Cash For Structured Settlements

Dave Kauppi asked:


“I would rather expire at my desk than to sell my business and pay Uncle Sam one dime in taxes.” How many owners that have paid their fair share of taxes for twenty years of building their business feel this way? The tax bite is the single biggest factor in an owner’s reluctance to sell his/her company.

I have previously written articles discussing various aspects of transaction structures to minimize taxes. As a result, I am often contacted by a panicked seller that is a week from closing his business sale as he looks in disbelief at his accountant’s spreadsheet detailing the tax burden of his impending sale.

Recently, the seller of a Sub Chapter S Corporation with an $8 million transaction value contacted me. The tax basis was below $200,000 and $4 million of the transaction value was the assumption of debt. When the dust settled, he was looking at a capital gains tax liability of a staggering $965,000 while only receiving the remainder of proceeds after the assumption of debt. The assumption of debt is considered as part of the capital gain for tax purposes.

The owner sent his accountant’s spreadsheet to me and since I am not a tax accountant, I sent it to my tax wizard at BDO Seidman. He found a few small tweaks, but said that there was not much that could be done from an accounting standpoint for this owner. When I reported this back to the seller I could feel his disappointment and frustration.

So I began my quest for a better solution. After several dozen phone calls to my professional network, I was directed to a little known vehicle called a Private Annuity Trust. This vehicle has passed the scrutiny of the IRS and the Tax Court. It is not a way to avoid the payment of taxes, rather a method of deferring them with substantial economic benefit to the owner’s beneficiaries.

Below is a simplified description of the process. As the owner contemplates the sale of his business (or any highly appreciated asset for that matter) he “sells” it to a trust PRIOR to its ultimate sale. This trust purchases the asset at FMV and exchanges an annuity payment stream complete with IRS life expectancy tables and interest rates. The trust then sells the company to the buyer to fund the annuity.

The transaction is accompanied by a gift to the trust in the amount of 7% of the face value of the annuity. This is so it qualifies as a trust by creating an entity with economic value. Remember, the private annuity is viewed as having zero economic value because the asset minus the obligation theoretically equals zero.

The trust is in the name of the owner’s beneficiaries and all aspects of the trust are controlled by the trustees/beneficiaries and not by the owner. The trust for the benefit of the heirs owns the assets and owns the annuity payment obligation. The trust can be structured to defer the annuity payments for a period of time to coincide with the owner’s need to receive these payments, lets say, for example, ten years During those ten years the trust’s investments or a commercial annuity grow without incurring a tax bite for the business sale.

When the annuity payments start, the owner is taxed at his then current tax rate for the portion of the annuity payment attributable to the capital gains, his basis (no tax), and depreciation recapture from the sale, and the income produced from the annuity. The annuity pays the owner and spouse this annuity payment until last to die or until the annuity investments run out. If the owner and spouse die, any remaining assets are transferred to the beneficiaries outside of estate tax liability.

If your investments perform at the rate used in the annuity calculation and the last to die lives to their exact life expectancy, theoretically the trust value will be whatever the gift portion (7% of the selling price) has grown to. However, if the investments do very well and you outlive the life expectancy tables, you could receive payments well in excess of the original annuity face value. Those excess payments would be taxed at your then current income tax rate.

If the investments do well and the value grows above the required annuity reserve amount, the excess can be distributed to the beneficiaries as income.

In the simplest of views, this acts like an IRA. You are not currently taxed on the amount you put in, it grows tax deferred and you pay taxes upon distribution, hopefully at a far more favorable tax rate. In the case of the frustrated seller from above, what if he deferred all payments by ten years on the full sale price and the $965,000 in capital gain taxes owed? He had a life expectancy of 20 years beyond the start of the distributions. The $965,000 that he did not pay in taxes grows at 7% to $1,939,323 by the time distributions start.

Every annuity payment contains a portion of the capital gain or 1/20th of the total capital gain annually. Therefore, the bulk of the resulting investment value of the capital gains tax deferral provides huge returns for years to come.

If it seems too good to be true, remember it is tax deferral and not tax avoidance. The owner has sold his business first to the trust in return for an annuity payment stream. The owner cannot control the trust. To the extent that the owner wants immediate access to some of the sales proceeds, he would pay all taxes in proportion to the amount he is receiving. In cases like the one above, this tax deferral tool can have a dramatic impact on the financial status of the owner and his heirs by allowing the tax deferred funds to compound for many years before their ultimate distribution and the payment of any tax.

Jenny Sweeney asked:


Consumers choose to sell their legal settlements (also referred to as structured settlements) for many reasons. While many sell their payments to help with college tuition, debt reduction, medical expenses or mortgage payments, most people sell their settlement to gain financial flexibility when personal or financial needs change. “The long payout periods of most structured settlements – typically up to 30 years – work well for many holders, but not all,” said Andrew Torre, Chief Compliance Manager for J.G. Wentworth. “Many people find that they need access to their money now to pay for legitimate needs.”

However, consumers often are unaware of their options when selling their structured settlements. What price is too low? Which company is reliable? Can I sell just part of my settlement? These are just some of the many questions that arise when considering selling your structured settlement. Torre recommends doing thorough research ahead of time. He offers these 5 tips to consider before selling a structured settlement:

1. Search for specialty finance companies that are able to purchase your structured settlement. Be sure to research their reputation and testimonials – what clients (past and current) say is invaluable.

2. Torre recommends not accepting the first offer to purchase your policy. Why? Browse multiple companies to make sure you’re getting the most value for your settlement.

3. Evaluate your current financial standings, and then decide whether you need to sell all or part of your structured settlement.

4. If you can’t understand the legal jargon, consult an attorney. Make sure you understand the documents and any tax ramifications that occur with liquidating your structured settlement.

5. Evaluate your financial obligations that will accrue in the future. Re-consider whether selling all or part of your structured settlement will be beneficial for you. Also, consider how accessing your assets will affect your income.

Bonus: Additionally, before you sell your structured settlement, be sure that the company you’ve chosen addresses all legal ramifications, Torre adds. Prior to purchasing policies, J.G. Wentworth seeks approval from a judge who examines the appropriateness of the transaction, including state legislation.

Antonio Redford asked:


Annuity reverse mortgage is different from the regular mortgages and is getting popular with various investors. It offers more benefits in comparison to other financial plans. This mortgage lets the senior citizen to borrow money against the equity in home. Therefore, grab it for large benefits.

Advantage attached with annuity reverse mortgage is that the balance of loan decreases with the time. This is because the borrower is able to pay back the amount regularly. Moreover, the receiver or the borrower receives money for the equity that is in his or her house. However, an annuity reverse mortgage should not be confused with a home equity loan or home equity line of credit, as they both are ways of getting money for the equity in a home. By following either of these, the receiver can pay at least the monthly interest on the loan amount, or the amount that has been drawn from equity line. Although, a reverse mortgage client does not have to pay anything until the loan is paid off. There are various types of annuity reverse mortgages available that are quite expensive in comparison to conventional kind of mortgages. Well, this offers more benefits to the insured person. This loan can be received in a form of lump sum or monthly installments.

The annuity reverse mortgages are offered in various types by state or local governments commonly referred as single purpose reverse mortgages. These annuity reverse mortgages are less expensive in comparison to the regular ones. However, they impose restriction on various aspects like how the money will be distributed or will be used by the borrower. The other kind is federally insured home equity conversion mortgage. This annuity mortgage is a bit higher when compared to other private sector reverse mortgages. The third type of loan is provided by private sector or proprietary reverse annuity mortgages.

One can say that all these annuity reverse mortgages include charge origination fees and closing costs. Therefore, if the person seeking annuity reverse mortgage is still unsure, then it is he or she should hire a professional from a reverse mortgage firm who can guide him on the information and the intricacies involved in them just to avoid any hassles in future. In fact, it is advisable to work on information with the professional as will benefit the borrower in long-term and if the borrowers acquires perfect information on annuity reverse mortgage then the firm or the lender will not be able to trouble or misguide him. Just like traditional or regular reverse mortgages, an annuity mortgage has to be paid when the owner of the property dies, or the homeowner sells the home or has permanently relocated himself out of the country or native place. Well, there are default conditions also attached to this loan and can hamper the application or even make him ineligible for the loan if the person found out to be bankrupt, fraud and even misrepresentation by the applicant. So be rest assured and apply for an annuity reverse mortgage immediately.

Gary Le Mon asked:


Welcome to your competition’s worst nightmare! Imagine an insurance selling system so penetrating it will:

1. Separate you from the crowd as the undisputed expert in your field

2. Pre-sell your prospects, making the appointment just a matter of finishing up the paperwork

3. Generate stacks of warm leads from your target neighborhood and demographic

4. Cost you less than direct mail or telemarketing and present you as a true professional

5. Make you ask yourself, “Why didn’t I do this in the first place?”

Picture yourself appearing in your own custom scripted, half-hour Cable TV Infomercial, the undisputed expert in your field, speaking directly to your ideal prospect in a soft pre-sell interview format. Your viewing audience is selected with the accuracy of a surgeon’s hand by the cable channel airing your show. For less money than you thought possible, you position yourself as the expert in your field, you generate truckloads of warm, pre-sold leads, and you send your competition running for therapy.

Once your TV Infomercial Insurance Selling System leaves our production studio, you air it as often and as many times as you like. You target your show to attract health, life, annuity, home, auto, any kind of insurance prospect. The national average cost for prime time viewing (7:00 PM thru 11:00 PM) on local cable channels in most markets is an unbelievably low $150 to $200 per half-hour program. This is less cost-per-thousand-exposure than you spend annoying people with junk mail or telemarketing.

A Bizarre Secret

Let me tell you the most bizarre secret I’ve learned in my 40 years of sales. I’m just going to toss this out to you, and when you hear it you’ll think, “Oh, I already know that. That’s just too simple to work.” Most people dismiss it as being too simple. Maybe that’s why most insurance agents (90%) fail within eighteen months.

Here’s my secret: People buy things from people they (a) like, and (b) admire. What’s more, people can’t help but like the people they admire most. In fact, the more they admire you the more they like you and want to buy from you. Therefore, if you have an insurance selling system that positions you as the “expert” in your field, people will be irresistibly drawn to you and want to do business with you.

Remember the first closing technique you learned in “How To Sell Insurance 101” about assuming the sale? Just being the expert is a ridiculously easy way to not only assume the sale but compel your prospects to assume the sale, too. The subconscious dialog in your prospect’s mind is, “I naturally assume you’re going to let me buy this policy from you… aren’t you?”

You’ll be flabbergasted to know that you can become the “expert” in your field much easier than you think. Also, there are probably few, if any, insurance agents promoting themselves as expert in your local market, and fewer than few with their own TV Infomercial Insurance Selling System. This prime location “real estate” in your hometown cable channel is probably yours for the taking.

When you appear on TV you set yourself apart from all other insurance agents. Your image is larger than life. After all, only experts are good enough to appear on TV. Your image skyrockets because you rise above the dog-pile of telemarketers and junk mailers fighting for leads. Your prospects come to you, ready to hear more, willing to take your advice, able to do business. You’re the expert. You’re on TV!

How It Works

You come to our production studio in Tucson, Arizona, where we do all taping, editing, pre- and post-production work. Our job is to make you a Star. We use only top professionals from camera operators to makeup artists. I’ve been in the insurance business for decades and understand the problems and frustrations producers go through in the field. This is no ordinary insurance selling system. We go to great lengths to separate you from the pack of agents your prospects typically send packing.

The 30-minute interview format is proven to be the most credible, convincing and friendly TV show format. You have time to delve into concepts in a way your future clients can really understand. You reveal your personality in an audio-visual dimension as an invited guest in their living room. You’re one of the family. You show how you are different, better, more knowledgeable, more comfortable and caring than other agents.

We begin with a pre-production interview session to identify and rehearse 10 to 20 key questions and answers. When you are ready, we roll cameras with me interviewing you in an easy, conversational dialog of the same familiar topics. We edit out awkward pauses, tongue twisters or mistakes, making you a polished professional, expert guest. If you need an insurance selling system that targets a certain demographic or client type, i.e. retired Seniors, high-risk drivers, new homeowners, small business owners, we will flavor the show to cover topics of interest to them.

In the editing room we pepper your show with appropriate testimonials, which may be stock footage or reenactments of your actual customers. We repeat “grabbers” often throughout the show to catch channel changers who may be surfing for anything of interest to watch. We display your telephone number frequently and suggest you offer a giveaway (we have Free Special Reports on several interesting subjects) “to the first 25 callers.”

You’re not pitching The Clapper here. Your TV Infomercial Insurance Selling System and everything about it is tastefully produced, professionally orchestrated and smacks of the high quality of an Oprah, Dr. Phil, or Larry King Live show.

More Bang For Your Marketing Buck

Feel free to use our in-house media buying services. There is a long learning curve to the cable TV industry. Knowing the ins and outs can make a world of difference to your marketing campaign. Most insurance agents are happy to leave this busywork to professional media buyers who are intimately familiar with cable networks. We are happy to handle this for you at no cost to you. Our insurance selling system includes service after the sale. We will negotiate time slots, best rates, market *********** – everything you need to get the most out of your marketing dollars.

Another way to get more bang for your marketing buck is to upload your 30-minute TV Infomercial Insurance Selling System onto your website. Visitors to your website can get to know you in a way that shows you as credible and professional, yet an agent who is personable and approachable. You may also want to order our Special 200 Mini CD Package. We dub your show onto mini CDs with custom labels for you to use as client leave-behinds, referral generators, or the ultimate “drop-dead cool” business card.

The national average cost for a half-hour prime-time cable TV program is between $150 and $200, with larger markets more, smaller markets less. You may want to begin running your show five nights per week to see how it pulls, then adjust the scheduling as your need for leads dictates. The cost for us to produce your custom half-hour TV Infomercial Insurance Selling System is less than you might imagine. Most people guess the price to be $20,000 to $25,000. It should be, but it’s not. Please contact me by clicking on my bio below.

Samuel Towers asked:


Get Lump Sum Cash for Annuity Payments

We at SSI buy annuity payments, helping annuitants through all the stages. You get lump sum cash for your annuity entitlements, providing immediate liquidity instead of being bound to an inflexible schedule of future payments.

Cash For Annuity - When Would You Need It?

Your situation could change from when you executed an annuity agreement. These agreements are often made with the best of intentions and after careful planning. However, nobody can predict the future with any reasonable degree of accuracy. Particularly when that future extends to 20 years or so into the future.

A new opportunity might appear suddenly. A house could come on the market at a bargain price or at your ideal location. Or you could get admitted to a college program that would enhance your career prospects. You feel that it would be an unwise decision to forego the opportunity.

You would need immediate cash to utilize such unforeseen opportunities. Selling your annuity is one way to raise that cash. Most states have passed laws that allow access to your annuity payments. A judicial review process would examine whether the transaction is in the annuitant’s best interest. If the review confirms this to be the case, judicial approval to the transaction would follow.

We all fall sick at times and could find it necessary to exchange our annuity entitlements for lump sum cash to meet heavy medical expenses.

The above are just a few examples of the occasions you might need lump sum cash for annuity payments. We at SSI would help you through the process by assessing your needs and developing a plan that would be in your best interests.

We would buy annuity payments due to you in part or full, depending on a review of your needs, and help you get through the legal formalities.

How Do We Buy Annuity Payments?

It is not necessary to sell your entire annuity payments. In fact, it is not advisable in many cases. It is better to cash out only a certain number, or percentage, of the remaining annuities. That way, you would get immediate cash for meeting urgent needs and also would get the unsold annuities when these become due.

SSI would help you determine the best options that would ensure meeting your needs while safeguarding your interests. The fact that a judicial process is involved would ensure that your interests are always kept in the picture.

The typical process involves determining the Present Value of the annuities that you are selling. Present Value is the value of the annuities discounted for the time delays in receiving the moneys. A dollar received after one year is of lesser value than a dollar received now. For example, at 6% interest, 1000 dollars become 1060 dollars at the end of one year. So the Present Value of 1060 dollars received at the end of one year is only 1000 dollars now.

Having determined the Present Value of the annuities, we would give you a quote at which we would buy your annuity payments. When you accept our offer, the process of getting judicial approval would be set in motion.

The judicial process would typically take a few weeks and we would pay you at the end of that process.

Contact Us Today for a Free Report

Call or email SSI today for a FREE Present Value report for cashing out your annuity payment entitlements.

For more read at http://www.structuredsettlements.bz

Jeffrey Voudrie asked:


If you were nearing the edge of the cliff and didn’t know it, would you want someone to warn you before it was too late? Of course you would. That’s been the guiding principle of this column, to inform everyday investors of the pitfalls that could cause them and their nest egg irreparable harm.

I’ve been hearing from many of these investors lately. Some of them got the message before they stepped off the cliff. For others, the warning came too late.

Over the past several years I’ve been sounding the alarm bell due to the inherent dangers found in equity indexed annuities (EIAs). And the message is being heard. I’ve recently issued detailed reports on EIAs in general and one specifically on the most popular EIA on the market, the Allianz MasterDex 10. In these free reports, I explain the risks and pitfalls to you that the person selling them doesn’t. Too bad that Greg’s grandpa didn’t know the truth. Greg explains: “Back in 2000, my Grandpa was talked into buying one of these by an agent. He was planning on just withdrawing the interest each year to live on. Well, for the first 6 years, they distributed 10% of his initial investment. Recently, he has come down with terminal cancer, and wanted to get out.

“He asked for a full withdrawal, knowing that he’d have to pay the 4% (surrender) penalty. Well, his total withdrawals over the seven years came out to less than 90% of his initial investment! Reading through the contract, it looks like he wasn’t supposed to start receiving distributions until 2015, when he would 98 years old! Does this sound right to you?”

No, Greg, it doesn’t sound right to me. But unfortunately, that’s how some of these EIAs work. The truth is written in the fine print of the contract, which most people fail to read, much less understand.

Fortunately, Jim read his contract, and just in time. Jim said, “I meet with an advisor. He recommended the Allianz MasterDex 10, since at the time they were offering a 12% bonus up front. After he went through his talk it sounded good so I rolled my IRA over into it. That was the first time I saw the booklet, when he laid it out for me to sign, and I did. Upon getting home, I read it and saw I had messed up, thank goodness for the ‘three day cooling off period.’

“I called him back and stopped the deal. I get cold chills when I think how close I come to really messing up. I thought he was on my side and was trying to help me out, when all he was trying to do was help himself to my money. I’m glad I got on the internet and found you. You answered even more questions.”

Not all agents are unscrupulous. As Mark found out, some of them are just as ignorant to the truth as most investors are. After reading my free report, Mark forwarded it to his advisor. The advisor replied, “I printed the report, talked to the Allianz representative and hit him with each point. I can’t believe that they could have BSed me so well. This is a lousy product. You shouldn’t buy it and I don’t plan on EVER showing it to anyone else again.”

I’m glad Mark has an advisor that doesn’t put the profit motive above doing what is right for his clients. That wasn’t the case for Phil and Donna. Here’s their story, in their own words: “We were stupid enough to be swayed into turning my husband’s entire 401k into an EIA. Obviously, if we would have understood what we were getting into, we would have run, not walked, away from this! This is really the Investment from Hell!

“We would like to find out if there is anyway out of this mess, without losing almost 25% [in surrender penalties]. This policy made 0% the first year.” Even though the market went up almost 15% in 2006, Phil only made 1.5% that year!

Jeffrey Voudrie asked:


If you have an IRA, sorting through all the investment options can be very confusing. Unfortunately, there is a lot of hype out there and, in my opinion, the financial services industry is great at selling the sizzle and delivering very little steak!

This is especially true in the area of annuities. Folks purchase variable annuities based on the belief that the principal is protected and other guarantees. Often there is a wide gulf between what the investor thinks a product does and what it really ends up doing.

These are complex financial instruments that are sold using generalities. As with anything, the devil is in the details, and the more you know the details the less important some of these guarantees become.

Take a look at a principal guarantee on a variable annuity. The ones that I’m familiar with guarantee that you can withdraw so much a year for a certain number of years, thus getting back your principal even if the market goes to zero.

Think about that for a minute. Let’s say they allow you to take 7% a year. It would take over 13 years for you to get back your principal. What are the probabilities of the market being worth less over a 13 year period? Very, very small.

Or there are the guaranteed income provisions–referred to as the guaranteed living benefit. Many investors think that these living benefits guarantee that they will earn 5-7% a year regardless of what the market does. They believe that if they leave their money in and 10 years later decide to take it out that they will have earned at least the 5-7% a year.

Nothing could be further from the truth.

These living benefit riders don’t apply if you surrender the annuity. They ONLY apply if you take a lifetime income stream from the annuity. Even then, if you ever cash it in, what you get is based on the actual earnings of the annuity less any withdrawals. What you get when you cash it in isn’t ever based on the 5-7% guarantee.

Let me explain it this way. Picture two columns on a piece of paper. The first column is the actual value of the annuity from year to year. So if the market goes up, so does that value. If the market goes down, so does that value. The second column is the 5-7% column. This column takes your initial investment and increases it by the 5-7% each year.

So 10 years down the road, you decide to cash in your annuity. You get the value in the first column; the value in the second column meant nothing.

In a different scenario, let’s say that 10 years down the road you decide to start taking the income stream of 5%. That income stream is based on the second column. So if the second column was $200,000 your income stream would be $10,000 a year guaranteed for life.

So far so good.

Time has passed and you have been receiving the $10,000 a year. Your situation changes and you need (or want) what’s left of the money in the variable annuity. Here’s where the surprise happens. What you get isn’t based on the value of the second column; what you get is based on the first column less any withdrawals you’ve made.

Actually, every time you get a payment, they reduce both columns. That payment affects the growth of the first column (as it should).

What if you die? Do your heirs get what’s left in the second column? No. Your heirs get what’s left in the first column.

That’s why I don’t place a lot of value on the guaranteed provisions associated with annuities. I expect that few people will ever use them or get the benefits that they expect.

That’s why an annuity should first be evaluated based on its investment potential. These benefits are designed to take your eye off of the underlying investment. Investors can have a false sense of security thinking that changes in the market won’t hurt them. They will.

When evaluated as an investment, I believe that there are many alternatives that are much more attractive and that allow the investor to retain the control, flexibility and access to their money.

William Smith asked:


Annuities have received a lot of bad press recently, and much of it for good reason. Life insurance agents and securities brokers often foist annuities upon their clients without properly explaining them or ensuring that the annuities fit their clients’ needs.

Why? Because annuities typically pay handsome commissions to the salespeople. But does this mean that annuities are always bad? Given the right circumstances, fixed annuities and variable annuities could be the right financial vehicle for you.

What Are Annuities Anyway?

Annuities are life insurance products designed to provide supplemental income, mostly for retired people. The term “annuity” literally means “annual payment of allowance or income.”

Basically, annuities tend to work like this: Someone pays a set monthly premium, as with life insurance, for so many years. Then, when he’s done paying, he waits for a while. A few years later, he begins receiving monthly income.

The amount he is to receive, usually for the rest of his life, is generally much greater than the total amount of premiums he paid in.

Fixed Annuities - The Original Version

Fixed annuities work much like the example above. The key thing is that with fixed annuities, investors are guaranteed a set pay-out. Almost no other investment product guarantees anything, and that’s why fixed annuities are actually a form of insurance, not securities.

The big problem with fixed annuities is inflation. While the money you pay in premiums is generally less than you’re guaranteed to receive, when you adjust for inflation, you might be losing out. This is one of the reason annuities have gotten so much bad press recently.

Variable Annuities - New and Improved?

Variable annuities protect you against inflation risk by investing your premiums more aggressively. The downside? While variable annuities guarantee lifetime income, they do not guarantee how much that income might be. In fact, you could even lose money by investing in variable annuities.

For this reason, many of the more ethical financial advisors recommend that you buy a modest life insurance policy and invest the premiums you save into solid mutual funds.

To Be Fair - The Upside of Annuities

Theoretically, annuities could be a great investment vehicle. Rather than “throwing away” life insurance premiums, annuities can provide for a death benefit while simultaneously allowing your money to grow.

Also, when compared to mutual funds, annuities offer several advantages. For one, the money you invest grows tax deferred. This means that you will not be required to pay income tax on the funds invested into an annuity until you begin withdrawing money.

Secondly, variable annuities do guarantee lifetime income, while theoretically at least, you could lose all of your money invested into mutual funds.

In practice, this is unlikely, but at least with an annuity you will be able to plan for the worst case scenario of a guaranteed lifetime benefit. The worst case scenario for mutual funds is $0.

Mutual Funds and Variable Annuities - A Side-by-Side Comparison

Maximum sales load: Mutual fund, 8.5 percent; variable annuity, no maximum. This means that unethical brokers can charge unsuspecting clients any sales charge that they want.

Pricing: Mutual fund, net asset value (NAV) calculated once per day; variable annuity, unit value calculated once per day. Mutual funds have the major advantage of being liquid - you can buy or sell them any business day of the year. A variable annuity is a life insurance product and is not liquid at all.

Share value: Mutual fund, depends on performance of the fund; variable annuity, depends on the performance of the “separate account,” in which a portion of premiums paid are invested.

Make Sure That Your Financial Advisor is Looking Out for Your Interests

If you feel that your financial advisor is more concerned with her own commission revenue than your financial well-being, head for the door and never look back.

Financial advisors are supposed to be professionals, not cheap salespeople. Like doctors and lawyers, their duty is to those whom they serve, not to the company that employs them or to their own paychecks.

Older individuals are especially susceptible to hotshot young brokers who think they can score a quick buck by unloading a junk product with a big commission.

Your best defense against this is to become as fully educated as you can about each investment product that’s recommended to you, and to find a financial advisor with references from people you know you can trust.

A Few Questions to Ask Your Advisor

If you’re ever dubious of a product your advisor is recommending, be sure to ask him how much commission he receives for selling it. Come right out and ask if he would recommend the product if the commission were half or one-third what it is.

Ask him what are some products that he recommends that do not provide such high commissions. And if you really want to rattle your advisor, ask him what score he received on the Series 7 exam. Ask him to show you his certificate proving his score.

Tell him that you’re considering a variety of advisors, and these are the criteria you’re using to determine which one is right for you. It’s important that he remembers that you are his boss, and that he is to put your interests ahead of his own. That’s what being a professional is all about.

Jeffrey Voudrie asked:


Equity-Linked Certificates of Deposit are a safer, low-cost alternative for those who must have an Equity-Indexed Annuity type of investment. These little-known investments allow you to participate in the growth of the market index while your principal is guaranteed by the Government. Read on to find out more.

Equity-Indexed Annuities are probably the most heavily promoted investment for seniors in today’s marketplace. The sales pitch is appealing and the payoff to the agent is very big–up to 13%. The enormous commissions have led to sales abuses which leave seniors holding the bag.

Readers of this column have wised up to the flaws of Equity-Indexed Annuities. But what are the alternatives?

The best alternative to Equity-Indexed Annuities is to use a diversified mix of investments and strategies that can provide an income stream between 6% and 10% while limiting any risk of significant loss. That’s what I do for my clients–without long-term time commitments or surrender penalties if they want access to their money.

Another alternative is called an Equity-Linked Certificate of Deposit. They provide virtually all the benefits that Equity-Indexed Annuities are designed to provide, without all the negative strings attached.

Equity-Linked Certificates of Deposit are offered by banks. They pay a return that is based on a stock market index, usually the S&P 500. Just like all Certificates of Deposit, they are federally insured by the FDIC up to $100,000 per individual. The minimum purchase for an Equity-Linked Certificate of Deposit is usually $25,000, but some can be found with $1000 minimums.

The return is based on the average performance of the S&P 500 over a set period of time. Just like Equity-Indexed Annuities, how the return is calculated depends on the issuer. The returns are all based on averaging the gains or losses of the index at set points over the life of your contract. Some Equity-Linked Certificates of Deposit guarantee a 3% return. Those doing so will limit the index return. Others provide 100% of the calculated index return.

The only way you can lose your principal with an Equity-Linked Certificate of Deposit is if you pull your money out before the end of the term. Most will have some form of a penalty, but since there wasn’t a big commission paid to an agent to sell it, the redemption penalties should be small. (Some don’t allow early redemption so investigate before you invest.) All allow early redemption without penalty if the account holder dies.

One of the major benefits Equity-Linked Certificates of Deposit have over Equity-Indexed Annuities is a short term commitment, FDIC insurance of principal, and much lower fees. They allows you much more control and flexibility.

For instance, let’s say you intend to invest $75,000 in Equity-Linked Certificates of Deposit. Instead of putting all the money in a single CD, divide that money between three–purchasing one each year for three years. Then as one comes due you can roll it into another 3-year term. This will reduce the negative effects in how the index returns are calculated while giving you access to $25,000 every year.

There are several disadvantages to Equity-Linked CDs. They don’t normally pay interest until maturity, so these investments are not a good choice of those looking for steady income. And like Equity-Indexed Annuities, you don’t really get 100% of the market gains because of the averaging used in calculating the rate of return.

You may be wondering why you haven’t heard of Equity-Linked Certificates of Deposit before. In fact, you should wonder why the advisor recommending you buy an Equity-Indexed Annuity hasn’t recommended them! The reason is they don’t pay a large commission so there isn’t a financial incentive for the advisor to do so.

Check with your local bank to see if they offer Equity-Linked CDs. Not all do, but they are becoming more widespread. Any broker or advisor that can sell bonds should also have access to Equity-Linked CDs.

I still believe there are better ways to invest your money than Equity-Linked CDs. But I’d much rather see someone invest in them than an Equity-Indexed Annuity. Don’t let advisors who stand to gain so much from your money pressure you into investing in an Equity-Indexed Annuity when an Equity-Linked CD is a much better alternative.

Tony Bahu asked:


I used to sell annuities. I was intrigued by them and initially and the way they were introduced to me, they seemed like they could really help people. Until one day, it happened…

This is the true story of how I was ‘banned’ from the annuity industry. I tell it not for any reason other than to let you know you may need to be aware. Aware of what? Aware of the fact that there may be some things you need to know.

So upon really becoming interested in them, I decided to look into annuities more. I learned that there were definitely situations they could be a great fit. So I decided to focus on them and make a practice solely based on selling fixed annuities. It went very well. I felt like I was helping people and doing the right thing for them.

The only problem was that, there were so many misconceptions about annuities. I would meet so many people who were sold annuities under ‘FALSE’ pretenses. They would come to me for help. And they would come to me NOT even understanding what they were sold. In fact, out of every 10 people, I could estimate that 8 to 9 out of those 10 who I came across who owned annuities had no clue how their annuity worked. That doesn’t mean that 80-90% owned something that wasn’t good for them, but that they really didn’t know what they owned or how it worked.

I was dying to figure out how SO MANY people could have been misled or sold something that they had no clue about. I wanted to know how they ended up investing in a financial vehicle that they didn’t even understand.

And upon interviewing hundreds of people while building my practice (many who owned annuities) and dissecting annuities to their core, I developed a report called ‘Annuities: The Shocking Truths Revealed.’ I really just wrote about everything I had seen and learned from these people I interviewed. I outlined EVERY mistake I had ever come across that these consumers had ever made when being sold an annuity. It was a clear and concise report on how to make a GREAT decision when purchasing annuities and how to avoid those mistakes that I had seen so many make and the misconceptions I had so often seen.

This was NOT Annuities 101. It was the ******** of what to look for, what to avoid, how to avoid being misled, what questions to ask, and THE WHOLE TRUTH. In fact, you could not possibly go through this book and NOT KNOW if an annuity was right for you or not. It was simply the absolute most revealing and detailed report on annuities EVER released and still is.

However, I never really intended it to be anything more than a report I could give my own clients to help them make the right decisions. But, as I was telling one of my good friends about it, he suggested I put it out on the internet for the benefit of anyone who needed the information. So, that’s exactly what I did.

I put the book for sale online wondering if people would be interested in such information. To my surprise, the demand was incredible and still is to this day. I discovered that although people are flooded with information on annuities, what they are really lacking is straightforward applicable knowledge and direction and this is what the report provided.

On the other hand, however, I got just as much **** as I got love for it. Many annuity agents and industry professionals sent **** mail to me stating how I was ‘ruining the industry.’ And for what? For telling the truth? But, I didn’t care. I was even threatened on numerous occasions. It was outrageous. I couldn’t believe it. I wasn’t saying annuities were bad. I was simply pointing out the truth to people so that they could make better financial decisions.

On the brighter side, however, there were annuity agents that purchased the information. I could honestly say that a good number of annuity agents that ever purchased the book complimented me. They understood after reading it that it was about doing things the RIGHT way.

But eventually, the inevitable happened. As time moved on, I found myself being denied appointments with insurance companies. They began to turn me down meaning I could not sell their products anymore. In fact, the latest insurance company stated that my appointment was ‘terminated’ and that I was ineligible for reappointment.

So the bottom line is, I was ‘banned’ from an industry who simply didn’t want what I had to say to be in your hands. But that won’t stop me. I would rather die telling the truth then to live telling a lie. Plain and simple—YOU DON’T KNOW THE TRUTH. There are things about annuities you need to know.

My point in telling you this is just to make you aware that things are not always as they seem. People out to tell the truth are the ones who get ’shut up’ by the bigger forces. I, however, will not shut up but continue to tell my story as long as you can. I hope this helps you and encourages you to do your homework before investing in an annuity.