Convert annuity to life case tip

[Charpress]

Here's something I'm going to start paying more attention to. I sell a lot of annuities and some life when the occasion arises. I run across people every day who have annuities and aren't really sure why they have them, except they are "safe."

Let's say you have a widow, age 70, who has a $100,000 in a fixed annuity. You ask her "Whey do you have this annuity?"

"Well", she says, "I want safety, guaranteed growth, and the ability to take income. If it turns out I don't need income, it will go to my children."

"You have had this annuity 8 years. Do you really think at this point you will need the income?"

If the answer is "no" or "probably not" then you explain that the annuity will be taxed to the children and may end up being quite a bit less. However, if she annuitizes she will get about $9,000 a year guaranteed for life. If she then takes that income or most of it and puts it towards premiums on a life policy, the kids get something more like $200,000 (depending on health and other factors) tax free.

If she is worried about perhaps needing the money, you can respond to that objection several ways: first, find out exactly what the fear is. If it is nursing home type expenses, then suggest a policy that has long term care provisions.

Anyway, lots of possibilities here that I have been ignoring until now.

 

[Mark]

Here's something I'm going to start paying more attention to. I sell a lot of annuities and some life when the occasion arises. I run across people every day who have annuities and aren't really sure why they have them, except they are "safe."

Let's say you have a widow, age 70, who has a $100,000 in a fixed annuity. You ask her "Whey do you have this annuity?"

"Well", she says, "I want safety, guaranteed growth, and the ability to take income. If it turns out I don't need income, it will go to my children."

"You have had this annuity 8 years. Do you really think at this point you will need the income?"

If the answer is "no" or "probably not" then you explain that the annuity will be taxed to the children and may end up being quite a bit less. However, if she annuitizes she will get about $9,000 a year guaranteed for life. If she then takes that income or most of it and puts it towards premiums on a life policy, the kids get something more like $200,000 (depending on health and other factors) tax free.

If she is worried about perhaps needing the money, you can respond to that objection several ways: first, find out exactly what the fear is. If it is nursing home type expenses, then suggest a policy that has long term care provisions.

Anyway, lots of possibilities here that I have been ignoring until now.

Great Idea and Post. Thank you for sharing this with us. It gives us something to think about.

 

[patch36]

A lot of the money put in to annuities is what I call 'no touch' money. Money that is never going to be touched under almost every possible circumstance. If the client is healthy enough to pass underwriting, many times that same money is more appropriately put into a single pay life policy. Something to consider for sure. Thanks for bringing it up Char.

 

[InsuranceDevil]

Funny you should bring that up. I'm currently working with an 83 year old female and her 81 year old sister to do exactly that. We are leveraging one of their many annuities and purchasing life insurance policies with it. They don't have an issue if there is a taxable event now, and they want to leave as much tax free money as possible for later. I think it's an excellent way to use money that is not needed for every day expenses.

 

[patch36]

I am currently putting together a single pay life for an 82 year old in good health. $130k buys her $266k of life.

 

[somarco]

That pitch is usually referred to as a "split annuity". The concept was (still is) used as part of pension max for those who have a DB pension plan. Not too many of those around plus the disclosure forms will choke a goat.

It's a great way for a win-win sale.

 

[patch36]

That is not what I was taught a split annuity was. One annuity provides immediate income via an immediate annuity while a deferred annuity grows and takes the place of the immediate annuity when it runs out. Two or more annuities, not an annuity and a life insurance policy. I have done that combo too though for the reasons you state.

 

[padthaiforlunch]

I am currently putting together a single pay life for an 82 year old in good health. $130k buys her $266k of life.

Who are you using for that? I've been getting pestered by a couple GA's to start using Sagicor for single premium whole life. Apparently, they have an indexed whole life product with an ltc rider.

Word of caution (you prob. already know this): Cash value of life insurance is considered an asset by medicaid if client enters nursing home world and seeks assistance.

Consider using an ilit and an immediate annuity which pays out to the gifting limit each year until exhausted.

 

[patch36]

Who are you using for that? I've been getting pestered by a couple GA's to start using Sagicor for single premium whole life. Apparently, they have an indexed whole life product with an ltc rider.

Word of caution (you prob. already know this): Cash value of life insurance is considered an asset by medicaid if client enters nursing home world and seeks assistance.

Consider using an ilit and an immediate annuity which pays out to the gifting limit each year until exhausted.

Exactly. there is a lot more to this than meets the eye, or has been talked about.

In this particular case, there is other money available for LTC, this is strictly unneeded no touch money they want to pass on to grandkids.

I will have to look up the quotes. I can't remember the company, my FMO did the quotes for me and the client will not have the money to give me until January, so it is filed away. Besides, if I post it, I will get a dozen better companies to work with, this thread will take off in directions I don't have time to consider, etc... I will email you.

 

[somarco]

Disclaimer.

Showing folks how to qualify for Medicaid is not my gig so I know enough to be dangerous. I do recall a bit about countable assets in determining Medicaid eligibility. Moving assets from a CD to an annuity, or an annuity + CV life insurance is just rearranging the deck chairs. It doesn't matter where your money is (other than a SP immediate annuity which is a different issue), they still total up your liquid cash assets (and income) before giving the thumbs up or thumbs down.

Moving some of the funds into a SPWL/SPUL increases the potential benefit to the heirs, and changes the tax treatment on the inheritance, but I must be missing something if you are saying it also changes the scope of Medicaid qualification.