Steve story banner.jpg

One of our advisors called in to request an annuity quote for his client, Steve. Steve is 50 years old and just sold a small business for about $500,000 and wanted to take the proceeds and invest them conservatively in order to provide for a consistent retirement paycheck for him and his wife, Susan at his full retirement age of 67.

Our internal wholesaler ran quotes with several carriers and was able to create a lifetime income at age 67 for Steve of $68,456.

The advisor was pleased with the number, then our wholesaler asked, “How much of this would Steve like to have tax-free?” After an awkward few moments, our wholesaler went on suggest that Steve consider splitting the transaction – 50% to the annuity and 50% to the new Balanced Growth Advantage (BGA) IUL form Annexus and Minnesota Life. “We should be able to generate about the same income and make half of it tax-free. Oh, by the way, we will also be able to provide a significant tax-free death benefit for Steve’s family. Let me show you the summary.”

Steve Annuity grid.jpg

By taking advantage of the Premium Deposit Account (PDA) with Minnesota Life, Steve was able to pre-fund the IUL policy as a lump-sum while the PDA moved premium to the policy over a seven year period avoiding a MEC. Because of the competitive interest rate on the PDA, $38,686 went into the policy annually for seven years for a total policy contribution of $270,799.

The income from the life insurance policy is 100% tax-free so that Steve actually has more spendable income at age 67. If we assume a 30% tax bracket for Steve at age 67, after tax income would be $56,980 vs. $48,897. That’s a 16% increase in after tax income. In addition, he’s had over $700,000 in additional life insurance for the next 40 years!

Steve loved the idea and while the advisor was completing the paperwork, Steve said, “What should I do with the $500,000 policy I already have? I’m paying $5,000/year for that and it has about $10,000 in cash value in it.”  

The advisor was quick to point out that Susan had no life insurance of her own. “Why not redirect that premium and the existing cash value into a $500,000 policy on Susan? At her age 65, this would generate about $25,590 in tax-free income for her also.”  

The advisor was able to generate another $5,249 commission ($5,525 x 95%).  Not a bad day’s work.