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Using Immediate Annuities to fund Life Insurance:
We recently had the opportunity to assist a broker in a
$100,000 indexed annuity presentation. In speaking with the clients, I learned
that the couple, in their early 60's, had a $1 million IRA.
In addition to the indexed annuity sale,
the broker was also presenting a $200,000 face 2nd-to-die policy. I asked the
clients, who had a lot of other assets, why $200,000? They answered that the
premium for a $1 million policy was too much.
I went on to ask about the IRA and they
told me their intention was to leave it to the kids. I suggested using $200,000
of the IRA to buy a 7-year period certain immediate annuity to fund a 7-pay
2nd-to-die life insurance policy.
If they had died with the $200,00 still
in their IRA it would only be worth about $50,000 to the children because of
income tax and then estate tax. By moving it to an immediate annuity to fund a
$1 million life policy we converted $50,000 after tax to $1 million.
It is becoming common to use highly taxable IRA money to
fund life insurance policies via immediate annuities. And, by the way, you make
two sales instead of one.
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Using
Immediate Annuities to fund Life Insurance!