Transcript Do you have clients that have Annuities?

An Alliance for Life
Maximizing the EQUITY INDEX.
A Comparison between
Equity Indexed Annuities & Equity Indexed Life Insurance
Steve Walther
208-870-7688 [email protected]
Do you Have Clients
that own Annuities?
•Why?
•Why Do People Buy
Annuities?
• Safety?
• Tax Deferral?
• “Rainy Day” Funds?
• Income?
• To Avoid Probate?
• Legacy?
Are there Problems with Annuities?
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• The 3 “ ’s”…
•TICKING TAX TIMEBOMB!
Concerns
• Tax Deferred…BUT…the Government will get
theirs!
• Tax on Withdrawals (Annuitization/Exclusion Ratio vs W/D’s)
• Limitations on Withdrawals (both contractually & by the IRS with
w/d’s prior to A59 ½)
• When Annuitant dies, ALL GAINS ARE TAXABLE
TO THE HEIRS AS ORDINARY INCOME.
Concerns
• What about Returns?
• What are current fixed annuity rates?
–2%, 2.5%, 3%?
• What are current Equity Indexed
Annuity Cap Rates?
–3%, 3.5%, 4%? (0% Floor)
ANNUITY FACTOID
• 90% of Deferred Annuities
Pass Onto the Next Generation
Without Ever Being Annuitized.*
• So…remember to ask your client,
“Why Do You Own an Annuity?”
* “Ten Things the Average Person Does Not Know About
Annuities,” The Source for Senior Living, 2014
ANNUITY REALITY CHECK
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There are really good reasons to own annuities.
Guaranteed Income Stream.
Income that you can’t outlive.
Can be “PART” of one’s over all plan.
Make sure your client knows benefits & potential
pitfalls before you recommend one.
• And if they already own one, remind them why
and affirm that their original objectives are still
the same as they were at the time of purchase.
Cap Rates
All Equity Indexed Products
Are NOT Equal.
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Equity Indexed Annuity Cap Rate: 3.5% to 4%
Equity Indexed Life Insurance Cap Rate: 11-14%
Why the difference?
Carriers are required to maintain higher reserves
for Annuities than for Life Insurance.
• The actual Cap Rates will go up & down
depending on market volatility, which helps set
the price of the options that ultimately
determine the crediting for Indexed products.
Cap Rates
• So…Why may a Life Insurance Contract be
worth a look when considering an Annuity?
• Equity Indexed Annuity: 3%-4% Cap
• Equity Indexed Life Insurance: 11%-14% Cap!!!
Life Insurance Fact Check:
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MEC
Modified Endow Contract
What is it?
Like an annuity, but better!
Can be Single Premium.
Tax Deferred.
TAX FREE DEATH BENEFIT!
2 of the 3 normal tax benefits of non-MEC Life
Insurance.
• Withdrawals are taxed as ordinary income (if gain
in contract…just like annuity!).
Advantages of Life Insurance:
• Tax Deferred Growth (same as Annuity).
• Death Benefit Avoids Probate (same as Annuity).
• Tax Free Death Benefit (Annuity gains are taxable as
ordinary income to heirs).
• Much higher Cap Rates
• If Non-MEC, Tax Free Distribution via w/d of basis
and policy Loans (Annuity withdrawals are taxable).
• LIVING BENEFIT RIDERS! (some Annuities have LTC riders
that provide access to annuity values with penalty).
Death Benefit Leverages
Living Benefit Riders:
• Annuities: Contract Owner can use annuity values
to pay for Critical, Chronic and Terminal Illness
situations.
• Life Insurance: Contract Owner can use much
higher Death Benefit Value to Leverage greater
amount of money.
Equity Indexed Annuity
Equity Indexed Universal
Life
Equity Indexed
Universal Life
Assumes 4.0% Cap;
Assumes hitting cap "ALL YEARS."
Assumes 7.0% Level
(Actual Cap 13%, 0% Floor)
Assumes 7.0% Level
(Actual Cap 13%, 0% Floor)
$100,000 Deposit
$100,000 Deposit MEC
NON-MEC Prem Deposit Fund
Account
Value
Amount to
Heirs
Year
Account
Value
Death Benefit
Year
1
$104,000
$102,880
1
$98,861
$289,375
1
$18,324 $379,505
5
$121,665
$115,599
5
$121,358
$311,780
5
$104,328 $379,505
10
$148,024
$134,577
10
$157,443
$346,753
10
$153,965 $379,505
15
$180,094
$157,668
15
$217,073
$414,218
15
$211,609 $403,792
20
$219,112
$185,761
20
$297,119
$498,328
20
$289,630 $485,767
25
$266,584
$219,940
25
$403,686
$601,856
25
$393,500 $586,669
Year
Account
Value
Annuity: Assumes 24% tax bracket
Life: Guideline Minimum DB, 50 yr old Male, STAN N/S.
For Agent Use Only, Not For Use With The Public.
Death
Benefit
Equity Indexed Bonus Annuity
Equity Indexed Universal Life
Equity Indexed Universal Life
Assumes 3.50% Cap; 8% Bonus Yr 1
Assumes hitting cap "ALL YEARS."
Assumes 7.0% Level
(Actual Cap 13%, 0% Floor)
Assumes 7.0% Level
(Actual Cap 13%, 0% Floor)
$100,000 Deposit
$100,000 Deposit
$100,000 Deposit
Account Value
Amount to
Heirs
Year
Account
Value
Death
Benefit
Year
Account
Value
Death
Benefit
1
$111,780
$108,482
1
$91,293
$180,343
1
$91,669
$203,015
5
$128,270
$120,354
5
$107,070
$186,502
5
$110,117
$213,701
10
$152,345
$137,688
10
$132,033
$198,013
10
$140,427
$232,358
15
$180,938
$158,275
15
$180,294
$242,658
15
$193,330
$283,770
20
$214,897
$182,726
20
$240,034
$297,330
20
$260,579
$332,433
25
$255,230
$211,766
25
$314,840
$366,159
25
$346,555
$424,010
Year
Male A65 Standard
For Agent Use Only; Not for Use With The Public
Female A65 Preferred
Equity Indexed Bonus Annuity
Equity Indexed Universal Life
(Survivorship)
Assumes 4% Cap; 8% Bonus Yr 1
Matches last 25 years crediting with 4%
cap, 0% floor.
Assumes 7.0% Level
(Actual Cap 13%, 0% Floor)
$100,000 Deposit
$100,000 Deposit
Account Value Amount to Heirs
Year
Account Value
Death Benefit
Year
1
$112,320
$109,363
1
$86,385
$291,488
5
$129,011
$122,048
5
$104,307
$291,488
10
$156,961
$143,290
10
$151,375
$291,488
15
$157,194
$143,467
15
$218,932
$291,488
20
$242,741
$208,483
20
$310,686
$326,220
25
$283,973
$239,819
25
$440,543
$462,570
Male & Female, A65, Elite
For Agent Use Only; Not for Use With The Public
What about IRA/Qualified Money?
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What happens to IRA when owner passes?
RMD: Required Minimum Distribution, A70 ½
Ordinary Income Tax Rate
What if we took out 5% or at least enough to
cover RMD’s and transitioned into Life
Contract?
• Provides leveraging of Assets for LBR’s.
• DB provides liquidity to potentially offset tax
owed by IRA beneficiaries.
EIA vs. EIUL Recap:
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Ask, “WHY DO YOU OWN AN ANNUITY?
Tax Deferral? Safety? Legacy? “Rainy Day” Funds?
What are current rates with fixed annuities?
Cap rates on Equity Indexed Annuities?
What is a MEC Life Insurance Policy?
MEC Contract hasTax Deferred Growth, Tax Free DB vs. Annuity
with Tax Def. Growth, Gains taxable at death to heirs.
A MEC is like an annuity with tax free DB.
Premium Deposit Fund, 2.5%
Opportunities: Look for clients that have annuities!
Single Pay or take money out of annuity over time.
Create more Legacy $$, Create current available cash value, and
create more funds available for Critical & Chronic Illness.
IRA & Qualified Funds, RMD’s
An Alliance for Life
Maximizing the EQUITY INDEX.
A Comparison between
Equity Indexed Annuities & Equity Indexed Life Insurance
Thank You
Steve Walther
208-870-7688 [email protected]