What VA to use / 2 Nice Cases

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Gaddock's picture
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Joined: 2007-02-23

Hello all,Any opinions are appreciated. I’ve been doing a bit of research on VA’s living benefits and have seen a few people talk about what sounded like an income benefit of 7%.CASE 1I have a prospect that’s 73. We want to use a VA with a living income benefit to fund a life insurance policy with the IRA RMD’s. The reason we are using a VA is he’s OK with some volatility and is looking for around 8% return. His wife that this is ultimately for turns white with the thought of loosing a penny. So, for her the income benefit and for him market participation with the annual ratchet. We want the product only on Mr. As Mrs. is the beneficiary of both policies.They don’t need any of the $$ from the RMD’s and his goal is to make the $200K into the largest amount possible. He thinks that he will pass away in the next few years as all his family die in their late 60’s. The wife’s family live well into their 90’s & she’s 66.That being said the best fit I’ve found is either Hartford or Nationwide.Pros/consHartford- Good = 6% income benny, lower internal costs and can be more aggressive in the investments. Bad = 10% cap on gains.Nationwide- Higher internal costs than Hartford, must invest in ready made allocation but no cap on gains. 6% income benny as wellBoth ratchet annually until age 85.CASE 2A guy who is a nervous Nelly. He’s a retired schoolteacher that just inherited a VERY large chunk of change. He’s super paranoid about it and feels “very vulnerable” until he figures out what to do. When I conceptually described a VA with a income benny the stress roles off his face and he said it’s to good to be true. He’s single & age 62. He’s pretty OK with his teacher pension so he doesn’t really need the money but wants the guarantee and potential market participation. He wants a good amount to be liquid for a house he’s thinking of buying so I’m thinking a CD ladder on $250K with the other $500K in the VANationwide recently came out with a 7% role up but only offers a 5% income benny.Any thoughts recommendations? Thanks in advance for your time.

Ashland's picture
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Joined: 2007-03-07

1st case - An RMD from a $200K IRA will be something in the range of $8000 - 10,000 / yr. Fund an insurance policy instead if you can. You'll be able to multiply the money for the spouse & make the proceeds income tax free instead of giving the wife a tax problem when she starts using the cash. Also, $10K per year for a VA seems like a hassle. Imagine the benefit after the 5th yr assuming a 7% ROR - you put $50K in total. Now you have $61,500 in the VA account. Assuming a 6% w/d from that you may be giving him $3700 / yr in extra income - YAY!!!!!!

2nd case - Why does HE need the market participation? Are you sure that you don't want it for him? Given a teacher's pension - that often have OK COLA's - and the fact that he's a 'nervous nelly' you could use some to fund LTC if he hasn't already, fix up the house to his liking - take care of everything that he hasn't thus far. Put the remaining prinicipal in CD's or bond's w/ death puts & invest the interest in something that participates in the market if you must. Remember, $250K in cd's = $12,500 in regular interest income. Make sure that it's OK that you increase his income by that much or more. VA's are for folks who NEED the income or need a guarantee of principal to be in the market w/ money that should be in the market to meet their goals. Are you sure he meets that criteria? How old is wife & what happens to his pension if he dies?

Big Taco's picture
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Joined: 2006-11-16

Reggin and Bobby,
You two are now acting like the trolls and offering cutting criticisms without being constructive.
 

apex01's picture
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Joined: 2007-06-27

Gaddock wrote:
Hello all,Any opinions are appreciated. I’ve been doing a bit of research on VA’s living benefits and have seen a few people talk about what sounded like an income benefit of 7%.CASE 1I have a prospect that’s 73. We want to use a VA with a living income benefit to fund a life insurance policy with the IRA RMD’s.    The reason we are using a VA is he’s OK with some volatility and is looking for around 8% return. His wife that this is ultimately for turns white with the thought of loosing a penny. So, for her the income benefit and for him market participation with the annual ratchet .We want the product only on Mr. As Mrs. is the beneficiary of both policies.
How is using the income benefit protecting her from "loosing a penny?" All you are doing is protecting their income. You realize that the income benefit base and the contract value are two different things don't you? How do you plan on getting him an 8% return if their guranteed income is 6%, the cost is roughly 2.75 (after fund expenses) Running an illustration at 16% isn't exactly realistic. Also, why not put them both on a co-owners, that way if she preceeds him in death it will be liquid (and yes you can do this even in an IRA).
They don’t need any of the $$ from the RMD’s and his goal is to make the $200K into the largest amount possible. He thinks that he will pass away in the next few years as all his family die in their late 60’s. The wife’s family live well into their 90’s & she’s 66.
 
Please don't base his planning on him dying in 5 years. My grandfather has been saying the same thing for 25 years!
That being said the best fit I’ve found is either Hartford or Nationwide.Pros/consHartford- Good = 6% income benny, lower internal costs and can be more aggressive in the investments. Bad = 10% cap on gains.Nationwide- Higher internal costs than Hartford, must invest in ready made allocation but no cap on gains. 6% income benny as wellBoth ratchet annually until age 85.CASE 2A guy who is a nervous Nelly. He’s a retired schoolteacher that just inherited a VERY large chunk of change. He’s super paranoid about it and feels “very vulnerable” until he figures out what to do. When I conceptually described a VA with a income benny the stress roles off his face and he said it’s to good to be true. He’s single & age 62. He’s pretty OK with his teacher pension so he doesn’t really need the money but wants the guarantee and potential market participation. He wants a good amount to be liquid for a house he’s thinking of buying so I’m thinking a CD ladder on $250K with the other $500K in the VANationwide recently came out with a 7% role up but only offers a 5% income benny.
At what point will he need the money? Will he be planning any major purchases down the road? Also, I don't think are explaining these very well to you prospects. I've never had a cleint think a living benefit was "to good to be true".
With all that being said I think you have a couple nice cases here, however, in reading your posts you come across as a little green to annuities. Just make sure you understand what your selling.Any thoughts recommendations? Thanks in advance for your time.

Gaddock's picture
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Joined: 2007-02-23

Hello All,
THANKS for your comments!! I do have a lot to learn no doubt.
All I can do is ask ask ask study study study.
I have some higher authorities working on these cases now with me. I'll let you know what changes if any comes of it soon.
 

newnew's picture
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Joined: 2007-02-23

 you say in case 2 that he really does not need the income, but when he hears "the guarantee" then the "stress rolls off his face". it might be that IT IS TOO GOOD TO BE TRUE. what I mean is--there is no guarantee on his PRINCIPAL- only his INCOME. (did you tell him that Hartford does not at all guarantee a 6% RETURN, but rather a 6% WITHDRAWAL?) I do not know, but it does sound as though only one side of the story was emphasized. I hope not-but these products are the wrong thing when income is not the issue. end of soapbox.

apex01's picture
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Joined: 2007-06-27

Gaddock wrote:
Hello All,
THANKS for your comments!! I do have a lot to learn no doubt.
All I can do is ask ask ask study study study.
I have some higher authorities working on these cases now with me. I'll let you know what changes if any comes of it soon.
 

Gaddock,
One thing I didn't mention. The important thing is that you are getting in front of people in these situations. These are very good cases. My only point was to make sure you understand that there are several moving parts to these products and make sure you understand them. I think living benefits make sense for some people. Just make sure your using them appropriately so you don't find yourself in hot water down that road. Congrats on your hard work in developing these two prospects.

DodgerDraftpick's picture
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Joined: 2006-12-24

If you are looking straight at a case for building the income benefit AXA's 6 percent is a good option, they also lock in the value every year, when dealing with tax issues you need to look at Lincoln because of their unique system which isn't LIFO on the tax.  ING also has a very good product with  quarterly step ups.  The biggest advantage AXA has though is the dollar for dollar on the death benefit most of the companies you mentioned are pro rata, that makes a big difference in a down market.

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