Fixed Indexed Annuity –

This is a guaranteed annuity. Instead of locked in interest rates, this annuity is tied to a variety of equity investments such as the Standard & Poor’s 500 Index (S&P500). The S&P500 Index is comprised of the nation’s largest 500 corporations. In years when the S&P Index increases in value, a significant portion of the gain is captured as increased value in the annuity contract. In years when the S&P Index has zero growth or even has a negative return, the annuity contract will not decrease in value. Some annuity contracts have a two year rule, which means if the S&P has had growth during those two years, then the value of your annuity is automatically locked in should the following two year period show a decline in the S&P Index. For example, if the S&P Index allows your annuity contract to grow from an initial investment of $100,000 to $120,000, the value of your annuity policy will be locked in at $120,000. If the S&P Index grows again during the next two years, your $120,000 value could grow by another $10,000 in this example to $130,000 and be once again locked in at the end of the 2nd two year period. If, during the next two year period, the S&P Index had negative returns, the value of your annuity policy would remain at the $130,000 value. To continue the example, let us assume the S&P Index had another two years of negative return. Your $130,000 value would not be lowered. Assuming the S&P Index once again had growth during the next two year period, the value of your annuity would once again grow and as in the past, the value of that two year period would again be locked in.

Every Fixed Indexed Annuity policy will have surrender charges if the policy is cashed out in the early years. Most contracts have declining surrender fees over a 10-12 year period of time. During this time, most companies allow a 5% to 10% free withdrawal without incurring surrender charges. In addition, the IRS wants you to understand this type of policy is geared more for retirement and like IRA’s and 401k’s, there is an IRS penalty if certain funds are removed from the annuity policy prior to age 59 ½ . There are ways around this by having the policy convert to an income stream. Often times, these annuities are initially purchased solely to be placed into an income mode.

Single Premium Deferred Annuity (SPDA) – These are guaranteed insurance products which will allow your earnings to grow tax deferred. The tax accounting is on the Last In First Out basis (LIFO) meaning whatever you take out of the annuity first will be considered earnings. This in itself is not a problem as most investors will eventually convert their annuity from an Accumulation Stage to an Income Stage which will pay the investor a guaranteed income over various payout options including

  • For the rest of the investors lifetime with a guarantee period to assure the investor’s beneficiaries will receive a certain dollar amount should the investor die prematurely.
  • Period of time only which will pay for a designated period of time which could be as few as five years or as long as 20 years or more. In this option, there is no payment guaranteed for the duration of the investor’s lifetime, only for the period of time selected.

Single Premium Immediate Annuity (SPIA) – Unlike the Deferred annuity, the SPIA starts paying the investor immediately for the same basic options.

Life Insurance –

  • Extremely low cost Term Life Insurance. This type of policy will cover the insurance needs for a specific period of time. Common options are 10yr, 15yr, and 20 year, although other options do exist. This is the lowest cost life insurance available. It does not build cash value and will simply pay the full face amount if the insured dies during the policy period selected.
  • Indexed Universal Life Insurance. This is a very unique product which is purchased not only for permanent coverage for the insured’s lifetime, but just as important, for the potential of high cash value growth as it is tied to the same type of S&P Index option as the Fixed Indexed Annuity. One reason investor’s acquire this type of insurance is the ability to “Borrow” the cash value growth as policy loans. These loans allow an investor to have access to high cash amounts for income and as long as the policy is inforce at the time of the loan, the death proceeds cover the loan amounts. Thus, a tremendous amount of cash is borrowed (under current tax laws) as tax free loans.
  • Life Insurance for caregivers can be purchased with settlement funds with or without court approval. Are you a parent or guardian of someone who will need care for the rest of their life? What happens to them when you pass away? Life insurance on a caregiver can provide safety and protection for someone in need of care.
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