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Using Life Insurance to Pass Wealth on to your Heirs

Annuity Myths & Facts


Myth: Once you buy an annuity, you can't move it without paying taxes.

Fact: Federal Tax rules allow you to move your annuity without paying taxes through IRA rollovers and 1035 exchanges. However, surrender charges may apply

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Bradley Associates

California Income Producing Annuity

An Income Producing Annuity is most commonly known in the industry as a Single Premium Immediate Annuity. The idea is that a consumer gives a lump sum of money to a life insurance company in exchange for payouts to begin immediately on an annual, semi-annual, quarterly or monthly payment plan. Essentially, you are giving your money to the insurance company to return to you over a period of time with a little interest. This is also known as "annuitizing". The concept of an Income Producing Annuity is very old and can be traced back many centuries to Roman days.

Most people associate Income Producing Annuities with lottery winnings. They can also be used for various structured settlements. Sports stars and entertainers will also use Income Producing Annuities to ensure that their money is not blown too quickly. But more often than not, they are used to provide a guaranteed steady stream of income for life. This income can be used to enhance your lifestyle in retirement and/or fund additional insurance products such as Long Term Care Insurance or Life Insurance. In certain situations, an Income Producing Annuity can outperform the payout options offered in a Reverse Mortgage.

So what are some of the benefits of an Income Producing Annuity?

  1. Your money and payments are guaranteed for the time period you choose
  2. Preferable tax treatment on non-retirement funds - only the gain is taxed
  3. Social Security friendly as Income Producing Annuities will not affect your SSI payments
  4. Protection against probate
  5. Are often protected against creditors
  6. No administrative or management fees
  7. Easy to understand and execute - the "fire and forget" income producing tool

The biggest and most important part of setting up an Income Producing Annuity is choosing which payout option fits your needs. Payout options typically include "lifetime" options and/or "periods of time" options. It is also interesting to note that this is the one insurance product that doesn't penalize you for being older or for having medical issues - in fact, the older you are and the more health issues you have, the higher your payments will be if you choose a "lifetime" payout option.

Here are some of the more common payout options:

Life Only: Payments are made for the life of the Primary Annuitant. Payments cease upon death of the Primary Annuitant. There is no death benefit.

Life with Cash Refund: Payments are made for the life of the Primary Annuitant. Upon death of the Primary Annuitant, if the sum of the payments received is less than the premium paid to purchase the annuity, the difference is paid out as a lump sum death benefit to the beneficiary.

Life with Installment Refund: Payments are made for the life of the Primary Annuitant. Upon death of the Primary Annuitant, if the sum of the payments received is less than the premium paid to purchase the annuity, the annuity continues to be paid out to the beneficiary until the total payments received is equal to the premium paid to purchase the annuity.

Life with Period Certain: Payments are made for the life of the Primary Annuitant. If the Primary Annuitant dies prior to receiving the total number of guaranteed payments (selected at time of purchase), the beneficiary will receive the remainder of those guaranteed payments.

Period Certain Only: Payments are made to the Primary Annuitant for the number of years guaranteed (selected at time of purchase). Once the Primary Annuitant has received the selected number of payments, all payments will cease. If the Primary Annuitant dies prior to receiving the total number of payments selected, the beneficiary will receive the remainder of those payments.

Joint & Survivor (death of Primary): Payments are made for the life of the Primary Annuitant. If upon death of the Primary Annuitant the Contingent Annuitant is living, the Contingent Annuitant will begin to receive payments equal to a percentage (selected at time of purchase) of the original benefit amount. Payments cease upon death of the survivor.

Joint & Survivor with Period Certain (death of Primary): Payments are made for the life of the Primary Annuitant. If the Primary Annuitant dies before the total numbers of guaranteed payments (selected at time of purchase) are made, the Contingent Annuitant (if living) will receive the remainder of the guaranteed payments. After the guarantee period ends, payments equal to a percentage (selected at time of purchase) of the original benefit amount will continue to be paid for the life of the Contingent Annuitant. If both the Primary and Contingent Annuitant die before the total numbers of guaranteed payments are made, these payments will be continued to the beneficiary, ceasing at the end of the guarantee period.

Joint & Survivor with Cash Refund (death of Primary): Payments are made for the life of the Primary Annuitant. If upon death of the Primary Annuitant the Contingent Annuitant is living, the Contingent Annuitant will begin to receive payments equal to a percentage (selected at time of purchase) of the original benefit amount. Upon death of the survivor, if the total sum of the payments received is less than the premium paid to purchase the annuity, the difference is paid out as a lump sum death benefit to the beneficiary.

Joint & Survivor with Installment Refund (death of Primary): Payments are made for the life of the Primary Annuitant. If upon death of the Primary Annuitant the Contingent Annuitant is living, the Contingent Annuitant will begin to receive payments equal to a percentage (selected at time of purchase) of the original benefit amount. Upon death of the survivor, if the total sum of the payments received is less than the premium paid to purchase the annuity, the annuity continues to be paid out to the beneficiary until the total payments received is equal to the premium paid to purchase the annuity.

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