You’ve explained the concept of maximizing assets to your client: take an unused asset, purchase an immediate annuity with it, then turn around and utilize the monthly annuity payments for the annual premiums on a life insurance policy.
But maybe before you describe the “how,” it’s best to highlight the “why”—as in, why is maximizing an asset such a great strategy?
Here are the three key advantages.
Increase Unused Funds to Pass Down If you think your client would benefit from asset maximization, then that means they have an asset they don’t depend on for income. If it’s not being used, it’s likely going into some type of account to grow at a low interest-earning rate.
Why not ensure it has maximum growth?
In a CD or regular savings account, it will incur an interest rate most likely less than 6%. A $100,000 asset with a 6% interest rate triples in 20 years. But that same $100,000 asset, put into an immediate annuity, then used to purchase life insurance, would yield a death benefit of much more ($600,000+).
One strategy triples the money. The other method multiples the money by at least six.
Guaranteed Death Benefit and Guaranteed Monthly Annuity Payments* Your client took their $100,000 and put it into a period certain annuity with life option, then used the monthly payments to fund a life insurance policy. No matter when they pass away, their family receives the death benefit from the life insurance policy, whether it’s within a couple of months or a couple of years.
In addition, if an owner of a period certain dies one year into the 10-year period, his estate (beneficiaries) will receive the final nine years of guaranteed payments.
So there are guaranteed monthly payments while living, which can turn into a guaranteed death benefit at the time of death. And with the period certain annuity, the payments are further guaranteed to keep coming to the family even after the policyholder’s death.
*Works with a period certain with lifetime option annuity.
Income Tax Free & Estate Tax Free Nearly every other asset will be taxed when your client passes away and the funds pass to their beneficiaries. All of them, except life insurance.
By not taking advantage of this route, not only will your client’s beneficiaries get taxed, but they'll receive less overall.
Example: That same $100,000 asset growing at a 6% interest rate triples. Between income and estate taxes, your client’s beneficiaries receive about $195,000 of the $300,000. With life insurance, they’ve secured a death benefit of (hypothetically) $750,000, all of which is tax free. That’s a difference of almost $600,000.
Using the asset max strategy, your client will increase the money they leave behind in two ways: it will literally multiply, and the life insurance proceeds are tax free. Make more, save more. Best of all, it’s guaranteed no matter when death occurs. And if your client does this through an immediate annuity, his or her beneficiaries will receive additional inheritance from the remaining balance in the annuity too!
**All facts and figures are hypothetical examples and are not to be taken as definitive. All figures vary based on size of asset, size of initial annuity premium, amount of life insurance coverage secured and interest rates.