DEFINITIONS

Annuity Types

What are the different types of annuities?

There are literally hundreds of different annuity types—enough to boggle the mind of anyone at first glance.  Furthermore, the companies that issue annuities are busy creating new types of annuities everyday to meet the changing needs of consumers. However, when all the different types of annuities are clustered together, it is easy to see that most differ on just a few important variables. The remainder of the discussion identifies these major variables and subsequent discussions will explore the various annuity types in more depth.

What are the different ways in which companies invest annuities?

A variable that separates one annuity from one another is how an issuer invests your money once you purchase an annuity. There are three broad methods that issuers use to invest your money: fixed, variable and equity-indexed.

Fixed Annuities

Historically, fixed annuities were the only type of annuities that companies issued.  A fixed annuity pays a fixed, set rate of interest, which could change periodically, on the money invested in the annuity. In many cases, the annuity issuer will pay a guaranteed minimum rate of interest on the annuity account but also hold out the possibility that it will pay a higher rate of interest if the market conditions permit (i.e., interest rates have risen on other market instruments). To induce people to purchase fixed annuities, many issuers also will pay a much higher rate of interest for an initial period of time—usually a year. This higher rate of interest is sometimes called a bonus interest rate.  Thus, the issuer may agree to pay 6 percent for the first year and then pay no less than 2 percent annually on the annuity after the first year.  Usually, the annuity issuer will pay more than the minimum guaranteed rate on the fixed annuity.  Fixed annuities are conservative investments for individuals who prefer fixed rates of return on their investments.

Variable Annuities

Instead of receiving interest on the money invested in your annuity, you may choose a variable annuity that allows you to invest your annuity money in one or more investment subaccounts. The subaccounts (often called variable subaccounts, flexible accounts or flexible subaccounts) will then invest in stocks, bonds, money market instruments and other types of investments. Many variable annuity issuers may offer 6 to 10 different subaccounts. The annuity issuer will allow you to allocate your money among the different accounts in any way that you desire. Furthermore, most annuity issuers allow you to move money from one subaccount to another without incurring commissions (and there are usually no tax consequences). With a variable annuity, the amount of earnings that will be credited to your annuity account will depend on the performance of the underlying subaccounts.  Unlike a fixed annuity, you assume the investment risk on the annuity.  Some years, you may do very well, while in others, you may lose money.  In recent years, variable annuities have become very popular, as people have been more willing to take the added risk to try to pursue higher returns than what is available on fixed annuities.

Equity-indexed Annuity

A third broad type of annuity is an equity-indexed annuity.  This type of annuity is sort of a hybrid between a fixed and a variable annuity.  When you purchase an equity-indexed annuity, the issuer agrees to pay a return on your account that is tied to a stock market index—usually the S & P 500. However, the issuer also guarantees to pay you no less than a certain return in a given period if the return on that stock market index falls below that minimum percentage. Thus, if stocks do well, you earn above-average returns on your annuity, and if stocks fall in value, you will not lose money (as you would with variable annuities).

One of the tradeoffs to an equity-indexed annuity is that the issuer will typically not pay you the full return on the equity index. Many equity-indexed annuities have caps (e.g., the most the issuer will pay you is 12 percent per year even if the equity index does much better than that). Furthermore, many issuers will pay you only a certain percentage of any given return in the equity index—called the participation rate. Assuming a 75 percent participation rate, if the equity index goes up 10 percent a year, then the issuer may only credit your account with 7.5 percent for that period.  Thus, with an equity-indexed annuity, you give up some of the upside potential for some protection on the downside.

Guaranteed Annuity Contracts

A fourth type of annuity is a guaranteed annuity contract. This type of annuity covers a group of people (annuitants) who are usually linked through work or membership in a group or organization.   A guaranteed annuity is similar in some respects to a fixed annuity because the issuer of the guaranteed annuity usually guarantees that the annuity will be credited with a fixed rate of interest for a certain period of time. The insurance industry has developed many specialized types of guaranteed annuities to meet the specific needs of corporate customers. For example, large corporations often use guaranteed annuities to fund their defined benefit to pension plans.

Two-tier Annuities

A fifth type of annuity is the two-tier annuity. A two-tier annuity is a type of fixed annuity in which the interest rate credited to the annuity varies depending on the distribution option that you choose.  Typically, if you elect not to annuitize (and therefore maintain ownership of the money in the annuity), the annuity issuer will use a lower interest rate to credit your account. By contrast, if you elect to annuitize and receive a series of annuity payments over a period of time, the annuity issuer will use a higher rate of interest to credit your account.

Major Types of Life Insurance

What is life insurance? 

If insurance terms leave you dazed and confused, here’s a quick cheat sheet for four major types of policies.  Keep in mind that definitions may vary slightly from company to company and from state to state:

Term Insurance— The simplest form of insurance.  You purchase coverage for a specific price for a specified period.  If you die during that time, your beneficiary receives the value of the policy. There is no investment component.

Whole Life—Similar to term, but you purchase the policy to cover your “whole life” not just a set period.  Premiums remain level throughout the life of the policy and the company invests at least a portion of your premiums.  Some firms share investment proceeds with policy holders in the form of a dividend. Many companies will offer “a relatively low guaranteed rate of return,” but in reality pay at a rate in excess of the guarantee.

Universal Life—You decide how much you want to put in over and above a minimum premium. The company chooses the investment vehicle, which is generally restricted to bonds and mortgages.  The investment and the return go into a cash-value account, which you can use against premiums or allow to build.  With some policies, sometimes called Type I or A, the cash account goes toward the face value of the policy on the death of the policy holder.  With a second variety, sometimes called Type II or B, the beneficiary receives the face value of the policy plus all or most of the cash account. While Type II is meant to provide a partial hedge against inflation, it demands higher premiums as you get older than Type I. 

A variation of a universal policy, often called universal variable life, allows policyholders to choose investment vehicles.

Variable Life—With a variable policy, there is usually a wider selection of investment products, including stock funds.  As with a universal policy, returns on investments can offset the cost of premiums or build in the account. And depending on the type of policy, the beneficiaries will either receive the face value of the policy or the face value plus all or part of the cash account.

What is Long Term Insurance?

When people consider the subject of long-term care, they often think about nursing homes. In fact, long -term care has little to do with nursing homes. Understanding the difference can help you protect your family and finances.

The Consequences of Living Longer

Long-term care is a continuum of care services and housing you will need when you live a long life. Think you won’t live a long life?  Think back 25 years ago. If you had cancer or a stroke, you simply died. Few ever heard of Alzheimer’s.  Today, it is the leading cause for long- term care services.  The longer you live, the more likely you are to need care. The question is not who will take care of you, because your family will most often, but rather what providing that care will do to your family and finances.

Long-term Care is Usually Custodial Care

Long-term care is defined as needing assistance with your activities of daily living (to eating, bathing, dressing, transferring from one point to another and continence). It also includes cognitive impairness so severe that the individual needs constant supervision.

If you need custodial care, chances are it will be delivered in the community, not in a nursing home.  Many of you have heard compelling statistics from The New England Journal of Medicine stating that 43% of those over age 65 will need nursing home care. What the article actually said is that that number may spend some time in a facility. The fact is, few end their days in one.

Every study conducted finds that care is overwhelmingly provided at home. The key question, of course, is who is going to pay for it?

Who Covers The Cost?

Medicare, the primary health care program for retirees pays only for skilled or rehabilitative care, not custodial care in any venue. Medicaid, a federal state program for financially needy individuals will pay for custodial care, but primarily in nursing homes.  Funding for home care and assisted living is very limited and based on availability to funds.

Veterans believe that the VA will pay for home care, adult day care or assisted living. As with Medicaid, funding is limited and generally based on service-related disability. In fact, the federal government has as much said this to veterans by encouraging them to purchase long-term care insurance through the Federal Long-Term Care Insurance program.

The result is that consumers are forced to pay privately for their care. Unfortunately, the best thought-out retirement plan rarely takes into consideration living a long life. Put another way, those assets and income have been allocated to pay for retirement, not for the consequences of living a long life. This results in the need to invade principal and divert income. As a result, one of seniors’ greatest fears- that of outliving their assets- literally may come true.

The Role of Long-Term Care Insurance

The use of long-term care insurance thus becomes an important part of planning for disability caused by living a long life. The product has two roles: helping keep families together and allowing your retirement portfolio to execute for the purpose for which it was intended, namely retirement.

From a family perspective, think about who will be providing you care. Like it or not, children will play a key role. Long-term care insurance (LTCI) doesn’t replace the need for family involvement in providing care but rather builds on it. It pays professionals to assist the person with the toughest tasks such as toileting, bathing, feeding and continence. This, in turn, allows the family to provide care better and longer at home. That leads to a critical question: have YOU planned for the consequences of living a long life?

From a financial point of view, LTCI allows your retirement plan to stay intact. That is particularly important given the recent steep decline in portfolio value. The product, in effect, protects the balance of your account value. LTCI also protects income. Although you may qualify for Medicaid to pay for nursing home costs by transferring assets, your income (pension, social security, IRA and 401K payout) cannot be protected.

What is Disability Insurance?

Just like life insurance, disability insurance is protection for your future income. In the case of disability insurance, though, the event covered is your inability to earn a living wage as a result of poor health or injury.

If you are involved in a serious accident or develop a disabling disease, how will you continue to support yourself, let alone your dependents? It’s surprising to many people, but disability insurance is actually more important than life insurance. Surprised? Consider the facts:

• The Social Security Administration’s Disability Benefits publication claims that a 20-year old worker has a 3 in 10 chance of becoming disabled before retirement age. For us mathematically challenged folks, this means 30% are likely to need some kind of income protection for disability.
• Government statistics from 1997 show that the same 20-year-old has only a 17% chance of dying before age 55 and these odds continue to decline as we live longer  and longer (and eat more leafy greens).
• Disability insurance is more expensive than life insurance. Think about this. Insurance companies make a living aligning premium costs with the odds of a claim. This leaves little question that disability payouts are more common than life insurance payouts.
• Most of us consider health insurance a critical need, especially as protection from serious illness or accident. Does it make sense to prepare for the medical costs of disability but not the costs of food and shelter for our families?
• Disability insurance protects more members of your family than life insurance, exactly one more—you! For this reason, even single people, who have little need for life insurance, should seriously consider disability insurance.

The bottom line: If you depend on your income to pay the bills, you ought to carry disability insurance. Those of you working just for kicks, we suggest you spend your time doing something more entertaining than reading about disability insurance.

What is Insurance/Annuity Purchase Programs?

Life Insurance

Most life insurance policies are purchased to protect loved ones and to shield them from the “what ifs” in life. Thankfully, the majority of these policies are never needed; the owners either allow them to lapse or surrender the policies to the insurance company for cash surrender value.  This is where WE work. We offer insurance owners the option to sell their policies in exchange for a lump sum of cash, which typically is more than the cash surrender value, if any, offered by the insurance company.

Annuity

Today, nearly 100 million Americans are preparing for retirement by purchasing annuities. For most people, annuities provide a reliable flow of income or a financial cushion for unexpected expenses during retirement. However, life changes -  and so do each person’s wants and needs. Some find that retirement just isn’t for them, so having a steady stream of monthly payments isn’t necessary. Others adjust their estate planning strategy and find that an annuity doesn’t fit into that plan – there are better uses for their capital or they simply choose to diversify their investments. And that’s exactly where we are helping thousands of Americans – allowing people to sell annuity payments in exchange for a lump sum of cash.

Many of our customers have inherited this asset from a loved one, and are simply looking for a liquidity option. We understand everyone’s needs are different and as a result, we customize options to try to provide maximum payouts. We offer superior customer service to make sure you are supported through the entire process.

Other Financial Services

You may of heard of life and annuity Settlements, Financial Institutions will now buy you policy and pay you a lump sum cash payment. This can help provide capitol for any need you may have.

The list below are other assets that can be also sold to provide capitol for your need.

• Lawsuit advance
• Mortgage Notes
• Inheritance Advance
• Lottery Payouts
• Cell Tower Lease Advance