1 Annuity Maximization A strategy to leave more to your heirs at death

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Annuity Maximization

A strategy to leave more to your heirs at death

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DisclosuresThese disclosures apply to this presentation in its entirety

• Custom GrowthCV is issued on policy form series LS166; Custom Guarantee is issued on policy form series LS163A, Premium Guarantee Rider is issued on form series LR452; Accelerated Benefit Endorsement is issued on form series LR352A, Chronic Illness Accelerated Benefit Rider (In Minnesota, Accelerated Benefit Rider for Continuous Confinement) is issued on form series LR450A, or state variation by North American Company for Life and Health Insurance, Executive Office: Chicago, IL 60607. Products, features or riders, endorsements or issues ages may not be available in all jurisdictions. Limitations or restrictions may apply.•If the policyowner terminates the No Lapse Guarantee period, significantly higher premiums may be necessary to keep the policy in force. Paying a premium that is equal to, but not greater than, the No Lapse Guarantee Premium will keep the policy in force during the No Lapse Guarantee Period but may result in a negative or zero policy fund. By paying only the premium required to satisfy the no-lapse guarantee, the policyowner may be forgoing the advantage of building significant cash value.•North American nor its agent give legal or tax advice. Please advise your customers to consult with and rely on a qualified legal or tax advisor before entering into or paying additional premiums with respect to such arrangements.•In some situations loans and withdrawals may be subject to federal taxes. North American does not give tax or legal advice. Clients should be instructed to consult with and rely on their own tax advisor or attorney for advice on their specific situation.•Snapshots from Illustrations are for example purposes only and do not represent the full Illustrations.

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Scenario

• Many clients don’t plan to spend down all their assets

• Leaving money to heirs is a common goal

• A great deal of assets are currently held in annuities

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Annuities at death

• Subject to income taxes

• Subject to estate taxes

Diminished amount passed to client’s heirs

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Considerations

Annuity• Income & Estate

Taxable at death• RMDs at 70 ½ for

qualified funds

Life Insurance• Income Tax free at

death*• ILIT or outside

ownership avoids estate tax

• No RMDs

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Annuity Maximization

Leverage assets currently in an annuity policy into a greater benefit for heirs at

death using life insurance.

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Some Considerations

• Taxes

• Moving Funds

• Irrevocable Life Insurance Trust (ILIT)

• Client objective

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Taxes

• Income Tax (Federal and State)

• Estate Tax (Federal and State)

Client may have personal opinion as to the future of income and estate tax rates

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Moving funds

• Lump sum• Free withdrawals• Annuitize

– Lifetime

– Short

Implications:

Taxes, Surrender Charges, Insurance performance

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Irrevocable Life Insurance Trust (ILIT)?

• Estate Tax Planning

• Control

• Funding– Annual gift exemption ($13,000 in 2009)

– Lifetime gift credit

OR could own by children/grandchildren

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Two types of clients

1. Death benefit objective to estate building• Estate Taxable

• Non-estate taxable

2. Access to cash value a primary goal

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Client Type 1 – Death Benefit ObjectiveEstate Taxable

• Irrevocable Life Insurance Trust (ILIT)– Gifting limit

– Lifetime exclusion

• Custom Guarantee– Maximizing guaranteed death benefit to heirs

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Case StudyMr. Big Estate

• $250,000 annuity ($125,00 basis)

• Significant estate size

• Top tax bracket

• No need of funds

Goal: Maximize estate size for heirs

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• Policy owned by ILIT• Funding options (net after 30% combined fed & state tax)

– Lifetime SPIA: $16,111/yr– 10-pay SPIA: $24,931/yr– Lump sum: $212,500

• Guaranteed death benefit purchased:– Lifetime SPIA = $654,151– 10-pay SPIA = $572,743– Lump Sum = $637,473

Age 65 Male, Standard rate class, Guaranteed DB to age 100

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Selected Solution is Lifetime SPIA

• $16,111/yr after taxes

• $13,000/yr used of annual gift exemption– Balance of $3,111/yr lifetime gift exclusion

– Future gifting limits indexed for inflation

• Death Benefit of $654,151


16Partial illustration shown. Age 65 Male, Standard rate class, Guaranteed DB to age 100

Maximum guaranteed coverage

The information presented is hypothetical and not intended to project investment results. Illustration is not complete unless all pages are included.

17Assumes income tax rate of 30% and estate tax rate of 45%. Annuity rate 5%

Annuity versus Custom Guarantee

$-

$100,000.00

$200,000.00

$300,000.00

$400,000.00

$500,000.00

$600,000.00

$700,000.00

$800,000.00

$900,000.00

$1,000,000.00

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35

Annuity after tax

Annuity after income and estate tax

Custom Guarantee death benefitafter estate tax

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Client Type 1 – Death Benefit ObjectiveNo Estate Taxes

• Individually owned

• Custom Guarantee– Maximizing guaranteed death benefit to heirs

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Case StudyMrs. Next Door

• $75,000 annuity ($40,000 basis)

• No expected estate taxes

• No need for funds

Goal: Maximize benefit for heirs

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• Policy owned individually• Funding options (net after 25% combined fed & state tax)

– Lifetime SPIA: $4,730/yr– 5-pay SPIA: $14,025/yr– Lump sum: $66,250

• Guaranteed death benefit purchased:– Lifetime SPIA = $237,513– 5-pay SPIA = $219,140– Lump Sum = $232,382


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Maximum guaranteed coverage


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Annuity versus Custom Guarantee

$-

$50,000.00

$100,000.00

$150,000.00

$200,000.00

$250,000.00

$300,000.00

$350,000.00

$400,000.00

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35

Annuity after tax

Custom Guarantee death benefit

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Custom Guarantee Advantages

• Competitive price guarantee up to 100

• 20% table ratings

• Strong in a variety of funding methods

• Extra effective age 60+

• Life policy can be funded directly from SPIA

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Client #2 – Access to cash value goal

• Desire cash value– Access to value

– Growth in value

• Death benefit for heirs

• Custom GrowthCV– Waiver of surrender charge rider for early cash value

– Interest rate and premium bonuses for cash value growth

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• $75,000 annuity ($40,000 basis)

• Money not needed now, but retained access desired

• No expected estate taxes

Goal: Leave as much to children as possible, but maintain control for unexpected needs.

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• Individually owned

• Seeking access to cash value– Avoid lump sum causing Modified Endowment

Contract

– Quickly fund to provide fast access to cash

• 5-pay annuitization– $14,025/yr after tax (25% tax rate)

– $171,493 death benefit (minimum non-MEC)

Age 65 Female, Standard rate class, Solve for $75,000 at age 100

27Partial illustration shown. Age 65 Female, Standard rate class, Minimum face amount to meet 7pay test

Early cash value

Waiver of surrender charge with table shaving

Chronic Illness Accelerated Benefit Rider

Cash value growth

Potentially growing death benefit

Interest rate & premium bonuses


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Annuity versus Custom GrowthCV

$-

$50,000.00

$100,000.00

$150,000.00

$200,000.00

$250,000.00

$300,000.00

$350,000.00

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35

Annuity after tax

Custom GrowthCV surrender valueafter tax

Custom GrowthCV death benefit

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Custom GrowthCV Advantages

• Leverage assets with death benefit– Use Cash Value Accumulation Test to get quicker rising death

benefit with cash value

• Waiver of Surrender charge rider with table Shaving

• Designed for cash value– Interest Rate bonus– Premium bonus

• Chronic Illness Accelerated Benefit Rider• Life policy can be funded directly from SPIA

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North American Provides:

TWO

competitive solutions for Annuity Maximization

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North American:More sales opportunities

• Custom Guarantee– For the death benefit objective Annuity Maximizer

– High death benefit coverage guaranteed up to age 120

• Custom GrowthCV– For the cash value objective Annuity Maximizer

– Waiver of surrender charge rider for quicker access to cash value and table shaving

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Sales Support

800-800-3656, ext. 10411

[email protected]

Documents

1 Annuity Maximization A strategy to leave more to your heirs at death