When I saw this variable annuity (VA) rescue structure, I knew I had to put it out in an article. Very quickly, you will see the power of this topic and why you'll want to learn more.
This is part one of a two-part series. Part two will cover how clients who use the structure outlined below can also receive a significant income tax deduction (ordinary) when selling an upside-down VA.
VAs that are under water
How much money is in VAs with an account balance of less than where they started? Billions of dollars. What does that mean? It means that there are a lot of unhappy VA owners and that there is tremendous opportunity for advisors who can help.
Let's look at a simple example: Dr. Smith had $500,000 in a VA in 2007 (pre-crash). He now has accumulated approximately $300,000. He's grumpy, and doesn't like the VA any longer, but doesn't know what to do.
What are his options?
1) Keep the annuity and hope the account value comes back over time
Selling upside-down VAs for a premium price
2) Surrender the annuity for the surrender value
3) Strip the annuity (by the way, you can use this VA rescue program to buy stripped VAs).
Did you know that there is a firm out there that will buy upside-down VAs at a premium price? Now you do, and I think this structure will be the new No. 1 option for many clients who are looking to get out of certain upside-down VAs.
What is a premium price? 110 percent to 120 percent of the current account balance.
In my example, the client could sell his VA for $330,000-$360,000 cash.
Also, with this program, there is no medical underwriting, and no medical information about the seller needs to be disclosed.
Repositioning the money
The No. 1 reason clients will want to use this VA rescue structure is so they can take their money (which is more because of the rescue structure) and reposition it somewhere else. Where? It depends.
- Some advisors will recommend that the money go into a "properly balanced portfolio."
- Some advisors will tell their clients to use the money to buy a single premium life insurance policy that provides a significant long term care benefit and a decent sized death benefit.
- Some will tell their clients to reposition the money into a better annuity (such as an FIA) -- one that will guarantee them a rate of return (like 8 percent) on an accumulation account where the money can be used to provide a guaranteed income for life (and a 10 percent bonus that immediately vests for income purposes).
If the person in my example client was 60 years old and received a 10 percent premium when selling his VA, he could buy the above-mentioned FIA and have a starting account balance in the FIA of $363,000. At age 70, he could have a guaranteed income per year for life of $51,724. Good luck obtaining this kind of guaranteed income for life if the client leaves his money sitting in the upside-down VA.
The bottom line with this VA rescue structure is simple: No one knows it exists and because it can provide a unique benefit to clients with VAs that are upside down, any advisor who learns more about this structure will have a significant opportunity to provide better advice to current clients and pick up new ones.
VA Rescue Webinar
March 4 at 3:00 p.m., EST
*For further information, or to contact this author about the VA Rescue Seminar on March 4th, please leave a comment and your e-mail address in the forum below.