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If you’ve been in the annuity business for any period of time, you most likely have clients like this…

Mary, now 74 years old, purchased a nonqualified annuity about 8 years ago. It was in a product designed for future income. Now, with social security, a pension and plenty of liquid assets, she no longer plans on using it for her own income and has named her children as beneficiaries. She is also considering providing a testamentary gift to her alma mater, Penn State.

The annuity she owns was one with a large up-front bonus and a two-tiered design. In order to retain the bonus and current interest credits, she was required to hold the contract for a minimum of 5 years and subsequently annuitize for 10 years or longer. The surrender value (and lump-sum death benefit) at any time would be 87.5% of the initial premium (without bonus) compounded at a low guaranteed rate.

As of her most recent statement, the annuitization value was $465,000 and the surrender value was $364,000. These numbers would grow even wider apart every year as the two accounts grew at different rates. 

When the agent called our office to ask about different annuity options for Mary, our Internal Wholesaler asked, “How’s Mary’s health?” 

The confused agent responded, “She’s taking a little medication for blood pressure but otherwise she’s in good health.”

Our wholesaler then asked. “If I could show you how to almost double the amount going to your kids and make it all tax-free, do you think she would be interested?”

Fast forward a couple months…

Our Life Support Team was able to get a no-lapse life insurance policy issued on Mary for $651,000. By annuitizing the in-force annuity, Mary received about $46,000 annually over 10 years. This included an immediate payment for a total of 11 years of premiums. We also included an Accelerated Death benefit and a 2% Long Term Care Agreement.
The LTC agreement would provide about $13,000 per month should the need arise.

We were able to increase the after-tax inheritance to her kids by almost 100% while adding a significant LTC benefit by using “stagnant” dollars. 

Mary later commented, “With this new plan, I can now give Penn State $100,000 at my death while still significantly increasing the benefits for my kids!”