Frequently Asked Questions

We understand that planning for your retirement is an arduous process, and we believe that knowledge is the best retirement investment. Here are the answers to some of our most frequently asked questions.

How does the law protect annuity investments?
Answer
In order to safeguard the funds of annuity contract holders or policy owners, State Laws demand the insurance companies to meet strict financial requirements. According to these legal financial requirements, the insurance companies are legally bound to set up a reserve, which at all times must be equal to the withdrawal or surrender value of their total block of annuity policies or contracts i.e. the annuity providing insurance companies must set aside funds equal to the surrender value of every annuity contract in force. Additionally the state laws also require certain levels of capital and surplus to further protect the annuity holders or policy owners. People avoid “probate” because the judicial process can take anywhere between six and twelve months to conclude, and the legal expenses can be significant. Annuities and life insurance policies are not subject to probate and may be passed to a designated beneficiary directly without going through probate.
What is an annuity?
Answer
The word “annuity” means “an amount payable annually.” An annuity refers to a contract offered by insurance companies that allows an annuity buyer to save funds for retirement on a tax-favored basis and then receive a guaranteed income payable for life, or for a certain period such as five or ten years.
How many types of Annuities are there?
Answer
Broadly there are two classes of annuities; immediate annuities and deferred annuities and these two classes have various sub classes including fixed deferred, variable, and equity-indexed annuities.
What is an immediate annuity?
Answer
The annuity in which the benefit payments begin very quickly, normally within one year of the time it is purchased is termed as an immediate annuity. An immediate annuity is commonly purchased with a single premium.
What is a deferred annuity?
Answer
The annuity in which a policy holder pays a premium to the annuity providing insurance company that issues a contract promising to pay interest or gains made on the deposit while deferring the income and the taxes until you actually withdraw the money or begin receiving an income. Three major types of deferred annuities are Fixed Deferred annuities, Equity-Indexed annuities, and Variable Annuities.
What are “qualified” and “nonqualified” annuities?
Answer
Qualified annuities are sold as part of a tax-qualified plan such as an IRA, Keogh, SEP, or company pension plan, and Nonqualified annuities are not used to fund a tax qualified plan such as an IRA, Keogh, SEP, SEP IRA, or TSA
What makes annuities different from other investments?
Answer
Their tax deferred status, the avoidance of probate, and the promise of guaranteed income for life make annuities different from other types of investments.
What is tax deferred status of annuities?
Answer
The tax deferred status of annuities means that an annuity holder defers the income and the taxes until he/she actually withdraws the money or begins receiving an income.
What is probate and why do people prefer avoiding it?
Answer
Probate is a judicial process to establish the validity of a will. The process of Probate can delay the passing on of assets to heirs. Assets in an estate are subject to probate and can’t be passed on to heirs unless the probate court certify the validity of the will and authorize the executor to execute the will.
What is Equity Indexed Universal Life Insurance?
Answer
Equity indexed universal life is flexible premium universal life insurance policy that allows the policyholder the option to allocate cash values to an index account. The cash values in the index account participate indirectly in the upward movement of a stock index without accepting the normal risk associated with investing in the stock market. The actual “interest” credited to a policy’s cash value is determined by the annual changes of an equities index (excluding dividends).
Index Universal Life Insurance Advantages:
Answer
When compared to a traditional universal life insurance policy, a potential advantage of index universal life insurance is the potential to grow your cash values above and beyond a universal life insurance policy.
Index Universal Life Insurance Disadvantages:
Answer
A potential disadvantage of index universal life insurance is that if the stock index used to determine performance does poorly, you may end up with a zero return with your index universal life insurance, compared to a traditional universal life insurance policy that has a guaranteed minimum interest rate. If the index performs poorly, you may have to pay additional premiums in order to keep your index universal life insurance policy in-force.