The Encyclopedia to Selling Annuities

Excerpts from The Encyclopedia to Selling AnnuitiesFOR AGENT USE ONLY. NOT TO BE SHOWN OR DISTRIBUTED TO THE PUBLIC.No part of this work may be reproduced or transmitted in any form or by any means without theprior written permission of W.V.H., Inc.Copyright © 2004 W.V.H., Inc., San Diego, CA All Rights Reserved.

FORWARDThis book is provided and/or sold with the understanding that the publisher, copyright owner, and any oftheir employees, officers, and directors are not qualified to render legal and accounting advice. All partiesshould consult their own tax, legal, and professional advisors regarding the information contained in thisbook.FOR AGENT USE ONLY. NOT TO BE SHOWN OR DISTRIBUTED TO THE PUBLIC.VCopyright © 2004 W.V.H., Inc., San Diego, CA All Rights Reserved.This page cannot be copied, reproduced, duplicated in any form or manner.

TYPES OF ANNUITIESThe Most Frequently Asked Questions About Annuities (cont’d.)22. Q What is the difference between a single premium and a flexible premium annuity.A A single premium fixed or variable annuity will allow one premium being made. Insurers dodiffer but minimum premiums tend to be $2,000 for qualified money and $5,000 for nonqualifiedmoney. The maximum premium can range from $250,000 to $1,000,000 with someinsurers permitting more if they know more about the specific case and they feel comfortable.The largest non –qualified case that we ever worked on was 72 million dollars but we did notget it. The largest non- qualified case that we did get was $1,000,000 in 1980. Since that time,the owner has received over $3,000,000 in interest and has not paid one dollar in income taxesyet. On the other hand, premiums for qualified annuities can be quite large since you mighthave thousands and thousands of participants and, quite frankly, the average premium goinginto a qualified annuity normally tends to be larger .The largest qualified case that we did was240 school teachers (and 240 applications) and 5.5 million dollars in annuity premium in oneweek. Far more importantly, we helped 240 schoolteachers substantially increase the interestrate that they were receiving with no surrender charge penalties.SUMMARY1. The best annuity is the one that matches the needs of the consumer.2. Tax-deferred annuities provide accumulation first and then potentialincome later. On the other hand, immediate annuities provide incomenow.3. Fixed annuities offer no market risk and a choice of guaranteedinterest rates for one to 10 years or a percentage of potential indexgains. On the other hand, variable annuities can offer market risk anda wide choice of investment options.FOR AGENT USE ONLY. NOT TO BE SHOWN OR DISTRIBUTED TO THE PUBLIC.99Copyright © 2004 W.V.H., Inc., San Diego, CA All Rights Reserved.This page cannot be copied, reproduced, duplicated in any form or manner.

PRESENTING5 BenefitsThe words that follow briefly describe five benefits to owning a traditional fixed annuity, EIA, or variableannuity.As you review the five benefits, you’ll discover that an annuity can assist your clients in preparing for andduring retirement.Simplicity / Annuity Benefits“The first benefit of an annuity is that you can pay less income taxes.With the money in taxable alternatives, you must pay income taxes onthe earnings regardless whether you leave the earnings in or take theearnings out. With the annuity, you pay income taxes when you want to,when you take the earnings out.Therefore, the second benefit is that you can have more money with anannuity than with a taxable alternative. This can occur because earningsaccumulate 3 ways inside of an annuity. Earnings compounds on top ofprincipal, earnings compound on top of earnings, and, earningscompound on top of the dollars that you normally send to thegovernment in taxes."The third benefit is that you can have three ways to withdraw money.The first way is that you can take 10% of your annuity value out eachand every year. Your second way is by surrendering your annuity. And,if you surrender during the surrender charge period, there are surrendercharges. Your third way of withdrawing money is called annuitization.When you want monthly income, you can annuitize.(Continued next page)DISCLAIMERBank CDs are insured up to $100,000 by the FDIC and offer a fixed rate of return whereas both principal and yield of securities will fluctuatewith changes in market conditions. Other types of insurance products and investments, such as fixed or variable annuities,have earnings which are taxable upon withdrawal and if taken before age 59½ may be subject to a 10% Federal earlywithdrawal penalty.Variable annuities are sold by prospectus only. Prospectuses contain important information including risks, fees and expenses. All parties areurged to read the prospectus before investing or sending money. Variable annuities and their underlying investment options involve investmentrisk including possible loss of principal invested. Investment returns and principal value may fluctuate so that the investment, when redeemed,may be worth more or less than the original cost.FOR AGENT USE ONLY. NOT TO BE SHOWN OR DISTRIBUTED TO THE PUBLIC.24Copyright © 2004 W.V.H., Inc., San Diego, CA All Rights Reserved.This page cannot be copied, reproduced, duplicated in any form or manner.

PRESENTING5 Benefits (cont’d.)The fourth benefit is that you can enjoy the tax advantages that thegovernment has extended to non-qualified annuities. You could say thatthis annuity picks up where your existing IRA leaves off because justlike your IRA, earnings accumulate without current taxes, income taxesare paid when interest is withdrawn, and there is a 10% excise taxpenalty if dollars are withdrawn prior to age 59½. However, unlike theIRA, there is no maximum on what you can put into your non-qualifiedannuity and you don't have to begin taking dollars out at the age of 70½.The fifth benefit is you can select how your earnings could potentiallygrow. You can receive an interest rate guaranteed for one year or more,or your earnings can be tied to a value based an index like the Standard& Poor's Index or on a value based on the bond strategies that you havechosen, or your earnings can be tied to a value based on the investmentportfolio that you have chosen. The key question is when would you liketo reduce paying current income taxes on your earnings?”As you can see, many of the feelings and attitudes that consumers have toward retirement like wantingmore money later, less taxes now, liquidity, and flexibility are weaved into many annuities.DISCLAIMERBank CDs are insured up to $100,000 by the FDIC and offer a fixed rate of return whereas both principal and yield of securities will fluctuatewith changes in market conditions. Other types of insurance products and investments, such as fixed or variable annuities,have earnings which are taxable upon withdrawal and if taken before age 59½ may be subject to a 10% Federal earlywithdrawal penalty.Variable annuities are sold by prospectus only. Prospectuses contain important information including risks, fees and expenses. All parties areurged to read the prospectus before investing or sending money. Variable annuities and their underlying investment options involve investmentrisk including possible loss of principal invested. Investment returns and principal value may fluctuate so that the investment, when redeemed,may be worth more or less than the original cost.FOR AGENT USE ONLY. NOT TO BE SHOWN OR DISTRIBUTED TO THE PUBLIC.25Copyright © 2004 W.V.H., Inc., San Diego, CA All Rights Reserved.This page cannot be copied, reproduced, duplicated in any form or manner.

DISCUSS THE PRIMARY USES OF ANNUITIESIncome Distributions / The Split Annuity in Retirement PlanningThe Split Annuity/OverviewThe split annuity concept combines the advantages of two different insurance products, a Tax –deferredAnnuity and a Period Certain Annuity. The initial explanation to the consumer might be as follows:“You start off with $100,000. You can end up with $100,000 in 10 years.And, during the interim, you can receive a check of $336.74 the first ofevery month for 10 consecutive years and 88.12% of it can be income taxfree.”This is possible when you have an immediate annuity and a tax-deferred annuity since you’ll be able toenjoy the benefits of these two policies. Simply put, you’ll be able to enjoy the certainty, tax advantages,and guaranteed monthly income that an immediate annuity can provide and the tax-deferred growth andsecurity that a tax-deferred annuity can provideImportant BackgroundHere is some important background information on this concept called the Split Annuity: We sayimportant since the consumer must know both the benefits and the limitations to this concept. Whenpayments stop from the immediate annuity in the 10th year, you can go to the tax-deferred annuity and doany one of these 3 things:a) surrender the entire annuity. Income taxes are paid and a possible 10% penalty tax fordistributions and surrenders prior to age 59½;b) totally annuitize. A percentage of each payment may be excludable from income taxesbased on an exclusion ratio (please note that an exclusion ratio may not be possible if youpartially annuitize the tax-deferred annuity); andc) withdraw some of the interest in the annuity. You can withdraw the previous year’sinterest or 10% of the annuity value or any percentage. Income taxes are paid and apossible 10% penalty tax for distributions or withdrawals prior to age 59½.(continue next page)FOR AGENT USE ONLY. NOT TO BE SHOWN OR DISTRIBUTED TO THE PUBLIC.136Copyright © 2004 W.V.H., Inc., San Diego, CA All Rights Reserved.This page cannot be copied, reproduced, duplicated in any form or manner.

DISCUSS THE PRIMARY USES OF ANNUITIESThe Split Annuity/Overview (cont’d.)FOR AGENT USE ONLY. NOT TO BE SHOWN OR DISTRIBUTED TO THE PUBLIC.137Copyright © 2004 W.V.H., Inc., San Diego, CA All Rights Reserved.This page cannot be copied, reproduced, duplicated in any form or manner.

SENIOR MARKETReducing Current Income Taxes on Social SecurityReducing or deferring current income taxes on Social Security income is now possible by owning a taxdeferredannuity. How? As you can see on our questionnaire, interest earned on currently taxablealternatives (line 1) and interest earned on municipal bonds (line 2) could trigger federal income taxes onyour Social Security income. How do you reduce taxable interest? One increasingly popular way toreduce or defer federal income taxes on Social Security income is to reduce taxable interest earned oncurrently taxable alternatives. Simply put, if you are earning interest on currently taxable investmentssuch as CD’s, Money Market Accounts, Treasury Bills or Corporate Bonds and you don’t currently needthe interest yet to supplement your retirement, you should consider repositioning some of these dollars toa tax-deferred annuity, “Why pay taxes on interest you don’t quite need?”As you can see on our questionnaire, reducing the amounts that you report as taxable interest on line 1 canautomatically reduce line 4 and you may be able to reduce or defer tax on Social Security income(depending on the extent of other income you report on line 1). Since interest accumulating in a taxdeferredannuity is tax-deferred until interest is withdrawn, people who reposition some of their moneyfrom currently taxable alternatives to policies that have tax-deferred growth may not have to report thatinterest on this Social Security Questionnaire.FOR AGENT USE ONLY. NOT TO BE SHOWN OR DISTRIBUTED TO THE PUBLIC.18Copyright © 2004 W.V.H., Inc., San Diego, CA All Rights Reserved.This page cannot be copied, reproduced, duplicated in any form or manner.

PRESENTATIONSRoller Coaster Ride“While Certificates of Deposit allow you to sidestep risk to principal,CDs, unfortunately, can give you the roller coaster ride of your life. Inthis example, we show the annual returns that CD owners have receivedover the last five decades. Please notice that the annual returns in the1990’s were approximately 50% less than in the 1980’s. Also note thatsome CD owners saw their annual returns plummet over 40% from oneyear to the next, 1991 to 1992.Although many choose Certificates of Deposit because they don’t likesharp up and down movement, this example, by using documented pasthistorical returns of CDs, uncovers the real volatility behind Certificatesof Deposit.Does this mean that people should avoid Certificates of Deposit? No,CDs are an excellent choice. But, they may not be the best choice for allof your money.”FOR AGENT USE ONLY. NOT TO BE SHOWN OR DISTRIBUTED TO THE PUBLIC.202Copyright © 2004 W.V.H., Inc., San Diego, CA All Rights Reserved.This page cannot be copied, reproduced, duplicated in any form or manner.