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Background
There is over $1 Trillion currently invested in variable
annuities with nearly half of this in nonqualified contracts.
Due to 3-year bear market in 2000-2002, many of these variable
annuities have suffered market losses in recent years. Many
of these annuity owners are dissatisfied with their policy
and wish they had other alternatives.
They do. But no one is telling them. And they deserve to
know. You can show them options they have never seen before.
Death Benefits
One consolation for contract owners is that many contracts
have death benefits well in excess of their current account
value. These death benefits are an important consideration
for a contract owner in deciding whether to keep their existing
variable annuity. Few contract owners are aware of how these
death benefits work however. The insurance portion of the
death benefit (the amount over the account value) is fully
taxable, unlike traditional insurance. In most contracts,
the death benefits expire at a certain age. In older contracts
this can be age 85 or earlier. Note a 72 year old man has
more than a 50% chance of surviving to age 85, meaning half
the people will not collect the death benefit. If the contract
is surrendered in the future, the contract owner gets nothing
for the death benefit. Finally, the insurance portion of the
death benefit gets smaller over time as the account value
grows.
Huge Sales Opportunity
Existing variable annuity contract owners are a huge market.
The concepts in the VA Recovery Program are client oriented
and compelling. Whether dealing with existing clients or new
prospects, these topics provide the broker with a positive
basis for a meeting. The concepts are not built around "pushing
product". However, in most instances f the client takes
action, investable funds will be freed up for additional sales.
Variable Annuity "Secrets"
It's NO secret that many existing Variable Annuity (VA) contracts
have suffered losses in recent years. And brokers know that
such market losses typically create a Death Benefit greater
than the Account Value. However, few brokers realize the
opportunity this creates to help their clients and make new
sales in the process!
There are four concepts that variable annuity contract owners
should be familiar with. In practice most variable annuity
contract owners are not aware of any of them.
1) What is the affect of asset mix and expenses on expected
returns?
(a) What is the asset allocation in the product?
(b) What do you assume for expected returns by asset class?
(c) What are the annual product charges?
Is the expected return high enough for the risk being taken?
2) Can I claim an Ordinary Income loss on my NQ contract?
(a) Is the surrender value less than the tax basis?
(b) IRS recently clarified treatment.
(c) You must surrender or sell the contract.
3) Does my contract let me freeze the insurance portion of
the death benefit?
(a) Many older contracts permitted this.
(b) It avoids the insurance declining in the future.
(c) It reduces the cost of the insurance to essentially
zero.
(d) Generally requires a partial transfer to another product.
4) What is the value of my Death Benefit?
(a) When does it expire?
(b) How does it increase?
(c) Where does it fit with income needs, other insurance
needs, etc?
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Portfolio Analysis
Many variable annuity contract owners don't realize the effect
of diversifying the assets in their VA to lower yielding asset
classes such as Bonds or Money Market funds. Another important
factor in determining the overall growth in the account value
is the expense charged annually to the contract. Many VA
contract owners are surprised to find how low the expected
growth is in their contract given their asset allocation and
expense charges.
On the secure portion of the web site, Sterling's VA Recovery
Program provides a calculator so that you and a client can
input their asset mix, expectations regarding returns by asset
class, and product charges to determine their expected account
value growth rate. The calculator can be used with any investment
product as long as you know the product charges.
A major benefit of this exercise is to compare the expected
return on the client's current VA to alternatives such as
fixed annuities or Equity Indexed annuities. If the expected
return is only marginally higher, solutions can range from
altering the asset mix in their current product to identifying
a more appropriate product.
Claim a Tax Loss
Non qualified annuities are unique!
They have the benefit of tax deferral. No taxes on gains
until you take the money..
Any gain is taxed as ordinary income when you do take the
money.
Only recently did the IRS clarify their position on losses
in a variable annuity.
Few brokers and even fewer contract owners are aware that
the loss on their Non Qualified variable annuity may
be deductible against Ordinary Income. If their
account value is less than the contract's tax basis, any loss
on surrender or sale of the contract is deductible. A Non
Qualified Variable Annuity is an annuity that is not
in a qualified plan. Examples of qualified plans would be
a 401K plan, an IRA or a TSA plan.
Sterling's VA Recovery Program gives you the IRS reference
recently released that you can show your clients. In addition
it gives you some tips such as Alternative Minimum Tax issues.
We are not tax advisors. However by making your client
aware of this unique opportunity your client can work with
you and their tax advisor to decide their best course of action.
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Freeze the Death Benefit
Due to the bear market or 2000-2002, the Death
Benefit on many VA contracts exceeds the contract's
current Account Value. For example:
- Account Value = $ 75,000
- Death Benefit = $125,000
The Death Benefit is your Account Value ($75,000) plus Insurance
($50,000).
On most contracts, if the Account Value goes up (say $105,000),
the Death Benefit stays the same and the insurance portion
drops (to $20,000). You just lost $30,000 of Insurance!
Fortunately, older contracts let
you “Freeze the Death Benefit”
You withdraw almost all the Account Value (say $74,000) from
the contract. The Death Benefit falls by the same amount ($74,000)
- Account Value = $1,000
- Death Benefit = $51,000
- Insurance = $50,000
The Insurance can not be reduced by increases in the Account
Value because the Account Value is minimal. Better yet, the
cost for the $50,000 insurance is essentially $0.
Sterling's VA Recovery Program can help a broker identify
contracts that qualify for this treatment. Again, we don't
believe every eligible client should do this - we just believe
every contract owner should be aware of the option.
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Understand Your Death Benefit
Few contract owners understand the Death Benefit in their
variable annuity. The Insurance Benefit is taxable as ordinary
income, unlike traditional life insurance. Generally the death
benefit expires at a specified age in the contract. In older
contracts this can be age 85 or earlier. At most ages, a contract
owner has substantial chance they will never collect the death
benefit. Of course, in the future surrender or substantial
withdrawals may reduce or eliminate the insurance.
Sterling's VA Recovery Program contains a tool to allow a
contract owner of any age to determine the chance that they
will outlive the age at which the death benefit expires. We
can also help in evaluating your client's death benefit.
The issue is to ensure that the current product fits the
client's needs. The need for retirement income, the appetite
for risk, the need for insurance and long term care can all
affect the suitability of a product. We have access to a range
of annuity products, insurance products and long term care
products to address your clients need.
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Benefits to the Consumer
- The consumer deserves to
know the effect of asset allocation and expenses on their
expected returns.
- The consumer deserves to
know about the opportunity to take a tax loss.
- The consumer deserves
to know if they can freeze their death benefit.
- The consumer deserves
to know important details of their variable annuity death
benefit.
The consumer can make the best decision once they know
the facts. Sterling's VA Recovery Program will position
you to inform your clients and prospects on how they can benefit
from these concepts.
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Why Do I Need to Register?
- Access to valuable proprietary information.
- Training Module Required.
- Access to Future Leads Program.
- Contracting is required to participate in the Program.
What are the Benefits?
- Identify contracts that are candidates using our research.
- Training to become expert.
- We can help you get in front of contract owners.
- We'll show you alternative products to sell.
- We'll give you a sales package for every sale.
Opportunity to Bring New Options to
Prospective and Existing clients.
Gain Access Immediately to the Sterling VA Recovery Program!!
Link
to Access the Secure Broker Website
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