what do you get when you splice together a life insurance plot and an immediate annuity?

A reversionary annuity. Yes, that’s a mouthful, but it carries some of the advantages of each and is ideal for certain kinds of clients.

The hidey-hole insurance product combines an insurance plot with an immediate annuity to provide for a surviving spouse. Much like with a stable life insurance plot, the plot owner of a reversionary annuity pays a premium to guarantee a benefit to the survivor. The life insurance has no cash value. With a reversionary annuity, upon the insured’s death, the beneficiary receives a guaranteed lifetime income instead of a lump sum payment.

The income payments will stop upon the death of the beneficiary, and if the beneficiary dies before the insured the plot is terminated. As a result premiums are typically about 50 percent lower than persons on a life insurance plot.

“The product provides a well targeted benefit in the form of a fixed lifetime income for the beneficiary,” says Noel Abkemier, consulting actuary with Milliman. “This contrasts with level term or whole life insurance in which the level death benefit may become too large over time. The reversionary annuity allows you to buy just as much death benefit as you need.”

Other benefits include return of premium rider, an inflation option so that the income maintains its purchasing power over the years. And since the product provides a decreasing death benefit, the premiums are lower than for level benefit insurance.

“The pay-as-you-go nature of the funding is attractive when compared with most annuity buys, he says. “Tax treatment is favorable—just like life insurance. The value of the death benefit is tax-free. Subsequent interest is taxed under an exclusion ratio approach.”

He adds that if there is a concern that the beneficiary will die soon after the insured dies, it can be possible to have the annuity payout in the form of a life annuity over a certain period. Of course, this is more costly since some of the mortality leverage is removed.

Growing Demand

Assurity Life, Lincoln Nebraska, is currently the only insurer underwriting a reversionary annuity, according to Dean Potter, President of Potter & Associates, Edmonton, OK, who holds a U.S. patent for a “method of providing streams of monetary payments solely to beneficiaries who survive respective insured.” Assurity Life’s A.M. Best financial strength rating is A- with a stable outlook.

Insurance research by the The upper classes of Actuaries and Boston College’s Center for Retirement

But research suggests the demand for longevity insurance could increase due to a reduction in Social Security benefits and the disappearance of defined benefit plans.

“Reversionary annuities are most often used for pension maximization for people with defined benefit pension plans,” says Potter.

“A prospective retiree can choose a single life payout option from the pension plot rather than the joint and survivor option and use the part of the income to fund a reversionary annuity. The result can be more income for the retiree and spouse even as they are both income and more income for the spouse subsequent the death of the retiree.”

Potter has also used a reversionary annuity with clients that have poor performing universal life insurance policies. The premiums they used to fund the life insurance will buy more monthly income coverage from the reversionary annuity. Plus, the cash value in the ancient universal plot and fund a additional paid up annuity.

The product can also be used in prenuptial or buy-sell agreements, as well as to fulfill alimony payments.

“Assured Income Protector” comes with a return of premium rider, a 3 percent and 5 percent increasing monthly benefit option on the anniversary date of the plot, premium options, a simultaneous death benefit or accelerated first year benefit rider.

“The marketplace is huge,” says Dean Potter. “For seniors there is one vital need that has gone unresolved—to save money enough money to sustain the clients and spouses lifestyles for two lifetimes.”

Potter says that agents often recommend life insurance or single premium immediate annuities as a way to protect the surviving spouse.

But term insurance renew rates are higher and only cover people to age 70 to 75 years of age, he says. Meanwhile, single premium immediate annuities pay income to the policyholder for a lifetime. Payouts to a beneficiary lower the monthly income payments.

For model, Potter says a single premium immediate annuity for a female age 50 supporting $2,000 a month in income requires a single premium of $479,800. By contrast, a universal life insurance plot would have to have a death benefit of $479,800 to provide the surviving spouse with the same $2,000 monthly income. The policyholder’s monthly premium would be $396.

The reversionary annuity insuring a male age 50 would provide his survivor, also age 50, the same income benefit of $2,000 per month for a monthly premium of $207, including the return of premium rider.

Despite the benefits, there is, of course, no free lunch with a reversionary annuity.

“The value of the benefit relates to the health of the beneficiary,” says Abkemeir of Milliman, “Consequently, it may not be a excellent buy if the beneficiary is in poor health. Since the beneficiary cannot be changed, a purchaser occasionally can find the benefit to no longer fit since of a changed family situation, e.g., a divorce.”

He also says there is no cash value, but this is a trade-off for lowering premiums through leveraging mortality. In addition, premiums might change since the value of the death benefit varies inversely with interest rates. If interest rates fall, the value of the annuity death benefit rises.

Actuary Garth Bernard, CEO of Sharper Financial Group, Boston, says 95 percent of people take systematic withdrawals from their investments. That is unlikely to change unless interest rates rise dramatically.

“Traditional income annuities are barely sold today; even fewer exotic income annuities are sold,” he says. “Even as everyone talks about the importance of lifetime income, the reality is that investors, in any case of age, hoard money. This is unlikely to change in our lifetimes unless interest rates rise to 10 percent. Buying an income annuity of any kind [today] would be akin to pouring water into your gas tank.”

As entrepreneurs, we tend to spend so much time focused on our business that anything not directly related to that gets shoved onto the backburners. But, if paying a small more attention to something on the home adjoin can save us money, doesn’t that help our business as well? This article provides a number of different ways that you can use to save on the cost of your home insurance. It’s expensive, but we all need it, so how can we make the most of our money? Read on.

First of all, it’s vital not to simply buy the first package you hear about. Your Uncle Marty who has been working at that insurance company down the road for fifteen years might not in fact be donation you the best rate quotes available. Shop around. Try out with a number of different companies to see what’s available. Question your family and friends what plot they have and if they are satisfied with it. Also, try out with your auto insurance company; often, companies will offer discounts if you buy more than one package with them.

Health Savings Accounts (HSA) are apt more well loved as the cost of health insurance continues to increase.

An HSA is a special bank account that is set up in conjuctions with the enrollment in a high deductible health plot (HDHP).

You, your employee or an eligible family member can make tax free contributions to the HSA. The HSA will earn interest that is not taxed and any withdrawals to pay for qualified medical expenses are also not taxed. Any funds left over in the account at the end of each year is carried over to the next year.

The role to an HSA each year is limited to the amount of the HDHP deductible or $2,650 for individuals and $5,250 for families, whichever is less. You or your employee may not contribute to an HSA once you or your eomployee becomes eligible for and enrolled in Medicare. Your or your eomployee can make withdrawals to pay for qualified medical expenses by try out or debit card just as you would with any other bank account.

When it comes to protecting yourself, you need to reckon about more than just your business. As entrepreneurs, we are often quick to buy policies that cover our own lives or our companies. But, we fail to buy passable protection for one of the most crucial things to both our business and personal lives: our car. Auto insurance is a contract in which one party agrees to pay for a additional’s financial loss resulting from a specific event that has caused destruction to their car. It may not come cheap, but you don’t ever want to be caught without it. You by no means know when that next storm will come or when somebody will miss the red light and run into your car instead.

Protecting your car – and any cars your business may provide to employees – is an expensive business, which entices many to try and cut corners. Like any other insurance, naturally, there are minimal packages available. But, do you really want to risk not having the full protection if you some day by accident hit that Porsche Boxster? Guaranteed, if you hit an expensive sports car, minimal insurance packages will not be enough to cover you. You will wind up on the side of the street wondering why you hadn’t paid persons few extra dollars to get you complete coverage.