Annuity Investing for Retirement, Part 2

 

Table of Contents

 

Chapter 6: Annuity Riders

227

 

Riders and Annuities / Long-Term Care Benefits

227

 

  A Long-Term Care Rider is not a Premium Waiver

228

 

Guaranteed Minimum Withdrawal Benefit Rider (GMWB)

228

 

  Guaranteed Minimum Income Benefit Rider (GMIB)

230

 

Guaranteed Minimum Death Benefit Rider (GMDB) / Required Premium / How a GMDB Rider Works

232

 

  Available Benefit Periods / Policy Loans

233

 

Life Insurance Riders / What is a Life Insurance Rider?

233

 

  Guaranteed Insurability Rider (Renewal Provision) / Spouse Insurance Rider

234

 

  Accidental Death or Double Indemnity Rider / Waiver of Premium Rider

234

 

  Family Income Benefit Rider / Accelerated Death Benefit Rider / Child Term Rider / LTC Rider

235

 

  Return of Premium Rider / Other Riders

236

Chapter 7: Annuitization Options

237

 

Withdrawal Privilege Options

238

 

Annuitization Ramifications

239

 

  Qualified and Non-Qualified Annuity Annuitization

239

 

Annuitizing the Contract / Life-time Income, Lifetime and Period Certain, Period Certain

241

 

     Lump Sum, and Joint-and-Survivorship

242

 

  Example

243

 

  Nonhuman Payees under a Settlement Option

244

 

  Lifetime Income Payout Option

245

 

  Life Annuity, Period Certain Payout Option

245

 

  Joint-and-Last Survivor Payout Option / Specific Dollar Amount Annuitization

246

 

  Required Distribution

247

 

Loan Provisions

247

 

Maturity Dates

248

Chapter 8: Life Insurance

253

 

Participating Whole Life

253

 

Interest Sensitive Whole Life / Universal Life / Term Life

254

 

Indexed Life / Variable Life Insurance Products

255

 

  Variable Life / Variable Universal Life

256

 

Indexed Life and Indexed Annuities

257

 

  Basic Interest Crediting Strategy / Five-Year Fixed-Term Interest Strategy

258

 

  Five-Year Equity Indexed Strategy / Principal Protection / Annual Lock-In of Earnings

258

 

  Interest Rate Guarantee

258

 

Guarantees Among Strategies

259

 

  Basic Interest Strategy / Five-Year Fixed-Term Strategy / Five-Year Equity Indexed Strategy

259

 

  Equity Indexed Life Insurance Loans/Withdrawals

259

 

Similarities / Differences

260

 

Paying for the Life Insurance Contract / Single Premium / Fixed Premium

261

 

     Flexible Premium / Premium Load

262

 

  Monthly Life Insurance Deductions

263

 

Bands in Life Insurance Policies

264

 

  Similar to Break Points / Consumer Awareness

265

 

Policyholder Risk

266

 

  Interest Rate Risk / No Lapse Guarantees or Death Benefit Guarantees Risk

266

 

Withdrawals / Collateral Assignments

267

 

Bucket Investing

268

 

  “Laddering” or “Buckets of Income”

268

 

Strategy Development / Strategies for Buying EI Universal Life Insurance / Over-funding an EI Policy

270

 

The IRC and Over-funding Life Insurance

270

 

  TAMRA / DEFRA

271

 

  How to Over-fund Equity Indexed Universal Life Insurance

271

 

Monthly Deductions / Bonus Rate Annuity / Cash Surrender Values (Life Insurance)

272

 

  Guaranteed Cash Value

273

 

Liquidity Transfer Provisions: Access to Cash Values / Surrenders / Loans

273

 

  1035 Exchanges

274

 

  Important 1035 Exchange Procedures

274

 

  Withdrawal Tax Treatment / Income Tax-Free Death Benefit / Internal Buildup

276

 

  Withdrawals of Cash Value / Estate Taxation / Annuities and Taxation

277

 

Tax Surprises / Withdrawal Impact on Death Benefits

278

 

  Taking a Policy Loan to Avoid Surrender Charges

279

 

Understanding the Purchase

280

 

Life Insurance Illustrations Model Regulation

281

 

  Section 1: Purpose / Section 2: Authority / Section 3: Applicability and Scope / Section 4: Definitions

281

 

  Section 5: Policies to be Illustrated / Section 6: General Rules and Prohibitions

284

 

  Section 7: Standards for Basic Illustrations / Format

285

 

  Narrative Summary

286

 

  Numeric Summary / Statements

287

 

  Tabular Detail / Section 8: Standards for Supplemental Illustrations

288

 

  Section 9: Delivery of Illustration and Record Retention

289

 

  Section 10: Annual Report; Notice to Policyowners

290

 

  Section 11: Annual Certifications

291

 

  Section 12: Penalties / Section 13: Separability / Section 14: Effective Date

293

 

  Compare Equity Indexed Insurance

293

 

  What is the financial rating of the insurance company?

293

 

  What is the illustrated index credited interest rate?

293

 

  Is there a guaranteed minimum interest rate?

294

 

  What is the current index cap rate? What is the guaranteed minimum cap rate?

294

 

  What is the current participation rate? What is the guaranteed participation rate?

294

 

  What is the index floor?

294

 

  How many index account options are available?

294

 

  How many index crediting methods are available?

294

 

  How long are the index segment periods?

295

 

  What are the transfer provisions among accounts?

295

 

  What are the policy charges and fees associated with equity indexed life policies?

295

 

  How long are the policy surrender charges?

295

 

  How are loans treated? Do the companies offer fixed or variable loans or both?

295

 

  How long is the death benefit guaranteed?

296

 

  What policy riders are available?

296

 

  Final Analysis

296

 

Annual Statements

296

Chapter 9: Product Suitability

297

 

What is Suitability?

297

 

Annuity Suitability or Best Interest

297

 

Suitability Standards/Best Interest Standards

298

 

  Determining Suitability

298

 

    Age of the Buyer / Annual Income / Financial Situation & Needs

300

 

    Annuity Funding / Financial Experience

301

 

    Financial Objectives (Do the Math)

302

 

    Intended Use of the Annuity / Time Horizons

303

 

    Existing Assets / Liquidity Needs or Requirements

304

 

    Net Worth / Risk Tolerance

305

 

    Tax Status

306

 

    Entering Retirement

306

 

Assessing Suitability/ Best Interest

307

 

    Sales Practices

308

 

    Product Replacement / Deceptive Sales Practices Forbidden / Full Disclosure / Product Knowledge

309

 

    Communication Skills / Identifying Suitability Issues/Best Interest Issues

310

 

It is Not a Liquidity Issue but Rather a Suitability Issue

311

 

Who is the Unsuitable Annuity Buyer?

312

 

Annuity Suitability Recommendations

313

 

Requesting Information to Obtain Suitability Status

315

 

The Legal Side of Suitability Standards

318

 

Self-Protection Through Errors and Omissions Insurance

324

 

Insurance Agents / Financial Planners

329

 

Public Harm / Triggers

330

 

Insurance Recommendations in the Real World

331

 

Degree of Risk

333

 

Risk Classifications

334

 

The Burden of Risk

335

 

What Type of Documentation?

336

 

Claiming Unearned Education or Experience

337

 

Full Disclosure

337

 

Release of Liability Form / What is Due Diligence?

338

 

Fiduciary Duties

339

 

Keeping Current on New Trends

339

Chapter 10: Insurance Ethics

341

 

  Ethic Subject Matter for Continuing Education

341

 

  Meeting Education Requirements in a Timely Manner

342

 

  Example

342

 

The Doctrine of Utmost Good Faith / Breach of Utmost Good Faith

343

 

  Duty of Disclosure / Representations and Warranty

344

 

  Representations

345

 

  Warranty / Action Taken by Insurer against a Breach / Principle of Waiver & Estoppel

345

 

Guaranty Association

346

 

Knowledge of the Product

347

 

A Difficult Career Choice

347

 

It is a Matter of Perspective

348

 

  Three Reasons why people seem to find it difficult to save

349

 

Establishing Ethical Goals

350

 

  Example

352

 

Why Be Ethical?

353

 

Following the Law

354

 

Ethics in the Workplace

355

 

The Same by Any Name

356

 

Putting the Past in Perspective

357

 

Personal Values

358

 

  Companies Set Guidelines

360

 

  Example:  Scenario #1

365

 

 Example:  Scenario #2

365

 

Promoting Ethical Behavior

365

 

  Is it possible to teach ethical behavior to others?

368

 

  What is the scope of ethics?

368

 

  What does it take to be a moral person?

370

 

  What quality of work do you want to perform?

371

 

  What do I want my legacy to be?

371

 

The Leaders of the Pack

371

 

  Example #1

372

 

  Example #2

373

 

  What are our responsibilities to other moral persons?

373

 

Objectivist Ethics

376

 

  Holding on to our Ethical Code

377

 

  Example

378

 

     Sympathy and Empathy

382

 

  Looking the Part / Courtesy

383

 

Mores

384

 

  Example

384

 

  Example

387

 

Education

388

 

  Getting Education in a Timely Manner

389

 

  Product Knowledge

389

 

  Example

390

 

  Laying Out Policy Benefits and Limitations

391

 

    Minimizing consumer misunderstandings

392

 

Policy Replacement / Why would an agent replace their own business?

394

 

When an Agent Allows Misconceptions

395

 

When the Client Thinks the Premiums are too High

396

 

Obtaining Proper Application Signatures / Keeping in Touch after the Sale

397

 

Selling the “Fast Buck” Item

398

 

Commingling Funds / The Professional

399

 

Preparing for Tomorrow / Financial Management

400

 

Due Diligence

401

 

If It’s Legal . . .

410

 

 

United Insurance Educators, Inc.

PO Box 1030

Eatonville, WA 98328

 

(253) 846-1155

 

mail@uiece.com