Total Return Annuities This new type of deferred annuity offers some of the strongest consumer features available. The clients are guaranteed to receive the same investment return the insurance company realizes on the investments underlying the annuity. This guarantee actual passes through a portion of the profits that were formerly kept by the company. The contracts also offer a maximum contractual expense charge. In other words, there are limits on the amount of profits the insurance companies can earn. All of this "total return" comes in a fixed annuity package that typically guarantees at least 3% interest plus 100% of principal. In some cases, the assets are managed by outside money managers. This package creates an extremely attractive, fixed income alternative. There are presently a limited number of these contracts but more are in the wings. There are options to annuitization that continue to credit the total return from. In addition, the investments while providing guaranteed minimum payouts. [Read the Total Return Article...] [View the Total Return Chart...] Multiyear Guarantee Annuities These fixed annuities function like long-term CDs or bonds. They guarantee a flat rate of interest for the entire term of the contract. Occasionally, there are withdrawal features but typically the money is locked up for the term. These are well suited for use with split annuities for the consumer who is looking to tie down their interest rate. A large part of the appeal for these MYGAs is that there is no "trust me" in the interest rates. Most commonly these annuities are "co-terminus," meaning the interest rate guarantee and the surrender charges are the same durations. One of the great sales concepts that can be used with MYGAs is "laddering." For instance, by placing some money in a one-year MYGA, some more money in a three-year and more money in a five-year, you create a "ladder" of maturities. Historically, longer maturities have higher yields than shorter maturities, but many clients worry about committing their money for too long. What happens is that once you reach the maturity of the one-year bucket, the client reinvests in a five-year bucket. This process is repeated until the client has three buckets of money, each earning rates based on five-year maturities, but which mature every two years. When sold as CD alternatives, the benefits of tax deferral really need to be stressed.
Equity-indexed Annuities These fixed products credit interest based on movement in certain indices. There are several moving parts in these plans, so it pays to do your homework. This is one area where AFS is constantly screening products and surveying the market for our producers. For instance, between June 1998 and June 1999, the S&P 500 gained over 21%. One type of equity indexed annuity returned close to 15% while another more popular type credited less than 5% interest. The fomer type can be well suited for clients who would like some of the market's upside but prefer to be guaranteed return of their principal and minimum interest. The latter type with its averaging approach may be better suited for clients seeking more fixed interest than they could earn in traditional fixed instruments, but they want less volatility than other types of EIA. Most EIA products today are tied to the S&P 500 Options (no dividends). There are a few EIAs on the market that are linked to the Dow Jones 30 Industrials. AFS Marketing Note: This market moves rapidly. Don't wait and see which product performs because you'll miss out. However, you also shouldn't jump in without some research. That's an advantage to working with AFS: AFS does the research. Key features to the EIA include: Indexing method. The method means the approach used to measure the amount of change in the index. Common methods include:The multiple "moving parts" in these annuities makes them a challenge to explain. These factors are set by the insurance company to reflect current interest rates and the market volatility of the index options that underlie these annuities. There are now several equity-indexed, universal life contracts. These offer similar benefits for life insurance cash values. [Playing it Smart...] [EIA Continuing Education...] Immediate Annuities These plans begin sending income checks to the clients immediately. There are a wide variety of payment patterns ranging from payments for 60 months to payments over two lifetimes. These are well suited for use in split annuities and matched with one of the three types of deferred annuities above. They can be used to flow IRA money into life insurance over a few years. They can be used to minimize taxable Social Security since nonqualified, immediate annuity payments are only partially taxable due to the return of principal or exclusion ratio. Permanent and Term Life Insurance for Single Life or Joint Life Cases AFS offers a wide range of universal life, whole life, and interest-sensitive, whole life products on a single life or joint life basis. AFS' portfolio is heavily weighted for the large case estate-planning arena. There are also support a number of advanced product concepts, which produce annual life premiums between $35,000 and $165,000. The term life portfolio is complementary to the permanent products. AFS Marketing Note: AFS offers full training and coaching for these concepts. Several offices have seen their production grow by 200% and more. ADVANCED CONCEPTS The most successful use of life products from producers has been through the use of our advanced life concepts. These are turnkey packages that include presentation materials, legal and technical support, and sophisticated illustration programs. These concepts include some of the following: Charitable Family Partnerships Family-limited partnerships have become mainstream planning tools. An evolution of this concept is to make a charitable donation of the LP units. Revenue Rulings since 1975, as well as current legal opinions and a 1999 private letter ruling, support this tool for use as an alternative to charitable remainder trusts or other tax-saving strategies. Target markets for this concept include IRAs, low-basis, appreciated property, business sales, closely-held businesses with retained earnings, and other "problem assets." "About 10 years ago, people were skeptical about the very idea of family limited partnerships," says Larry Brickner, vice president and general counsel for Professional Financial Services in New York. "Now, they're very much in the mainstream of estate planning. We think that charitable family limited partnerships also can play a role if they're structured properly, in the right circumstances." "On the face of it, nothing is wrong with establishing a family limited partnership and transferring limited partnership interests to charity," says Ken Brier, an attorney with Holland and Knight. "Yes, there can be abuses, but that's the case with many estate planning strategies. If everything is handled properly, the charitable FLP can be a viable option, given the right facts and circumstances." Recent IRS technical advice clarified that gifts of LP units were gifts of a present interest. This solidified the Charitable FLP approach. Tax Advantaged Split Dollar This concept creates a tax-deductible, discriminatory, voluntary fringe benefit plan. The concept of split dollar insurance is very common in the business arena. There are proven methods available for corporations and individuals to leverage this transaction through the use of valid business loans. This is not corporate-owned life insurance. The employers' net cash outlay may be fully-deductible and only partially-taxable to the employee. The contributions grow tax-deferred and may be withdrawn in the future by the employee income-tax-free for any purpose. Target markets for this concept include split dollar, discriminatory retirement savings or deferred comp or SERP alternatives. Low-cost Estate Transfer The tax code creates very clear guidelines for using life insurance to transfer large amounts of taxable estate value out of the estate. Through the use of low-interpolated, terminal reserve life insurance and family limited partnerships or ILITs, it is possible to move qualified plan assets or nonqualified assets for 50 cents on the dollar in many cases. Target markets include estates that have used up the gift or estate tax exclusion and need additional relief. This strategy also works well for moving large qualified plans or IRAs from taxable to after-tax status. Long-term Care Insurance Including Traditional Plans and "Linked-benefit" Plans AFS strongly believes in the long-term care market. The projections for usage and cost can be frightening. AFS offers two different approaches to this market. The first is a traditional, long-term care insurance policy. AFS believes that LTC policies do differ greatly and our portfolio incorporates the features that the toughest financial planners expect. The carriers are financially stable and should be there in the future when the benefits come due. The second LTC approach is called a "linked-benefit" plan. This life insurance chassis links LTC benefits to the insurance death benefit. Many clients who would not otherwise purchase coverage will use the "linked-benefit" plans because the clients know that their families will inherit any remainders. [New Strategies for Long-term Care...] AFS provides a variety of financial planning, investment advisory and other registered products. I would like more information on one of the following:
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