Laser

What Is Laser?

"Laser" in the context of wealth management is an acronym for "Liquid Assets Safely Earning Returns," a term often used to describe a specific approach to structuring and funding an indexed universal life (IUL) insurance policy. This concept falls under the broader category of financial planning, emphasizing the characteristics of liquidity, safety, and consistent returns that proponents claim a properly managed IUL can offer. The term "Laser Fund" is not a formal financial product or a registered investment vehicle but rather a descriptive label highlighting certain purported benefits of a meticulously designed IUL policy for long-term growth and access to funds.¹⁷

History and Origin

The term "LASER Fund" was coined by financial strategist Doug Andrew to articulate the perceived advantages of a particular way of structuring Indexed Universal Life policies.¹⁵, ¹⁶ Andrew, who began exploring universal life insurance in the early 1980s, shifted his focus to Indexed Universal Life policies when they emerged in the late 1990s. His aim was to identify and popularize financial strategies that could provide both security from market downturns and significant tax advantages.¹⁴ The acronym "LASER" encapsulates the desired attributes of these financial vehicles: ensuring funds are liquid assets, prioritizing safety, and generating competitive returns.

Key Takeaways

• "LASER" is an acronym for Liquid Assets Safely Earning Returns, often used to describe a structured Indexed Universal Life (IUL) insurance policy.
• The concept emphasizes liquidity, safety, and consistent returns, with potential tax benefits.
• A "Laser Fund" is not a registered investment product but a descriptive term for a specific IUL strategy.
• Proponents suggest that properly structured Laser Funds offer tax-free access to cash value through policy loans and can provide a tax-free death benefit.
• It is crucial to work with qualified professionals to ensure any IUL policy is structured correctly to align with "Laser" principles and comply with tax regulations.

Interpreting the Laser

Interpreting the "Laser" concept involves understanding how a properly structured IUL policy aims to achieve its stated goals of liquidity, safety, and earning returns. For investors, this typically means evaluating the policy's cash value accumulation potential, the mechanisms for protecting against market volatility, and the terms under which funds can be accessed. A key aspect of interpreting the Laser approach is its emphasis on utilizing IRS tax codes—such as Sections 72(e), 7702, and 101(a)—to facilitate tax-free growth, tax-free access to funds via policy loans, and tax-free transfer of wealth as a death benefit. Unl¹², ¹³ike traditional investments that might incur capital gains taxes upon withdrawal, the Laser approach attempts to circumvent these by leveraging the unique tax treatment afforded to life insurance policies.

Hypothetical Example

Consider an individual, Sarah, who is 35 years old and wants to set aside funds for future use, including supplemental retirement income and potential emergency needs, while minimizing tax exposure. Instead of solely contributing to a traditional retirement account, she decides to explore the "Laser" strategy.

Sarah works with a financial professional to structure a maximum-funded indexed universal life insurance policy. She commits to paying a consistent, optimized premium for several years. The policy is designed with the lowest possible death benefit to maximize the cash value accumulation, adhering to IRS guidelines for life insurance.

Over the next 20 years, the policy's cash value grows, linked to the performance of a chosen market index (e.g., S&P 500), but with a 0% floor to protect against market losses. If the index performs positively, her cash value earns returns up to a cap. If the index declines, her principal is preserved.

At age 55, Sarah needs to access funds for a significant expense. Instead of withdrawing money (which could be taxable), she takes a tax-free policy loan against her accumulated cash value. The loan itself does not trigger a taxable event as long as the policy remains in force. The cash value continues to earn interest, which can potentially offset the loan interest. This demonstrates the liquidity and tax-advantaged access promoted by the "Laser" concept.

Practical Applications

The "Laser" concept, as applied through properly structured IUL policies, is primarily utilized within wealth management and advanced financial planning for individuals seeking tax-efficient strategies. Its practical applications include:

• Supplemental Retirement Income: Many use "Laser Funds" to create a source of tax-free income during retirement planning, supplementing other retirement vehicles like 401(k)s or IRAs. Fun¹¹ds can be accessed via policy loans, which are generally income tax-free as long as the policy remains in force.
• ¹⁰ Tax Diversification: The approach allows for "tax diversification" by providing a bucket of funds that can be accessed tax-free, alongside tax-deferred (like traditional IRAs) and taxable investment accounts.
• ⁹ Emergency Funds/Working Capital: Due to the liquid nature of the cash value, individuals can access funds for unforeseen emergencies or business working capital without incurring penalties or taxes, as long as the policy is maintained.
• ⁷, ⁸ Estate Planning: The death benefit of an IUL policy, including any accumulated cash value, typically transfers to heirs income tax-free under current tax law (Section 101(a) of the Internal Revenue Code), making it a tool for wealth transfer.

##⁵, ⁶ Limitations and Criticisms

While proponents highlight the benefits of the "Laser" approach, it is crucial to understand its limitations and common criticisms, particularly as it relates to the underlying indexed universal life (IUL) policies. The primary critique often revolves around the complexity and fees associated with IUL products. High internal costs, including insurance charges, administrative fees, and surrender charges, can erode the cash value accumulation, especially in the early years.

Fu⁴rthermore, the "safely earning returns" aspect, while offering market participation with downside protection (a 0% floor), also comes with limitations on upside potential through "caps" or "participation rates." This means that even in strong market years, the policy's growth may be capped, potentially underperforming direct market investments over the long term. Cri³tics also point out that IULs are complex and can be easily misunderstood or misrepresented. FINRA, the Financial Industry Regulatory Authority, has issued investor alerts warning about the risks and complexities of IUL policies, advising careful consideration of their suitability and long-term costs. The² long-term nature of these policies means that surrendering them early can result in significant losses and potential taxable events.

##¹ Laser vs. Indexed Universal Life (IUL) Policy

The terms "Laser" and "Indexed universal life (IUL) policy" are closely related but not interchangeable. An IUL policy is a type of permanent life insurance that offers a death benefit and a cash value component that grows based on the performance of a chosen market index, typically with a guaranteed minimum interest rate (often 0%) and an annual cap on gains.

The term "Laser" or "LASER Fund" is a descriptive acronym coined by specific financial strategists to refer to an optimized and intentionally structured IUL policy. It emphasizes the desired outcomes of having liquid assets that are safe and consistently earning returns, often with a focus on maximizing tax-free access to the cash value through policy loans. While all "Laser Funds" are IUL policies, not all IUL policies are structured to function as "Laser Funds." An IUL policy purchased without careful design to minimize insurance costs and maximize cash value accumulation may not achieve the liquidity and return characteristics central to the "Laser" concept.

FAQs

Q: Is a "Laser Fund" a registered investment product?

A: No, a "Laser Fund" is not a formal, registered investment product like a mutual fund or an exchange-traded fund. It is a proprietary term used to describe a specific way of designing and utilizing an indexed universal life insurance policy, emphasizing certain characteristics like liquidity and tax advantages.

Q: How does a "Laser Fund" provide tax benefits?

A: The "Laser Fund" concept leverages existing provisions within the U.S. Internal Revenue Code related to life insurance policies. The money accumulates on a tax-deferred basis, and policyholders can generally access the cash value through policy loans that are income tax-free, provided the policy remains in force. The death benefit also typically transfers to beneficiaries income tax-free.

Q: Are "Laser Funds" suitable for everyone?

A: Like any complex financial instrument, a "Laser Fund" (i.e., a structured IUL) may not be suitable for everyone. Its effectiveness depends heavily on individual financial planning goals, income stability, and long-term needs. It is best suited for individuals with a long time horizon who have maximized contributions to other tax-advantaged retirement accounts and are looking for additional avenues for tax-efficient savings and wealth transfer. It's essential to understand the fees, charges, and potential limitations before committing to such a strategy.