When an Insured Annuity is no longer an Insured Annuity

By Michael Bronstine

I am particularly proud of this one

My client is a female 73 non-smoker. She has $600,000 in a taxable investment that will go to her grandchildren when she dies and she is spending the interest income generated by the investment. Based on these facts she is a perfect candidate for an Insured Annuity and you set up a meeting.

At the meeting I explain to her how the Insured Annuity works and show her an illustration that quantifies the higher annual cash flow available if she were to implement the strategy. All is going well when my client says something unexpected. She says, “What if I don’t really need the income. Can we just use the annuity to buy insurance?” What did I do?

An option to consider is the Annuity Funded Estate Bond planning strategy. This financial planning strategy requires the client to use her surplus cash to purchase a prescribed annuity and a life insurance policy. By replacing her taxable investment with a life insurance policy and annuity, she will increase the funds available for her grandchildren when she dies. It also provides the potential to reduce the amount of tax she will pay during her lifetime.

To illustrate the benefits of the strategy, custom illustration support is available. The illustration includes numerical analysis that compares the benefits available from the life insurance policy and annuity to a taxable investment.

Based on my clients situation above here is a summary of benefits comparing the Annuity Funded Estate Bond to a taxable investment (assuming monthly payments):

Annual annuity income: $45,713
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Annual taxable portion: $ 2,547

Tax payable: $ 1,146

Net income to pay premiums: $44,566

Life policy death benefit at life expectancy year 17 = $1,156,348 (level death benefit, YRT 100 COI, 1.5% rate of return).

Taxable Investment (interest bearing investment at 4%) at year 17 = $868,593

Increase in benefit from the Annuity Funded Estate Bond = $287,755