New Fixed Interest Annuity Line-Up

FrontLine Article – March 2009

New Fixed Annuity Line-Up Gives You Additional Opportunities.

Many of you are excited about the New Money 2 fixed-interest annuities. Clients are too, based on the volume of sales in December and January.

Effective March 1, 2009 two new annuity contracts came on line – the New Money 4 and the New Money 8. This gives you the ability to explain annuity laddering to your clients. How does this work and what are the benefits?

Let’s assume that one of your clients currently has $100,000 to invest. One option would be to invest in a CD because of the presumed safety and security of bank CDs. Based on information from BankRate.com as of March 5, 2008 the average interest rate on a six month CD was 1.60%, the average interest rate on a 2 year CD was 2.09% and the average interest rate on a 5 year CD was 2.69%.

Your client could put the full $100,000 in the 5 year CD at 2.69%. But, what happens if interest rates go up over the next 5 years? In a rising interest rate environment, the six month CD might work out better. In a falling interest rate environment it is obvious the 5 year CD would be the way to go.

Instead, your clients could use a classic strategy that hedges against changes in interest rates whether they rise or fall. It’s called laddering maturities. By investing one-third in the six month CD your client would have access to principal and interest every six months and the opportunity to reinvest at a higher rate should interest rates go up. The 5 year CD would hedge against falling interest rates.

Using fixed-interest annuities would add luster to this strategy. By laddering the New Money 2, New Money 4 and New Money 8 contracts, your client would have access to some of the accumulated value of the annuities without deferred contingent surrender charge* at least every two years, access to 10% of the accumulated value of the contracts each contract year without product-related surrender charges* and the assets would grow tax-deferred! Plus, if your client is willing to take some additional risk, any of the existing annuity contracts could be exchanged for a Variable Annuity at the end of any contract surrender charge period.

Get your ladder out and go find a client that needs their money fixed!

REMEMBER: Laddering non-qualified annuity contracts would be subject to the serial annuity rule. This rule states that all annuity contracts issued within the same calendar year to the same owner and by the same Company will be treated for tax purposes as a single annuity contract. This means the Company must aggregate premiums and policy values to determine if a partial surrender is taxable income if a partial surrender is made from any contract.

* Surrenders prior to age 591/2 may be subject to an additional 10% penalty tax.