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Archive for the ‘Annuities’ Category

Once the decision to buy an annuity is made, the annuity purchaser needs to understand the fundamentals of the different annuity plans. And as an annuity purchaser, you also need to be aware of the specific factors that will impact your annuity choices.

Annuity Basics

An annuity is basically a contract by which an insurance firm provides you with a series of payouts on a regular basis in exchange for premiums you’ve paid to the company. Annuities are usually purchased to provide income during retirement, since they can guarantee that an income will continue for the entire lifetime of the contract owner and ensure that funds will grow on a tax-deferred basis as long as they are not withdrawn from the plan. There are several different types of annuities, each with its own advantages and potential negatives. Annuity types include single premium and multiple premium plans, immediate or deferred plans, and fixed or variable annuities.

Causes for Concern

As an annuity purchaser, you have reason to be wary. Many annuities can be obtained only by confronting a variety of confusing details, restrictions, and high fees. And many annuity products also offer various add-ons that provide a significant level of customization for the annuity purchaser’s unique circumstances. If you make the right choice, annuities can make a positive contribution to your investment portfolio.

Examine These Critical Factors

Fees: Determine whether the yearly fees imposed on an annuity plan are worth the benefits you’ll derive from it, and find out if the plan imposes “surrender fees” if you want to make an early withdrawal.

Return Rates: Make sure that the return rate promised by the insurance company selling the annuity is actually the rate you will receive. Confirm the period of time during which that rate will apply. Sometimes, the guaranteed rate of a fixed annuity decreases after an introductory period. And check the long-term financial soundness of the insurer, since it has promised to pay you benefits over many years.

Tax Advantages: Consider that you will have to pay ordinary income taxes on payouts your receive from your annuity program. You will pay a tax penalty if you take money out of the plan before you reach the age of 59.5 years.

Inflation: The income provided by an annuity may decrease in the face of inflationary pressures. You can decide to purchase inflation protection for your plan, which is probably worth the added fee.

Contract Terms: Consult an independent financial adviser before you purchase any annuity contract. These contracts can be extremely complicated. Also be aware of advice to switch to a new annuity plan, however. High surrender charges could apply if you change plans before the original surrender period has run its course.

An annuity can be thought of as a bucket. You place money into the annuity bucket and your bucket of money is treated differently than your other financial planning buckets.

Annuities & Taxes

· You give the insurance company your money (premium) for your annuity. If you already paid taxes on this money, you are making a contribution and will never be taxed again.

· Once you place your money into one of the many types of annuities, your account value will continue to grow. Unlike a savings account, CD, or mutual fund your earnings will not be taxed at the end of the year.

Annuity Distribution

Eventually the IRS will at some point collect taxes on the earnings.

· If and when you take a withdrawal from your annuity, you will have to pay taxes on the interest first. This is what we in the industry call Last In First Out (LIFO). 100% of your earnings are taxed at ordinary income tax rates instead of capital gains tax rates.

· Taking money out of your annuity before 59 1/2 will subject you to an IRS penalty of 10%. Annuities are retirement vehicles and are treated the same as an IRA or other qualified tax plans. Most annuities allow for at least 10% account withdrawal every year so the annuity itself is very liquid.

· There are no IRS penalties if the owner takes out distributions after attaining the age of 59 1/2 or after the death of the owner of the annuity policy.

· No penalties if you are disabled

· Structured settlement court agreements

· Required Minimum Distribution (RMD) – Once the annuity owner turns 70 1/2 the government requires you to take a distribution from your annuity contract

· IRA penalty- Failure to take your RMD at the end of the calendar year will result in an IRS penalty of up to 50% of the required distribution.

Annuity Exchanges

A 1035 exchange allows for the direct transfer of money from a non-qualified annuity or life insurance policy from one company to another without incurring and an IRS penalty. As long as the money goes from company to company there will be no taxes due. If you take possession of a check and it is made out to you, you could have some major taxes issues. It is always best to go from carrier to carrier. If you want to know more about annuities, then click on the link in the resource box below.

Annuity lead generation systems can make your insurance and annuity production soar and that’s why it is vital to find some that work. In this article I’ll talk about some of the different kinds of annuity lead generation systems that are available and how to match them up with what you really want to do.

I hope you noticed that in the first sentence I mentioned “some” that work meaning there is no magic bullet when it comes to annuity leads and annuity lead generation. Like any great army you need to gather up an arsenal of weapons and tools to help you win the battle. The battle here is to write more annuity business.

So let’s talk about the common ways to generate annuity leads:

Seminars: Seminars are one of the great annuity lead generation systems and they can generate thousands in sales, but they need to be done right. If not they could cost you more than they are worth. With this system there is lots of preparation in picking venues, confirming appointments, direct mailers and of course the decision on whether or not to serve dinner.

Direct Mail: Direct mail is just that, you buy a list or generate a list of potential prospects and you send them a letter, free report, postcard or other marketing piece and you hope they will either call or fill out a form and send it back to you so you can all them up and set the appointment. Once again what do you send out, how many, do you pay the postage for the return, what works better a letter or post card. Lots of direct mail companies also require a 3000-5000 minimum mail out so keep that in mind if you are on a tight budget. Typical mail response rates are anywhere from 1-2%.

Lead Companies: When it comes to annuity lead generation systems this one definitely fields the most complaints. These companies traditionally gather data for the annuity lead, but often the data is shared which means after you buy the lead it can be distributed to other agents in the same area and there is nothing worse than buying a 40 dollar lead and having the prospect say, “No thanks you are the 3rd salesperson to call me this week.”

Some company’s do offer what they call exclusive leads, but once again unless you generate your own leads you really have to take that with a grain of salt.

Pre-Set Appointments: These pre-set appointment leads can be much costlier than some of the other annuity lead generation systems, but if you find the right company to work with you will definitely get in the door. This is a great way to get the initial appointment especially if you are not great on the phone.

Websites, articles and social media: Of all the annuity lead generation systems these three are the most underused. The reason is that they require thought, time and effort, but what you are missing is that these are also the cheapest annuity lead generators you can find. By having a website with a call to action to sign up for a free report or newsletter, you essentially capture that person’s name and email for life. You are building your mailing list for free!

Facebook, Twitter, Linkedin and even You-tube must not be overlooked in your marketing plan. If you think tweeting is too complicated there are lots of companies that can help you set up a plan for almost nothing.

When it comes to finding annuity lead generation systems that work it really is a trial and error process. Are you good in front of crowds? Maybe seminars will do it for you. Lots of producers hate getting on the phone or making appointments, but they may be awesome closers. Perhaps pre-sets or using an appointment setter is the answer.

Analyze all your options and check out the trades and see how the big dogs are generating their leads and then follow the same blueprint. Generating annuity leads for your business does not have to be hard it just has to make sense.

The insurance agent shakes hands with the potential client, sits down, smiles and says, “I have a product here that I believe to be the best life insurance package I have ever seen. In all of my years in the insurance business, I have never been so impressed with a product. I’d like to tell you all about it.”

The salesman knows the ins and outs of his offering and no one who listened in on his sales pitch could doubt his love and support of the insurance product for even a split-second. What happens when he concludes his impassioned pitch? More often than not, nothing happens. No policy is written. No sale is made.

In the office across the street, an agent meets with potential client. After pleasantries are explained, he asks “So, what do you want from all of this? What are the things you’d like life insurance to accomplish for you? He listens attentively to the prospect’s answers, asking follow-up questions for clarification and to elicit more information to help him understand the prospect’s needs and wants.

As the conversation progresses, the agent gets to know his potential client better. He is able to establish a rapport with the person and can determine what might be appealing. The agent, who has been noting fact after fact during the interview, is able to then explain exactly what can be done to best meet the needs of the prospect. Yes, he pitches his life insurance product, but he does so based upon the expressed interests and concerns of the potential client. What happens when he finishes? More often than not, a new policy is written. A sale is made and agent will find himself with yet another commission.

These two examples reveal the power of using a “question and answer” (Q&A) approach to selling life insurance. Those who sell life insurance using methods rich in listening and questioning invariably outperform agents whose focus in on their own opinions and expertise. In addition to helping to establish great agent-client rapport, Q&A tactics are a powerful strategy for selling life insurance for two reasons.

Initially, it keeps the focus on the one thing that must always be front and center in any sales situation: the buyer. Instead of creating a product focus, the Q&A methods allow those selling life insurance to keep the meeting’s attention directed to the buyer. People, by nature, consider themselves and their interests of paramount importance. This method allows the insurance agent to make sure the meeting unfolds in a manner that will interest and motivate a potential buyer.

Secondly, the technique provides the seller with a great deal of valuable information. Those selling life insurance with Q&A techniques find themselves armed with client-specific responses to frequent purchase objections. They are also able to better explain the policy and its advantages in ways that are meaningful to the prospective client. An insurance agent can also make sure they are offering a product that truly meets the unique needs of the prospect.

Even the most well delivered product-centered sales pitch can fall on deaf ears. Prospects long to be at the forefront and are far more likely to be motivated to purchase life insurance if the agent focuses attention on their specific needs. Methods that make use of significant Q&A to sell life insurance put clients on center stage and motivate them to purchase policies.

There are two different ways that a premium payment can be made for an annuity. The payment can be a single lump sum, or it can be in multiple installments. The terms used to describe the available payment schemes are single premium and flexible premium.

Single premium annuities are purchased with a single deposit amount. The contract can be a deferred or immediate. A flexible premium annuity is, however, purchased with multiple amounts of money over a period of time. This type of account is always a deferred policy – i.e. payments to the purchaser could be a long time in the future.

Investors in flexible premium annuities are looking to create a savings over a long period of time. They would rather have the flexibility associated with this product and do not need the income from the policy immediately (typically for retirement).

Immediate annuities are annuities that start their payments within a year of the policy’s purchase. These annuities must, therefore, be purchased with a single premium payment. The contract is often referred to as SPIA (Single Premium Investment Annuity). SPIAs are ideal for providing instant income to retirees. SPIAs offer the investor simplicity. Once the initial contract is set up, the buyer does not need to monitor the markets or actively manage investments. The income stream from SPIAs is guaranteed and predictable.

Flexible premium annuities have no fixed amount that must be paid into the account each year. However, minimums and maximums exist. The exact levels vary by the insurance company that issues the policy. Minimum payments can be in the range of $50-$200 per year. In comparison, a single premium contract usually requires a minimum investment of $5,000 or $10,000.

The tax considerations are very similar for the two types of premium payment options. Both types of payment schemes allow for tax-deferred savings until payments are made to the annuitant. Both single and flexible premiums also carry a withdrawal penalty. If funds are withdrawn from the account prior to the age of 59.5, a tax penalty of 10% may be applied to the amount received. Finally, if the premium, single or flexible, is made with funds from another tax-deferred product, such as an IRA or a 401(k), the account can receive tax-deferred treatment until payments are made to the policy holder.

Single premium annuity policies appeal to investors who have already have a large sum of money at their disposal. Sources of funding for single premium policies can include the following:
o Lump sum from retirement plan payout
o Sale of a house or estate
o CD funds that are maturing
o Inheritance
o Life insurance settlement

Flexible premium annuities, on the other hand, appeal to investors who want to gradually accumulate the value of the annuity account. This investor wants to save but may not have access to the lump sum amount like the single premium annuity investor would. Instead they can increase their investment in the account slowly over time, using it as a tax-deferred saving plan.

An annuity that pays regular income to an individual after retirement is known as single life annuity and the insured individual is known as the annuitant. There are certain times when single life annuity type can really make great sense, particularly when the individual who is buying the annuity plan is ‘single’ or does not want to pass along annuity advantages to someone else.

Remember that annuity is a type of ‘insurance’ and usually sold by various insurance firms through agent networks. The very next thing to know about annuities is that they can be a fantastic way of a stable stream of income for the lifetime of an individual who has purchased the annuity.

How Single Life Annuity Works?

The potential annuitant first makes a lump-sum payment to the insurance firm with the anticipation that payments may either start after some time in future or may start immediately. When those ‘payments’ begin, the investment and interest income earned from that lump-sum are disbursed over the pre-determined time period set between the annuitant and the company. The payments carry on until the individuals holding annuity plan passes away, and at that point of time, all payments discontinue and the funds in annuity plan relapse to the insurance firm.

Payment Options with Single Life Annuity

In single life annuities, payments usually end with the death of the annuitant, as mentioned above. However, the buyers can also opt for buy ‘refund’ option, which means, any amount remaining in the single life annuity plan will be given to beneficiaries named in the agreement, after the insurer dies. A guaranteed term or period can also be included in the plan. An assured term makes sure that all ‘payments will be made for a set time period, even if the person dies before the conclusion of the term’. In such circumstances, the payments usually are made to annuitant’s beneficiary or real estate until the set period ends.

Interest rates earned with ‘annuity funds’ are tax deferred until the rates are withdrawn. In the United States, the annuitants should be aged 59 1/2 years or older to keep away from paying ‘penalty tax’ on the funds taken out from the single-life annuity scheme.

Types of Single Life Annuity Types

More often than not, an annuity plan is either an immediate or deferred annuity. A ‘deferred single life annuity’ has two major stages known as payout and accumulation. The funds are credited into the annuity plan and gets interests for many years throughout the accumulation stage. During payout period, annuitant receives payments that incorporate accumulated interests and principle. The amassed interest element of payouts is ‘taxed’ at the current tax rates of the annuitant.

Single life annuity shoppers who hold immediate annuity usually start getting payments within first year of the annuity agreement. The remaining amount carries on as the earning of ‘tax deferred’ interest; the income-tax on earned interest rates is unpaid when it is taken out from the annuity plan.

Hence, it is very important to warily understand the concept of single life annuity plan, and then decide to buy one from a reputed insurance company.