Continuing his presentation on annuities, Criss Crombie – Life and Financial expert – explains why someone would choose a life policy versus choosing an annuity. Watch the video below!
Criss: If they have money on the sidelines, ask, “What do you want that money to do for you?” If they say, “I just want to leave it to my kids,” then life insurance may be the best solution for them. Does that make sense? Because an annuity is not good for wealth transfer; the reason being is it will not give you any leveraging, only a little bit of growth, but no leveraging for legacy. Plus, it’s taxable. Whereas if you put it in a life insurance, for example, it’s tax-free, and you’ll get leveraging. So let’s say you got a 65-year-old with $100,000 sitting in a CD because they just want to leave it behind for their kids or grandkids, an annuity would not be a good solution because it’s only going to give the growth.
Liza: Would you go whole life or UL (Universal Life)?
Criss: Great question; I’ll get to that. So if they say, “I just want to leave it behind for my family,” then you take that $100,000 and put it into a single premium life insurance contract, and they could get maybe $160,000, $170,000, $200,000…depending on their age and their health. Now to answer your question – what the best product for that? The answer is “it depends.”
Liza: Well, whole life is a little more flexible on their health.
Criss: Yes, and no. So if you do get into a conversation with a prospective client and legacy is their number one concern, the best solution for them would probably be Forester’s Whole Life; it’s called the Legacy product, and let me explain why. It’s the simplified issue so it’s very liberal underwriting up to table 8, which means you got someone with severe health conditions; they still could have the ability to leverage that $100,000 in this example to $130,000, $140,000, $150,000…or even more depending on their health and everything.
Josh: So they can dump the money into a single payer?
Criss: Yup, or they could pay it out.
Josh: So until the time of death, it’s pay out by whatever 5, 7, 10, 15…?
Criss: No, no, no, that’s the pay in period. So you’re paying into it for a 5-year period or a 7-year period…etc.
Josh: What if they just dump it?
Liza: That’s a single pay.
Criss: That is an option.
Josh: So it’s like, “Hey, I got $1,000,000; put it in [a policy] for my kids when I pass away.” It’s easy and done – said an over with – and does it accumulate?
Criss: It does accumulate cash value. There are surrender charges applied. Now the difference between the whole life and the universal life is, for example: whole life endows at age 100 so your premiums are based on that life expectancy of 100; furthermore, the premium is based on the advertised schedule of how old they are when they buy it and the age 100 so if they’re 35 then that’s 65 years that they’re using the actuarial table to determine what the cost of insurance is. Now with universal life, it’s a little bit different; it’s more like an annual-renewable term policy, where your cost of insurance goes up every year, but it’s offset by the cash value that builds up in it so your net amount of risk is what the insurance cost is based off of.
Josh: So it’s not by an age but it’s every year.
Criss: Yeah, so you buy it at age 35, and at age 55, your cost of insurance is based on the 55-year-old, not the 35-year-old. Whereas a whole life would be based on the 35-year-old. Universal life does have flexible premiums, while whole life is a fixed premium.
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We hope that this information on life and annuities is useful to you.
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Updated on 3/5/24
