Recently, we have all witnessed a dramatic change in the attitudes people have about their money. Investors have begun seeking ways to properly eliminate risk and preserve long-term, guaranteed growth. When people seek safety and protection, they often consider utilizing the services and guarantees of America’s insurance industry. For many years, people have considered annuities to be a safe haven for their life savings. The following is a brief outline that reveals some of the reasons annuities and insurance companies are so safe.
The US insurance industry is truly one of the tightest regulatory environments in the world.
Each state has a Department of Insurance (DOI) regulating insurance activity in their respective state. For example, if you live in Oklahoma, your DOI is keeping an eye on the operation and solvency of each insurance company that does business in Oklahoma. It is important to keep in mind that the same holds true if that same insurance company is approved to do business in another state. In other words, your DOI is not the only one watching over the insurer. Every state the insurer does business in has another DOI looking over their shoulder as well. This creates a truly remarkable level of oversight to catch potential problems well before they can get out of hand. The following is a short list of the key areas under
Capital & Surplus Requirements
Insurers use capital and surplus as a buffer to finance growth and pay for emergencies and other business commitments. Each state specifies a minimum dollar amount for required capital and surplus that each insurer must maintain.
Risk Based Capital Ratio (RBC)
This sophisticated formula allows regulators to evaluate whether the insurer maintains sufficient capital in relation to the relative risk within the insurers operations. Each year, the RBC levels for each company are reported to the National Association of Insurance Commissioners (NAIC) and the state where the insurance company is domiciled. These ratios are then compared to the standards set by the NAIC for monitoring. The NAIC prescribes action based on 6 categories within the levels of performance for the RBC Ratio.
Annual Statements are filed with every state where the insurance company is licensed to do business and a copy sent to the NAIC. This allows for a thorough annual review of overall solvency within the company.
Other Ratios and Formulas
The Insurance Regulatory Information System (IRIS) is a system that has been developed to monitor financial conditions and prevent insolvency within an insurer. There are a total of 12 financial tests performed within the IRIS. The Financial Analysis and Solvency Tracking (FAST) system was created for additional analysis of larger insurers. The FAST system is applied to review the insurance company’s financial status every three years. The FAST system reviews both current financial records along with a review of the company’s 5-year history.
As an additional safety net, each state has established a life and health guaranty association, which operates under the supervision of the state insurance commissioner. Insurers are required to participate in a state’s guaranty association in order to do business in the state. The association is responsible for funding obligations to policyholders should an insurance company be unable to meet the financial obligation. The members of the association are assessed fees to pay for obligations to customers. Guaranty funds have specific limitations on the amount they cover. These amounts vary from state to state. State laws ordinarily prohibit an insurer from using the existence of the guaranty association for the purpose of the sale of insurance and annuities.
Other Insurance Companies
In order to keep a safe distance from financial challenges, insurance companies work together to create an additional level of safety for policyholders. Many insurers actively pursue reinsurance through other insurance carriers. This further spreads the risk against the potential for a catastrophic financial dilemma to have a substantial impact on any individual company.
Today, many insurance companies specialize in a particular line of business. While this may skew their risk into specific types of areas, it can also provide another level of security. For instance, an insurer that focuses almost exclusively in the annuity business is not exposed by large natural disasters or unforeseen health circumstances. A well-managed annuity company can provide tremendous levels of safety and confidence by properly managing the funds in their care through a conservative portfolio of government issued and investment grade bonds.
Insurance companies are built to last. In Europe for example, you can find insurers that are literally hundreds of years old. This tradition of conservative asset management and well tested formulas for performance put insurance companies in a class by themselves.
Insurance companies today are measured in terms of the billions of dollars that they have under their care. This financial clout allows companies to weather the storms of time and keep the promises they have made to their policyholders.
Insurance companies are among the most closely monitored business entities in the United States. Most active insurers are scrutinized by ratings services such as Weiss, Standard & Poors, Fitch, and the premier insurance rating company, A.M. Best. Companies like A.M. Best do more than simply make sure the company is meeting the minimum standards for regulatory clearance. Most ratings services are measuring the amount that the insurance company actually EXCEEDS the minimum requirements.
This additional monitoring level cannot be overstated. Nobody thinks twice when a consumer asks, “What is that insurance company rated?” In fact, most agents don’t wait for the question to be asked. They often offer the current company ratings to the client because it is assumed that they expect to receive this type of information. Why? Because the insurance industry is safe and measurable to a high degree. Now think carefully; when was the last time you asked, “What is my bank rated?” or how about, “I wonder what the credit rating of my local stock broker is?”
The items discussed above are indicative of a truly safe environment for an individual’s long-term money. However, there is a risk that is often overlooked; the erosive nature of the personal income tax. Every American that earns interest in non-qualified CDs, checking accounts, money market accounts, bonds and other interest bearing vehicles must pay Uncle Sam a percentage of what was earned whether they used this money or not. Insurance products like annuities allow people to determine when, if ever in their lifetime, they are going to pay income taxes on their earned interest. This advantage can dramatically increase the amount of money people have available when they need it most.
Are insurance companies really safe? Absolutely! Insurance companies that follow the prescribed formulas, practices and traditions mentioned above can achieve a level of financial security for customers that other financial service entities can only dream of. Give us a call to evaluate if your current portfolio passes the safety test!
You’ve Done the Work. Now Enioy the Ride.
You worked hard. From saving up for your first car to building up your nest egg, you put in the time and the energy to prepare for what may lie ahead. And, now you have earned the opportunity to enjoy your golden years.
As you look forward and consider your retirement, you want financial solutions that provide savings protection and future growth potential. Fixed indexed annuities with a Lifetime Income Benefit Rider can offer you guaranteed income for life, tax-deferred growth and flexible payout options.
That way, with the right plan, you can spend more of your golden years enjoying your accomplishments while knowing your money is there for you when you need it.
Lifetime Income Benefit Rider (LIBR)
We are living longer lives and enjoying longer retirements. This means you have more time
to spend with your family, more time to travel, and more time to enjoy your milestones.
We believe that longevity should be celebrated. That’s why products has been designed with income you cannot outlive.
A Retirement Paycheck
Lifetime Income Benefit Rider affords you a consistent paycheck, so that your retirement is focused on what you want to do and not what you wished you could have done.
When you purchase the Lifetime Income Benefit Rider, you are guaranteed an income stream for the rest of your life. You will know the guaranteed minimum you will receive on a monthly, quarterly, semi-annual or annual basis.
The amount you receive is determined by a few simple factors:
- Your Age – when you decide to begin taking income from your contract
- Your Payout – whether you want income for as long as you or you and your spouse live
- Your Timing – the longer you wait to take income, the higher the payouts will be
- Offers income you cannot outlive
- Provides a steady paycheck throughout retirement
- Allows for spousal income benefits
Key Annuity and Lifetime Income Benefit Rider Terms:
Annuitization – Conversion of accumulated value of your annuity into regular guaranteed income payments.
Contract Value -Value of the funds in your Base Contract.
Income Account Value (IAV) -This value is used solely to determine the amount of income you will receive under this Rider. It is not a traditionally accessible value. Instead, this serves as a measuring value tool for purposes of the Rider only.
IAV Multiplier -An annually declared factor used to calculate your IAV credit for the Indexing Income option.
IAV Period -The period of time during which the Income Account Value is credited the Income Account Value Rate.
IAV Rate -Annual effective interest rate that is applied to the Income Account Value.
Index Credit -The amount credited to your Contract Value based upon the performance of the index allocation selected.
Lifetime Income Benefit (LIB) -The amount of income you will receive should you elect to take payments. It is based upon your IAV, gender and age at the time of election.
Reset -The IAV Period can be reset once during the contract for most options. There are two situations when this may be advantageous:
- At the end of the initial IAV Period, if lifetime income payments have not begun.
- If the Contract Value is higher than the IAV.
Joint Life Payout – A legal spouse, as defined under federal law and at least 50 years old, payment is based on the age of the younger joint payee. Payments are made through the life of the last surviving spouse.
Rider Fee -The fee charged for this Rider, if applicable, is deducted from your Contract Value each year as long as the LIBR is active. This fee may change at time of Reset.
Single Life Payout – Payout factors determined based on your age at the time of payout election.
Surrender – Full or partial distribution of contract values.
Surrender Charge – Fee charged, when applicable, for full or partial distribution.
How Annuities Work for Your Retirement
An annuity is a Contract purchased from an insurance company to help you accumulate assets for retirement.
This means your Contract guarantees are backed by the financial strength and claims paying ability of insurance providers and Your funds are safe and secure.
Fixed Indexed Annuity
Indexed annuities are fixed annuities that provide an opportunity to potentially earn more interest than traditional fixed annuities and other safe money alternatives. This is done by basing interest earned on an increase in an equity or bond index.
While the value of this Contract may be affected by an external index, this annuity does not participate directly in any stocks or equity investments. You are not buying shares of stock or an index. Your money is protected from market volatility so that a down market does not subtract from your principal.
A primary advantage of indexed annuities is the opportunity for growth by allowing your savings and interest to grow tax-deferred. Unlike taxable investments, you pay no taxes on your annuity interest until you begin to take withdrawals or receive income. This allows your money to grow faster than in a taxable account.
Source: American Equity
NOW is the time for you to contact your Member of Congress and request they co-sponsor and vote in favor of the “Protecting American Families’ Retirement Advice” Act. This act will delay the implementation of the Department of LaborFiduciary Rule.
Last month, during our visit to Washington D.C., our team requested Congress help us delay the implementation of the Department of Labor (DOL) Rule. Congress has listened, and a new bill is circulating. When passed, the bill will delay the DOLFiduciary Rule for 24 months.
This is an important step in developing a workable solution regarding how, when, and where Americans receive investment advice on their retirement accounts. It also allows us to continue working through other avenues to develop a winning approach for independent agents to continue thriving as they provide safe solutions to many retirement challenges. Below are the resources you will need to contact your Member of Congress.
To see this short DOL delay bill CLICK HERE.
To find your Member of Congress CLICK HERE.
Sample Message to Congress Below:
I am requesting your support to co-sponsor and vote in favor of the “Protecting American Families’ Retirement Advice” Act. This act will delay the implementation of the Department of Labor’s controversial fiduciary rule and will allow our industry adequate time to comply and adapt to this far-reaching rule which affects trillions of dollars in retirement accounts and tens of thousands of jobs in the fixed insurance industry. I am in favor of giving best interest advice, but the rule was poorly written and actually eliminates entire distribution channels which have served consumers with safe retirement options for many decades. Please join me. I respectfully ask you to co-sponsor and vote for this bill so we can continue to work with Congress to develop a workable solution and better protect consumers with a law from our elected Representatives rather than an administrative order. You can view the bill at the following URL. Thank you for your time.
If you’re like many people, you have imagined what your ideal retirement would look like. Maybe it involves travel to new and exciting destinations. Perhaps you want to fill your time with children, grandchildren and even great-grandchildren!
You deserve to live your dream retirement, but are you prepared? Many consumers are not adequately prepared financially for some of the key retirement risks we face.
Fixed annuity basics
Building a foundation
Fixed annuities may be a solution to help address your retirement concerns but more importantly reach your retirement goals. Fixed annuities have the following benefits:
Tax-deferred growth allows your money to grow faster because you earn interest on dollars that would otherwise be paid in taxes. Your premium earns interest, the interest compounds within the contract and the money you would have paid in taxes earns interest.
Under current law, annuities grow tax-deferred. An annuity is not required for tax-deferral in qualified plans. Annuities may be subject to taxation during the income or withdrawal phase.
May Avoid Probate
By naming a beneficiary, you may minimize the delays, expense and publicity often associated with probate. Your designated beneficiary receives death proceeds in either a lump sum or a series of payments.
Please consult with and rely on your own legal or tax advisor.
A good Insurance Carrier will pay out a death benefit which equals the Accumulation Value upon the death of the annuitant or an owner. The death benefit is payable upon the death of the first owner, unless the sole beneficiary is the owner’s spouse and he or she elects to continue this contract under spousal continuance. If there are joint annuitants and an annuitant who is not also the contract owner dies, the
death benefit will be paid on the death of the second annuitant. A death benefit is not available if an annuity payout option has been elected.
Through your election of an annuity payout option, A good Insurance Carrier can provide you with a guaranteed income stream with the purchase of your tax-deferred annuity. You have the ability to choose from several different annuity payout options, including life or a specified period. Once a payout option is elected it cannot be changed and all other rights and benefits under the annuity end.
See product details sheet for more information regarding annuity payout options.
Source: North American Company
Congress has legislated increases in Senior benefit payments based on increases in the Consumer Price Index. If you receive monthly Senior benefit payments, there is a 1.5% cost-of-living adjustment starting with your December, 2013 benefits paid in January, 2014.
Specific cost-of-living increases are based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers calculated by the Bureau of Labor Statistics. The earnings limit for people turning 66 in 2014 will be $41,800. $1 in benefits is deducted for each $3 earned over $41,800. There is no limit on earnings for workers who are at full retirement age for the entire year. Full retirement is age 66 for people born in 1943 through 1954. The earnings limit for workers younger than full retirement age is $15,480. $1 in benefits is deducted for each $2 earned over $15,480.
In addition to receiving extra payment each month, you may now earn more income without offsetting your benefits because the earnings test cut-off also increased. Based on the increase in average wages, the maximum amount of earnings subject to Senior benefit tax increased to $117,000 (from $113,700).