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| GILICO Products |
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What
is a tax-deferred annuity?
It is a tax-advantaged product issued by an insurance company where long term
financial needs can be solved better than with most other financial alternatives.
What
is the major advantage of annuities?
Interest (earnings) accumulates income tax deferred until dollars are
withdrawn. This helps clients build substantial funds for their retirement
and can give them an income they cannot outlive.
Is
an annuity safe?
Yes, insurance companies are the only financial institutions that may underwrite
and issue annuity contracts. Fixed Annuity values are backed by the general
assets of the insurance company. The Department of Insurance in each state
must issue licenses to the insurance company and their agents who solicit
business in that state.
Who
wants to own an annuity?
People who want a safe way to reduce taxes; people who want to decide
when to pay taxes.
Who
is the average annuity purchaser?
The average age is 57 with an average premium of $36,000 at GILICO.
Generally, the buyers are not “currently spending” the interest they earn
on their taxable alternatives.
What
kind of dollars are going into annuities?
Maturing CDs, checking and savings accounts, money market funds, mutual
fund accounts, stocks and bond funds, IRA rollovers, Treasury bonds and bills.
Is
the annuity for everyone?
No. Dollars earmarked for short-term needs should not go into the annuity.
In addition, at least six months of income should be saved for emergencies
outside of the annuity. Also, those who need current income should consider
an immediate annuity, not a deferred annuity. On the other hand, those looking
for one of the safest ways “to accumulate” dollars on a tax-advantaged basis
will find the deferred annuity extremely beneficial.
Since
a withdrawal of principal is tax-free and IRS penalty free, can principal
be withdrawn first and then interest?
No, the IRS considers that interest earnings are withdrawn first. Naturally,
any portion of a withdrawal exceeding interest earned would be a tax-free
return on principal.
What
if the annuity is paying an interest rate less than other financial alternatives?
You should first compare the value of the “no market risk” feature
of the annuity to other alternatives you are considering. You then must remember
that the interest on many alternatives is currently taxable every year. Also,
Section 1035 of the Internal Revenue Code allows annuity owners to move their
dollars from one annuity to another annuity income tax-free.
How
is the interest rate declared after the initial guarantee period?
Current market conditions and the insurance company’s investment portfolio
will dictate renewal rates. GILICO uses the “Portfolio Rate” method to determine
rates after the initial guarantee period. This means that renewal credited
rates may float up or down, depending on overall portfolio investment yield.
Why
do you guarantee rates on some policies and do not guarantee rates on others?
Generally, the longer the surrender charge, the higher the interest
rate, and guaranteed rates are generally lower than non-guaranteed rates.
GILICO is pleased to offer a wide variety of annuity products to meet many
policyholder needs. Surrender charges vary from 4 to 12 years. Agents work
with clients to determine the needs and financial situation of the prospective
policyholder. The agent helps the policyholder to determine which product(s)
best fit their individual, specific needs. Some products have shorter time
horizons (surrender charges) than others. Some have higher rates and first
year bonuses. Some have guarantees.We have developed consumer-oriented products
with several options. A prospective buyer should discuss product options with
his or her agent.
How
will clients know their annuity balance?
GILICO provides a statement of annuity value on each policy anniversary
or whenever requested by the policy owner.
Will
the annuity be tied up in probate proceedings?
No! If you list a “named” beneficiary, other than your estate, annuity
dollars will avoid the delay, expense and frustrations of probate.
Will
the beneficiary be taxed on the interest that has accumulated inside the annuity?
Yes, beneficiaries will be taxed on the tax-deferred interest when
they receive those dollars. However, if a beneficiary is the spouse of the
owner and the owner dies, he/she may elect to continue the annuity and postpone
taxes. Once again, the client decides when to pay income taxes. If the beneficiary
is not the spouse and the owner dies, then dollars must be totally withdrawn
within five years or they may be received over the beneficiary’s life expectancy.
However, this latter option must be elected during the first 12 months following
the owner’s death.
Is
the annuity identical to an IRA?
No. Although the annuity is often used as a funding vehicle for an
IRA, many sales are for non-qualified annuities with premiums from after-tax
dollars. Therefore, dollars deposited into a non-qualified annuity are not
deductible. However, there is no government imposed ceiling on how much premium
can go into an annuity and distributions do not have to begin at age 70 ½.
Some people have said that an annuity picks up where the IRA leaves off.
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