steve walther 208-870-7688 swalther@anallianceforlife.com an alliance for life maximizing the equity...

Steve Walther208-870-7688 swalther@anallianceforlife.com

An Alliance for LifeMaximizing the EQUITY INDEX.A Comparison between

Equity Indexed Annuities & Equity Indexed Life Insurance

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?

• The 3 “T’s”…

•TICKING TAX

TIMEBOMB!Taxes

• 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)

Concerns

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

• 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.

ANNUITY REALITY CHECK

• 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 RatesAll Equity Indexed Products

Are NOT Equal.

• 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!!!

Cap Rates

• 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!).

Life Insurance Fact Check:

• 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).

Advantages of Life Insurance:

• 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.

Death Benefit Leverages Living Benefit Riders:

Equity Indexed Annuity Equity Indexed Universal Life Equity Indexed

Universal LifeAssumes 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

Year

Account Value

Amount to Heirs Year Account

Value Death Benefit Year Account Value

Death Benefit

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

Annuity: Assumes 24% tax bracketLife: Guideline Minimum DB, 50 yr old Male, STAN N/S.

For Agent Use Only, Not For Use With The Public.

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

YearAccount Value Amount to

Heirs Year Account Value

Death Benefit Year Account

ValueDeath

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

Male A65 Standard Female A65 Preferred

For Agent Use Only; Not for Use With The Public

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

YearAccount Value Amount to Heirs Year Account Value Death Benefit

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?

• 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.

• 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

EIA vs. EIUL Recap:

Steve Walther208-870-7688 swalther@anallianceforlife.com

An Alliance for LifeMaximizing the EQUITY INDEX.A Comparison between

Equity Indexed Annuities & Equity Indexed Life Insurance

Thank You