Frequently Asked Questions - Reynolds Financial Services

Life Insurance - what's the best choice for you?   ^Back Top^

TERM LIFE, UNIVERSAL LIFE (UL), WHOLE LIFE, or EQUITY INDEXED UNIVERSAL LIFE (EIUL/IUL) INSURANCE (Home, Income, Debt, Family).

Term Life insurance can be used to protect your family for specific reasons during limited time periods (i.e. 5yrs, 10yrs, 15yrs, 20yrs, 25yrs, 30yrs); a Term Life policy is usually renewable up to age 65 or 70 and will end at some point if not converted into a permanent life policy.  If death happens during the period of a Term Life policy "in force", it protects your home, salary, debt, or it leaves money with your loved ones. Term Life premiums can either rise with time, or coverage is reduced (or cancelled) at certain ages and/or with health problems.  A Term Life policy cannot accumulate cash value where the Whole Life, UL, and EIUL/IUL each have the ability to accumulate cash value.  Because a Term Life policy is the lowest price policy, it offers the highest face amounts.

The UL policy is not a guaranteed for life policy unless it includes a no lapse rider or it's a "GUL"(Guaranteed UL) policy.  A no lapse rider guarantees your coverage will last for a certain time period (i.e. 10yrs, 20yrs, 30yrs) or up to a certain age (i.e. up to age 90, 95, 100).  A GUL policy guarantees that your death benefit remains as long as the target premium is paid, even if the policy has no cash value.  Without a no lapse rider, a UL policy lasts only as long as the cash value in the policy. 

The Whole Life policy is a guaranteed for life policy.  Once a Whole Life policy begins, your coverage cannot be reduced (or cancelled) and the premium remains the same throughout the life of the policy.

The EIUL or IUL policy is also a Permanent Life policy (your coverage cannot be cancelled or reduced by the insurance company) with investment qualities that offers an alternative to fixed and low-yielding savings vehicles like a CD (CD's today only offer about .25% interest) or Savings Account (Banks today only offer about 1% interest).

--Click Here for your Term Life/UL Quote--

WHOLE LIFE INSURANCE (Burial/Final Expense Insurance)

Term Life and UL policies each serves their purpose as does Whole Life.  A Whole Life policy (Burial/Final Expense) is a permanent policy that serves the primary purpose of protecting your family by providing a basic death benefit for Funeral Expenses, although it can also serve the same purposes as mentioned above with Term Life and UL.  The cash value in a Whole Life is essentially a savings feature where money can be borrowed from the policies cash value in the future for part or all of it's cash.  Whenever premiums are paid into a Whole Life policy, a portion goes into the death benefit while another portion goes into the cash value account.  As the name implies, "Whole Life" remains in effect for the entire lifetime until death (coverage lasting up to age i.e. 100 or 121), assuming all premiums are paid.  Whole Life/Burial/Final Expense claims are paid immediately upon death to the family usually within 48 hours (without always needing the death certificate upfront), Tax Free money paid directly to the primary beneficiary (or beneficiaries).

--Contact Us for your Whole Life Quote--

The "EIUL" or "IUL" Policy

Today, the CD (Certificate of Deposit) only offers about .25% interest and a BANK (Savings Account) only offer about 1% interest; the IUL can help solve such low-yielding savings vehicles.

--Contact Us for your IUL Quote--

Healthcare Reform - the ACA "Obamacare"          ^Back Top^

The Affordable Care Act has several broad objectives designed to:

The Annuity                                                                           ^Back Top^

Retirement Income Planning

Annuities are unique products. They are primarily savings and investment vehicles, designed to hold the owners funds for a certain time and to then convert those funds into a stream of income that can extend as long as the owner desires. This process is called annuitization. Annuities are defined in terms of when they are scheduled to annuitize (immediate or deferred) and how the products funds are invested and how they grow (fixed, indexed, or variable). As they have evolved over the years, today's annuity products have become sophisticated retirement planning products that can be used for long-term asset accumulation and lifelong asset distribution (for immediate income).

The purpose of an annuity is to accumulate funds on a tax deferred basis for the long-term and/or provide a source of income guaranteed payable for a specific period, typically lifetime.  They are designed to provide for the tax-deferred accumulation of funds for use during and individuals life and secondly to provide benefits at death.

An Annuity can help make the most out of savings and create a secure financial future.

Individual Annuity vs. Qualified Plans.

Annuities can be used to fund a qualified plan such as a Traditional IRA, SEP, or 403(b) plan.  If you don't need (i) a death benefit, (ii) a means to generate a guaranteed lifelong income stream, (iii) or a variety of options for income payout, there's no need to use an annuity to fund a qualified plan. You can purchase a mutual fund instead.  The individual who owns an individual nonqualified annuity may make premium deposits of any amount he or she wishes while an individual who owns a qualified annuity is limited in the amount of premium deposits based on contribution limits that apply to the qualified plan the contract supports.  Those who can participate in a 401(k) plan should maximize employer contributions before contributing to any individual qualified annuity. 

Most annuities impose surrender charges (administrative charges, maintenance fees, tax penalties, etc) if withdrawals are taken or if the contract is terminated within a specified number of years after issue. For this reason, deferred annuities are fairly illiquid products for the first seven to ten years after purchase, though most contracts offer provisions for some free withdrawals during this period.

Penalties on Withdrawals before age 59 1/2

If a withdrawal is taken before the owner's age 59 1/2, it is subject to a 10% penalty in addition to taxation.  Exceptions to the 10% penalty are death, disability, or Annuitization; the way to avoid the 10 percent penalty is to take the distribution in a series of substantially equal payments over the owner's life expectancy. Annuity principle is not subject to taxation, but interest earnings is subject to taxation.  Amounts used to fund the annuity, the owners premium deposits, are the contract's principle.

Section 1035 provides that certain exchanges of these types of contracts are not taxable. They include the following:

• the exchange of a life insurance policy for another life insurance policy;

• the exchange of a life insurance policy for an annuity;

• the exchange of an endowment policy for an annuity;

• the exchange of an annuity for another annuity;

• the exchange of a life insurance policy for a qualified long-term care contract;

• the exchange of an annuity for a qualified long-term care contract; and

• the exchange of a qualified long-term care contract for another qualified long-term care contract.

The ability to make 1035 exchanges is one of the most important tax benefits that annuities offer. The U.S. Tax Court found in favor of partial exchanges, the IRS released Revenue Ruling 2003-51, stating that partial annuity exchanges would be considered tax-free exchanges.  The IRS was slow to define how it would treat the issue of partial withdrawals following an exchange. After several interim announcements in the form of private letter rulings, the IRS set the record straight twice with the release of two Revenue Procedures: Rev. Proc. 2008-24 and Rev. Proc. 2011-38.

Rollovers and the Taxation of Qualified Annuities...

The movement of qualified money from one plan to another can be accomplished through a rollover. A qualified rollover enables funds to be transferred tax free from one qualified account to another qualified account, where they will retain their tax-deferred status and will continue to grow until they are withdrawn. The plan of choice for the rollover of most funds is an IRA and for many retirees, an annuity may be an appropriate vehicle to fund the rollover IRA assets.

Additional features have been added to annuities over the past few years that offer, through riders (Guaranteed Living Benefits), ways to enhance and guarantee the product's values or to provide additional benefits, such as funds for long-term care.

Roth IRA (vs. the Traditional IRA) earnings are not subject to taxation at all as long as the owner maintains the account for the required number of years.  Roth IRA's can be funded with annuities.

Which one is more suitable for your Retirement Income Plan....an "Annuity" or the "EIUL" Policy? 

Determination is based on your investment objectives and needs in light of your risk tolerance (low, moderate, aggressive), financial holdings, investment experience, income, and time horizon. A person who has substantial income and a high level of liquid assets relative to debts would be suitable for an Annuity.  On the other hand, a person with limited income, modest assets, and substantial debt would be more suitable for an Equity Indexed Universal Life Policy (EIUL). The purchase of an Annuity or EIUL policy is often a complicated and confusing process for consumers of all ages.  There's not yet been an Insurance Product (Annuity, EIUL, Life, Health, Dental, etc.) that can offer consumers only advantages without any disadvantages. Instead, each product provides a combination of advantages and disadvantages that can weigh more or less heavily on a consumer depending on his or her situation.

--Contact Us for your Annuity Quote--