Combine Life Insurance and Annuities to Create a Legacy

Brendon Kelly   |   March 2022   |   1-minute read

The Story

Mike and Lisa have a nonqualified fixed annuity with a value of $250,000 earning 2%. The original investment (basis) was $150,000.

The Problem

Mike and Lisa are both in good health and do not need this asset. They want to maximize the after-tax legacy to their children when they pass away.

Client Profile

  • Mike age 75 and retired
  • Lisa age 75 and retired
  • Concerned with market risk

They have children and grandchildren they are close to and would like to maximize their legacy.

How it Works

Mike and Lisa can 1035 exchange their current annuity into a joint-and-survivor immediate annuity. The gross payments created are $16,621 annually for both of their lives with an exclusion ratio of 53%. The net payment (assuming a 25% tax bracket) is $14,673. Based on standard underwriting, Mike and Lisa purchased a second-to-die universal life policy which created an after-tax death benefit of $462,298.

Why Life Insurance?

Life insurance is an efficient way to transfer generational wealth. The current plan would have to grow to over $550,000 (a 5.50% NET return to age 90) for a net legacy to match the life insurance without market risk. With this plan, Mike and Lisa know they will be creating a $462,298 legacy for their heirs.

The Result

Net annual SPIA payments of $14,673 automatically fund the second-to-die life policy. Upon the second death, $462,298 will go to their children and grandchildren TAX FREE.

About the Author

Retirement is one of the most important financial events in a person’s life. As SVP, Retirement, Brendon Kelley facilitates our team to make planning for retirement as straightforward as possible. From having the initial conversation to handling licensing and submitting applications, Brendon’s committed to keeping the annuity process running smoothly.