Presentation on theme: "1 Michael Harrison Associate Director, Sales and Education Single Premium Immediate Annuity."— Presentation transcript:
1 Michael Harrison Associate Director, Sales and Education Single Premium Immediate Annuity
2 FOR AGENT USE ONLY-Not to be Distributed to the Public 2 Income Annuity Products Single Premium Immediate Annuities (SPIA) - A single premium paid to an insurance company, - Provides a regular stream of income, - Can be guaranteed for life or a certain period. SPIA’s can be purchased with: -Non-qualified funds (savings accounts, mutual funds or deferred annuities) -Qualified funds (qualified retirement plan or IRA transfers)
3 FOR AGENT USE ONLY-Not to be Distributed to the Public 3 Life Contingent options: Lifetime Income – Ends on death of annuitant; greatest income per dollar of purchase price. Lifetime Income with Certain Period – For life or certain period, whichever is longer. Installment Refund – Lifetime Income; if annuitant dies before premium is recovered, payments will continue to be paid until the total amount paid equals the initial premium. Cash (Lump Sum) Refund – Lifetime Income; if annuitant dies before the premium is recovered, the balance of the premium is paid in a lump sum to the beneficiary. Certain Period option: Certain Period – Provides periodic payments for a specific length of time. Hybrid option: Temporary Life - Payments continue for life of annuitant or the certain period, whichever is shorter. Payout Options
4 FOR AGENT USE ONLY-Not to be Distributed to the Public 4 Tax-Advantaged Approach American General’s Platinum Income Annuity enjoys tax-favored treatment under current federal income tax laws in four important areas. 1035 Exchanges / Trustee-to-Trustee Rollovers - Exchanging an annuity contract, or life insurance policy; or rolling over a qualified retirement plan or IRA to an immediate annuity is not a taxable event. Exclusion Ratio- Premium from nonqualified or after tax dollars, a portion of each payment is taxable. Remainder of payment is return of principal until original principal has been received. This is an advantage over most deferred annuities which are considered return of interest first and are 100% taxable until all interest has been withdrawn. Spreading Tax Liability- Premium from qualified or pretax dollars, taxable only when distributed. By spreading out tax liability over many years, an immediate annuity helps minimize annual tax bills. Avoiding the 10% Tax Penalty for Distributions Before Age 59 ½ - Qualified funds distributions made as part of a series of substantially equal periodic payments for life (or life expectancy) are exempt from the 10-percent tax penalty as per 72(t) of the Internal Revenue Code. For nonqualified funds distributions, 72(q) allows for an exemption if an immediate annuity is purchased.
5 FOR AGENT USE ONLY-Not to be Distributed to the Public 5 Current Market for SPIAs - Current estimated retirement assets (defined contribution plans and IRAs) is over $3 trillion - Current estimated annual distribution is 8% or $240 billion - Current SPIA sales approximately $3.8 billion (fixed and variable) If SPIA sales were just 10% of the annual distribution market, sales should be around $24 billion
6 FOR AGENT USE ONLY-Not to be Distributed to the Public 6 Reasons for Purchase
7 FOR AGENT USE ONLY-Not to be Distributed to the Public 7 Reasons for Purchase - Guaranteed Lifetime Retirement Income - Portfolio Diversification - Funding Long Term Care & Insurance Policies - Estate Planning - Funding Divorce Decrees & Property Settlements - Annuitizations - Funding Retirement Home Costs - Satisfy IRS required minimum distributions - Avoid IRS penalty taxes
8 FOR AGENT USE ONLY-Not to be Distributed to the Public 8 Sales Idea: Annuity Maximization Client has annuity assets that will not be used Transfer to life insurance Eliminate income and estate taxation at death
9 FOR AGENT USE ONLY-Not to be Distributed to the Public 9 Annuity Maximization Solution: Annuity Maximization –Move money out of the deferred annuity by systematic withdrawal or a SPIA –Pay taxes on proceeds –Use after tax money to fund ILIT –ILIT purchases insurance to cover taxes (estate & income) VUL, UL, or Whole Life 2nd to die VUL, UL, or Whole Life Individual Policy
11 Deferred Annuity Survivorship Policy 10% Withdrawal Tax Free Distribution of Life Insurance Proceeds at Death Less Accumulated Value – Smaller Tax Bite at Death
12 FOR AGENT USE ONLY-Not to be Distributed to the Public 12 Systematic Withdrawals (continued) Systematic withdrawal method to age 100 = $6,505 After tax proceeds = $4,553 Buys Platinum Survivor Ultra 500 = Level death benefit of $391,627 10% Free Withdrawal Option $50,000 – Basis $50,000 – Accumulated Value $100,000 – Total Value Male Age 70 Female Age 70 Tax Bracket = 30%
13 FOR AGENT USE ONLY-Not to be Distributed to the Public 13 Benefits Keep access to money for emergencies Can change payment amounts paid into life insurance Downsides Taxes paid by last in, first out method Deferred annuity interest rates can be lower than alternatives Have to “guess” when clients will die or be conservative Income and estate taxes due on assets remaining at death Deferred annuities do not pay commission when annuitized Systematic Withdrawals (continued)
15 Deferred Annuity Immediate Annuity Survivorship Policy 1035 Exchange Tax Free Distribution of Life Insurance Proceeds at Death No Value – No Assets Return to Estate at Death
16 FOR AGENT USE ONLY-Not to be Distributed to the Public 16 SPIA Method (continued) Purchase Joint and 100% Survivor SPIA = $8101.74 After tax proceeds = $6,380 (based on 29.2% exclusion ratio) Buys Platinum Survivor Ultra 500 = Level death benefit of $548,656 10% Free Withdrawal Option $50,000 – Basis $50,000 – Accumulated Value $100,000 – Total Value Male Age 70 Female Age 70 Tax Bracket = 30%
17 FOR AGENT USE ONLY-Not to be Distributed to the Public 17 SPIA Method (continued) Benefits Systematically utilizes premium & interest based on actuarially sound pricing Maximizes amounts paid into life policy Guarantees payments for the life of clients Payments can be made directly to life carrier No amounts left upon death so income/estate taxes are minimized 1035 exchanges into SPIAs pay commission to agents Period can be predetermined so limited pay plans can be used Downsides Non-surrenderable so payments are locked in
18 FOR AGENT USE ONLY-Not to be Distributed to the Public 18 Other Opportunities When assisting clients on the Annuity Maximization strategy, you might run across clients who either: A) Have had health problems and their life insurance will be table rated, B) Want to pay for their life insurance in a limited pay situation in order to build up the values in the policy.
19 For client with health concerns, use Impaired Risk SPIA’s
20 FOR AGENT USE ONLY-Not to be Distributed to the Public 20 Impaired Risk Opportunities For individuals with medical conditions that may reduce their life expectancy, Clients are assessed based on medical conditions and ages are rated by a physician, Rated ages are higher than the client’s actual age, Rated ages increase the benefit payment per dollar of premium. Chart based on $100,000 in premium for a male age 70. Rates effective as of 07/16/2002. Rates are subject to change at any time.
21 FOR AGENT USE ONLY-Not to be Distributed to the Public 21 Impaired Risk Continued 1. Provide Medical Information Medical information from treating physician goes to the immediate annuity team. In compliance with the Gramm-Leach-Bliley Privacy Act of 1999, a valid customer authorization or release must be provided when submitting medical records for all impaired risk annuities. 2. Impaired Risk Assessment A medical underwriter will review and assess information. The standard for completing this estimate is 24 hours. 3. Quote Generation and Delivery The immediate annuity team will deliver an impaired risk quote within 48 hours. This quote will show the actual and rated ages used. A Rated Age Letter which will explain the rated age and that the rating will stay in place for one year will also be sent.
22 If your clients want a great way to fund limited pay life insurance policies - Use a Temporary Life Immediate Annuity
23 A Temporary Life Immediate Annuity is a payment option where payments continue for life of the annuitant or the designated period, whichever is shorter.
24 For example take a 70 year old male who is needing $500,000 in life insurance Temporary Life - an example Illustration based on purchase of a Platinum Provider Ultra UL policy using current values. Limited pay requires $22,207 per year. SPIA rates based on those in effect as of 07/16/02. Rates subject to change at any time.