Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities and Non-Variable Life insurance unless otherwise specified. 

We were slightly surprised when he mentioned it was an Index Modified Endowment Contract – only because it seems that very few advisors understand IMEC’s and how to utilize them properly. Like our colleague we have also utilized index modified endowment contracts often to help our clients balance their retirement portfolios for safety without sacrificing meaningful growth potential. It is important to know that all IMECs are not created equal; just like annuities, there are many different IMECs and companies that make them available.

Are these really “the best financial product”? Let’s look at some of the Pros and Cons of IMECs in general.

PRO’s:

1. Annual Locked In Cash Account Value;
2. Lump Sum allocation typically $50,000 up to $1,000,000;
3. No 1099s or IRS Tax Reporting Required (withdrawals may be taxable);
4. High earning potential (Cap Rates up to 17%);
5. Many Popular Market Indices (DOW, S&P500, NASDAQ, Russell, etc.);
6. Many Popular Index strategies(annual pt-pt., spread, monthly sum, etc.);
7. Limited Market Upside with No Market Risk;
8. Minimum Guarantees up to 3% (can offset fees and costs);
9. Average Interest potential based on back testing up to 8%+;
10. Third Party Rated for Safety (A+ or Better Available);
11. Tax Deferred Growth;
12. Tax Free Wealth Transfer Death Benefit for Heirs;
13. Heirs are Guaranteed Tax Free up to four-times the initial contribution/premium or more;
14. Advanced IMEC strategies can transfer tax-qualified wealth Tax-Free to heirs;
15. Tax Free Long Term Care Options Available;
16. Tax Free Home Health Care Options Available;
17. Tax Free Chronic Care Options Available;
18. Cash Access High Liquidity;
19. Potential for No Surrender Charges;
20. Built on a Life Insurance Chassis;
21. Can be Designed with the lowest insurance costs allowed to meet IRS Guidelines;
22. Lower commissions paid to agents as a result of intentionally low built-in insurance costs;
23. Many similarities to Roth IRAs without IRS limits on contributions.
24. Allowed by Internal Revenue Code 72(e) and 7702.

CON’s:

1. You must qualify medically; (can be easier than qualifying for long term care insurance);
2. Four to six week approval period is typical;
3. Designed for lump sums initial optimization is needed cannot be easily added to;
4. Minimum lump sum is typically about $50,000 to optimize potential;
5. Will not accept most qualified money such as IRAs;
6. Income is available but not **guaranteed for life, like annuities;
7. Fees can typically run from 1.5% up-to 3% (these can be offset by minimum **guarantees);
8. IRS imposes 10% penalties on cash distributions before age 59.5;
9. Not FDIC Insured;
10. Requires an experienced specialist to structure correctly.

The post Index Modified Endowment Contract vs a Fixed Index Annuity appeared first on Annuity Guys®.

When it comes to a properly designed retirement plan, does it matter what you pay if you’ve hit all your financial targets and fulfill all your income needs? Of course it still matters – nobody wants to overpay, but most people do not have trouble paying a fair price for good financial instruments or planning and assistance. When it comes to annuities 99 percent of them are…[continued below video]

Video: Watch as Annuity Guys Dick and Eric elaborate on the inside story about fees and commissions!

 Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

[continued]…sold by advisors or agents who will earn commissions. Unfortunately, this means that as a consumer you have to be wary of the unscrupulous insurance agent who sells you an annuity just to earn a commission; not because it was the right product or financial instrument to meet your planning goals. Good advisors are not afraid to share with you a variety of annuity options that may be worth consideration to help you meet your retirement goals – irregardless of what commission they may earn.

Early in life, my mother told me “You get what you pay for.” I think that was her way of telling me that if you always buy the cheapest option you might not be wise.

The same can be said of annuities. You get what you pay for and some annuities will cost you more. Fees on annuities are typically tied to benefits. The most common fees we discuss are the income rider fees that are added onto fixed and fixed index annuities to provide clients an opportunity to have lifetime income **guaranteed without having to annuitize.

Unfortunately, the media loves to focus on variable annuities^# when it comes to discussing fees… as well they should; however, they tend to go one step to far and lump all annuities into the same category. After all variable annuities^# usually have the largest and most costly fees for the benefits they provide. They also place the insurance company at the biggest potential risk. Variable annuities allow your principal account balance to rise and fall with the markets; however, most VAs have riders that **guarantee future income and death benefits. So, if the account balance has dropped and the company is on the hook for a significant portion of lost account value the only way they can cover the potential losses are with fees – lots and lots of fees.

Are the fees worth it? Some, definitely. Just be wise high fees can truly be detrimental. If your goal is to protect your retirement income, are you willing to give up something for a certain level of protection? If you answer yes to that question, then reasonable fees should be worth it.

Looking for more information on annuity fees and commissions, you may want to check out this article.

Can I Buy Annuities With No Fees or Surrender Charges?

Question: Can I buy annuities with no fees or surrender charges? Are there no load annuities like no load mutual fund^{^}s?  Ron in Roanoke, Virginia.

Answer: Phenomenal question Ron!  The annuity industry is very late to the party when it comes to “no load” type offerings that are common in the mutual fund^{^} industry.  No load can mean a few things.  It can refer to no fees for buying a strategy, no fees to keep the strategy, and no fees to sell the strategy.  Let’s cover all 3 as they apply to annuities, and the one annuity that covers all of these issues.

No fees to buy an annuity

Here’s where agents blur the lines when it comes to fees and commissions.  All annuities build in the agent’s commissions into the annuity so that you will see 100% of your money go to work. Regardless of the type of annuity (immediate, indexed, variable, fixed, etc.), for example….if you put in $100,000, you will see $100,000 go to work.  Just be aware that this doesn’t mean that the agent didn’t get paid.  They did!

No fees to keep an annuity

Some agents might tell you that fixed rate annuities, or indexed annuities have no annual fees, and technically they are correct if these annuities are bought with “no extras.” However, most deferred annuities are sold with attached benefits (also called riders), which always come with an annual fee for the life of the policy.  Single Premium Immediate Annuities and Longevity Annuities (aka: Deferred Income Annuities) have no annual fees, but provide little or no liquidity.

No fees to sell an annuity

Here’s where the rubber meets the road, and where the annuity confusion starts in some cases.  The majority of annuities sold today are deferred annuities.  With deferred annuities, there are surrender charges to get your money out of the product.  For example, if the surrender charge on an annuity was 7% and your accumulation (i.e. walk away) value was $100,000……..you would receive $93,000 if you fully surrendered the policy.  In my opinion, surrender charges are “fees” and should be considered when making an annuity buying decision.  If you sell a deferred annuity that is past its surrender charge, then there are no fees to sell.  But if you sell your 10 year deferred annuity in year 5, then you will be charged a fee to sell.  Always remember, surrender charges are fees.  As a caveat to this issue, Single Premium Immediate Annuities and Longevity Annuities are not “sellable” strategies and in turn have no surrender charges……but also no liquidity.  If you are considering these 2 types of annuities, make sure that your money is allocated properly and you do not need to access the funds lump sum.

Using OutCome Based Planning for Your Retirement

We practice and recommend a "Holistic - OutCome Based Planning process when considering annuities." This approach has the effect of balancing your overall portfolio so you can meet your retirement objectives by "first identifying the least amount of your investments or savings (if any) that should be considered for annuities." OutCome Based Planning analyzes and models multiple outcomes so you can clearly identify your best income and growth opportunities.

"The Annuity Guys will only call if you request help". Hence, when you are ready for specialized help we will be available.

"Working with an Experienced Fiduciary Financial Planner can help you Avoid a Trial & Error or Risk Based Retirement"

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