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Annuity Review
- November 1997
A variety of sales ideas, product discussions/comparisons and
miscellaneous thoughts.
Two Sales are Better than One
Using Immediate Annuities to fund Life Insurance
I recently had the opportunity to assist a broker in
a $100,000 indexed annuity presentation. In speaking with the clients, I
learned that the couple, in their early 60's, had a $1 million IRA.
In addition to the indexed annuity sale, the broker
was also presenting a $200,000 face 2nd-to-die policy. I asked the
clients, who had a lot of other assets, why $200,000? They answered that
the premium for a $1 million policy was too much.
I went on to ask about the IRA and they told me their
intention was to leave it to the kids. I suggested using $200,000 of the
IRA to buy a 7-year period certain immediate annuity to fund a 7-pay
2nd-to-die life insurance policy.
If they had died with the $200,00 still in their IRA
it would only be worth about $50,000 to the children because of income
tax and then estate tax. By moving it to an immediate annuity to fund a
$1 million life policy we converted $50,000 after tax to $1 million.
It is becoming common to use highly taxable IRA money to fund life
insurance policies vis-a-vis immediate annuities. And, by the way, you
make two sales instead of one.
Annuity POWER Phrases
When does your CD come due?
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When does your IRA come
due? |
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Who is your IRA with? |
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Are you paying your bank to hold your IRA? |
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Are you still paying taxes on your interest? |
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Who is your CD with? |
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Would you like to bonus your CD? |
Would you rather . . .
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Risk losing your principal, or risk losing your
interest? |
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Pay taxes on your interest, or earn interest on your
taxes? |
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Have a guaranteed return of your principal, or a
guaranteed return on your principal? |
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Did you know you could have both? |
New Found Money that's right under our noses
Let's say you sold your client a qualified annuity
only last year. Perhaps you rolled their 401(k) money into it.
Whatever the case, it's qualified money and,
moreover, it's far too early to be thinking of moving it into a more
competitive annuity--possibly an equity-indexed annuity.
Or is it too early?
Annuities often have 10% free withdrawal privileges.
We can take this penalty-free withdrawal and transfer the available
amount into a brand new annuity. Best of all, it's a qualified
trustee-to-trustee transfer so there's no taxable event.
To illustrate an example, your client rolled $200,000
into an IRA annuity last year, which has been earning 8.0%. This annuity
also allows 10% liquidity after the first policy year. As such, we can
transfer $21,600 into a brand new annuity of your client's choice
(especially because the original annuity is renewing at 5.0%). That's
new found money right under our noses.
To digress on our morals and
ethics for a moment, however, you might be reading this and thinking
"Boy, this sounds like twisting." You know what, at first glance you're
right!
I'm pretty much at the beginning of my career as an
annuity wholesaler, and I certainly don't want to start off by acting
unethically. But wait a minute. If our clients are holding an annuity
that has a 10% free withdrawal feature, they are paying for that
feature.
You bet they are! In one way or another, the price of
this liquidity is built into the annuity; and whether our clients use
this feature or not, they're paying for it. Since our clients are paying
for it, I strongly feel it's their right to use it.
On a final point, we do have to keep in mind that the
typical annuity owner purchases the product for safety, predictability
and simplicity. They purchase annuities so they can sit back and relax.
They don't necessarily want to "buy sell, buy sell"
(or in our case, "buy transfer)." If they did, they would be in the
stock market or something else more exciting.
So while we have our clients' best interest in mind and we want them
to take advantage of the innovative products just coming to the market,
we need to act with discretion and conservatism--just like our clients
would act.
That is a fantastic interest rate on a fully guaranteed product. |
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Fixed
Annuity
Experts
