to be approved by an insurance underwriter even if they're rated. Now if they're totally uninsurable you can also use maybe a second to die universal life policy and they they're sort of the uninsurable portion of that that second to die because it's on two lives and their spouse is the insurable one. Yeah you could do something like that but what is a surrogate and when do you use a surrogate? So if the person that wants the insurance let's say they're well let me give you an example. I had a friend of our family clear back in the 1980s who was 78 years old okay and we were prepared to use his spouse or his two adult children to put the insurance on. He had three blocked arteries. He cleaned that up with angioplasty. He had adult onset diabetes but he was controlling that pretty good with diet and exercise he had a prostate cancer episode but his PSA levels were pretty good at the at the time we submitted his his application. He had six sisters that all were six feet under and he had three brothers that were all six feet under. He was the sole survivor in his family of ten but he had better lifestyle. He didn't use tobacco or alcohol than his siblings. When we submitted his application to two or three different insurance companies he got approved and he was rated table D which means the cost of insurance was double what it was for a normal 78 year old. His life expectancy was that of an 83 year old. All we did is we squeezed down the life insurance from a million which is is what it would have been if he would have been healthy and we just lowered it down about 750,000 and now the 500,000 he was putting into it was earning 11 and netting 10. Just as if he was 25 years old doing this but if he was 25 he would have been required to have five million of insurance. So, you just squeeze down the insurance. Now, if he had been totally turned down totally uninsurable then we would have gone this route the surrogate route. But the surrogate route it's better to use somebody who is extremely close such as a spouse. We could have used his wife who was in good health because when you're submitting an application and you have a surrogate the underwriters are looking at okay what is the reason and justification for the amount of insurance applied for meaning how is the beneficiary that you're naming on this application if this insured dies how is this beneficiary going to be suffering an economic loss by virtue of their death. That's called an insurable interest. You've got to prove that the beneficiary that you are naming has an insurable interest. It's got to be a close relationship. So, it's a little bit easier when you're using a spouse as a surrogate that the same reasoning of having the insurance on in this example him would be the same reasons why we put it on her even though she wasn't the primary breadwinner let's say. But nonetheless, it's to help their children and their grandchildren and their family bank, their dynasty, legacy, trust, whatever. And so, it's probably easier to use a spouse as a surrogate than going to the children. Now, if she would have been uninsurable then the next choice would have been their two children and by putting it on their son and their daughter who had also children then you would probably submit that application saying the insured are the adult children and the beneficiary could be the family trust. It could even be their children. But it could be the family trust which then you submit with the application showing that those that would suffer economically by virtue of their adult children's death would be their children and their posterity. But in actuality, the owner of the insurance policy on the adult children is the patriarch of the family or maybe the family trust. And so, you want to make sure that when you're using somebody else's life to ensure that again you can justify the amount of insurance you're applying for by proving that the beneficiary named in the application will suffer economically by virtue of their death and if that is in the guidelines of the insurance company with the underwriters then they'll approve it. Now, as soon as it's issued, you know, you can change the owner. So, even if the insured was the owner, you could have that owner changed over to the patriarch of the family if they're on a good relationship or whatever. If you submit the application and you're the owner and you're using somebody else's life to ensure they may say why are you owning this policy and so you have to have a good reason for that or else let the insured be the owner if you can trust them to change the ownership of the policy back over to you and then maybe they're the contingent owner in the event of a death or a change or whatever. So, that is what a surrogate is. You're borrowing somebody else's life to ensure. You use it as sort of a because you can't just use the assumption that well I'm going to use a younger surrogate because it's going to be cheaper. No, if you can get the older person approved even with the rating the cost of insurance will still be the same because you're squeezing down the death benefit if you know how to do that and so then how do you do it? If you have to because they're totally uninsurable then you start with maybe their spouse then their adult children then maybe the grandkids you could use a business partner with the buy-sell agreement or something like that. That's when you're owning life insurance on somebody else but there must be a reason why you are owning that policy and you must justify the economic loss that's going to be suffered at the named beneficiary by virtue of the insured's death. Does that make sense? It's not really that complicated. So, that's what a surrogate is. I've used surrogates but it's sort of the last resort after I've exhausted all attempts to put the insurance on the premium payor and the owner of the policy in most situations. Now, if you want to learn more about what I've just been talking about I would recommend that you claim a copy of my book The Laser Fund. It's co-authored by my two sons. This has been flying off of our warehouse shelves. We send out sometimes 500 of these a week and you can get it on Amazon for 20 bucks which if you do thank you but I'll gift you one free. It's 300 pages jam-packed with charts graphs and explanations 14 chapters on this side and on this side 12 chapters with 62 actual client stories and so in this book you will learn all kinds of answers to questions such as this by immersing yourself in The Laser Fund book and so if you'd like to claim a free copy simply go to laserfund.com or click on the link below and you contribute a nominal amount towards the shipping and handling. I require a little bit of skin in the game and then I'll cover the rest of that and I'll pay for the book. Now, I'm going to fire out a hard copy to you via priority mail but here's the deal when you're in there claiming it. If you like to listen and learn or watch and learn check out the but also there's a chance to schedule an appointment a quick consult with no cost or obligation with a certified IUL professional and there's very few of them in the country because they have to pass a hundred question proficiency exam with a hundred percent. They can't be certified if they just get 70 or 80 or 90 on the exam and so they have to prove backwards and forwards they know what they're doing. So, you may want to explore how a laser fund a property structured IUL may work in your particular set of circumstances and so then you can schedule a quick consult to talk to them and if you decide not to do anything there's no there's no invoice for their time or anything like that. Is that fair enough?