Help!!! What Do I Do with Life Insurance Money?

[Brooks1082]

It's interesting to me how the securities guys are very adamant that ANY annuity would be awful for this 37 y/o widow while the annuity/IUL guys are open the idea that a conservative portfolio would be suitable for at least a portion of the funds.

10 years ago the security guys may have had a leg to stand on. Back when volatility controlled indices weren't being used, caps weren't very good, uncapped strategies were rare, and liquidity options were slim to none.

I'm certainly more knowledgeable on annuities, so correct me if i'm wrong, but isn't roughly a 4% annualized return (after fees) pretty much the most clients should expect from a conservative low risk portfolio?

If so, why would we completely dismiss a tax deferred alternative, offering a much higher upside, with no market risk, and zero fees to the client?? Liquidity!!

So yes, a fully liquid plan would make sense if there was a legitimate chance that the client would need access to all or most of the funds after 3-5 years. Obviously we need more fact finding here, but I'm thinking she won't bc it sounds like she has purposed all or most of the DB to her 4 y/o child's education which points to a stable income (again more fact finding needed).

Is full liquidity worth sacrificing even an extra 2% per year (especially when our floor is 0%)? And also sacrificing a rising lifetime income stream? What about the taxes due on the gains each year from the securities?

All i'm trying to covey here is that after really understanding the current FIA space and all of the available liquidity options (ROP, cumulative free withdrawals, waiver of surrender, etc) AND how the best growth annuities today can average 6%+, its alot easier to see how a properly structured SPIA/FIA aren't as awful for this case as you assume.

Anyone advisor who doesn't have the life insurance conversation with this client (widow with 4 y/o kid) is completely missing the boat.

Nothing wrong with a strategic mix of life, annuity, and low risk securities.
However, to completely dismiss any of these with insufficient client information is definitely jumping the gun.

Oh wait, Suzie Orman does it all the time so it must be OK!!!

"Buy term and invest the rest!!"

 

[Golfnut2112]

It's interesting to me how the securities guys are very adamant that ANY annuity would be awful for this 37 y/o widow while the annuity/IUL guys are open the idea that a conservative portfolio would be suitable for at least a portion of the funds.

10 years ago the security guys may have had a leg to stand on. Back when volatility controlled indices weren't being used, caps weren't very good, uncapped strategies were rare, and liquidity options were slim to none.

I'm certainly more knowledgeable on annuities, so correct me if i'm wrong, but isn't roughly a 4% annualized return (after fees) pretty much the most clients should expect from a conservative low risk portfolio?

If so, why would we completely dismiss a tax deferred alternative, offering a much higher upside, with no market risk, and zero fees to the client?? Liquidity!!

So yes, a fully liquid plan would make sense if there was a legitimate chance that the client would need access to all or most of the funds after 3-5 years. Obviously we need more fact finding here, but I'm thinking she won't bc it sounds like she has purposed all or most of the DB to her 4 y/o child's education which points to a stable income (again more fact finding needed).

Is full liquidity worth sacrificing even an extra 2% per year (especially when our floor is 0%)? And also sacrificing a rising lifetime income stream? What about the taxes due on the gains each year from the securities?

All i'm trying to covey here is that after really understanding the current FIA space and all of the available liquidity options (ROP, cumulative free withdrawals, waiver of surrender, etc) AND how the best growth annuities today can average 6%+, its alot easier to see how a properly structured SPIA/FIA aren't as awful for this case as you assume.

Anyone advisor who doesn't have the life insurance conversation with this client (widow with 4 y/o kid) is completely missing the boat.

Nothing wrong with a strategic mix of life, annuity, and low risk securities.
However, to completely dismiss any of these with insufficient client information is definitely jumping the gun.

Oh wait, Suzie Orman does it all the time so it must be OK!!!

"Buy term and invest the rest!!"

The reason an annuity is not appropriate is because of taxes, and not just the 10% withdrawal tax prior to 59 1\2. The tax deferral will probably hurt her if she plans on taking large lump sums to pay for college, she would be better to pay the tax each year on just one years interest instead of paying tax on 5 years of interest in one year. No knowing anything about her, but if taxes are an issue she can look at tax free bonds or 529 plans for the education.

 

[Tahoe Ray]

The reason an annuity is not appropriate is because of taxes, and not just the 10% withdrawal tax prior to 59 1\2. The tax deferral will probably hurt her if she plans on taking large lump sums to pay for college, she would be better to pay the tax each year on just one years interest instead of paying tax on 5 years of interest in one year. No knowing anything about her, but if taxes are an issue she can look at tax free bonds or 529 plans for the education.

I'll throw in my 2 cents here as well...I agree with the above. This is not a good annuity client .

We write FIA products on younger folks looking for conservative (bond based) accumulation frequently.

However, needing the funds pre 59 1/2 and in chunks (per the OP) is not normally one of these opportunities.

 

[scagnt83]

The reason an annuity is not appropriate is because of taxes, and not just the 10% withdrawal tax prior to 59 12. The tax deferral will probably hurt her if she plans on taking large lump sums to pay for college, she would be better to pay the tax each year on just one years interest instead of paying tax on 5 years of interest in one year. No knowing anything about her, but if taxes are an issue she can look at tax free bonds or 529 plans for the education.

Ditto.

Recommending the client take a 10% tax penalty (ie. take a 10% loss) is never a suitable recommendation when there are alternatives that would have no penalty.

What is funny is that might be the first time anyone on this forum has ever called me a "securities guy"... Im one of the biggest believers in Permanent Life Insurance and Annuities on this forum... anyone who reads this forum on a regular basis knows that. But I only believe in them when they fit the situation... I don't force it just to make a sale.

And an Annuity or IUL or WL might be suitable for her AFTER she has a conservative income producing portfolio created to take care of her income needs before age 60.