Insured Annuities: Beyond the Basics

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1 Insured Annuities: Beyond the Basics Achieving a great after-tax return on fixed-income assets John M. Nicola, CLU, CHFC, CFP

2 Table of Contents Introduction Insured Annuities: The Basics The First Steps Bonds & GIC s vs. Insured Annuities Why They Work How else can they be used and how can we enhance returns? Registered Insured Annuity Corporate Insured Annuity Leverage and Insured Annuities Age Arbitrage A Case Study Examination Overview Case Study # Case Study # Conclusions

3 Introduction It has been over twenty years since interest rates on long-term bonds peaked at almost 18%. Since then, rates have been on an almost uninterrupted long-term decline and now 10-year government bonds are well below 5% (4.2% as of September 2006). While it is possible that rates will rise again (and certainly will fluctuate), it is my personal belief that we will not see those 1981 yields again in our lifetime. Over the course of history, the rates we are experiencing today are, in fact, the norm, and the rapid rise and decline of rates between 1970 and 1995 was an unusual anomaly in time. One in which we happened to live. There are several macro-economic reasons why I feel relatively low rates are here for some time. Low levels of inflation and central banks willing to raise rates to keep core inflation in the 2% range. Demographics and the impact of an ageing and income-dependent population will likely suppress yields on many asset classes, including bonds. Globalization will have a modifying effect on labour rates and the cost of manufactured goods and some services the end result would be lower inflation. While lower rates may help borrowers, they reduce the income and returns of lenders, especially when tax is taken into account. This is where we feel that insured annuities can be a great replacement for fixed-income assets. More importantly, when insured annuities are combined with effective lowrisk leveraging and creative ownership models, they can create outstanding after-tax results for the fixed-income part of an investor s portfolio. This paper will review these strategies and structures. When done well, insured annuities can accomplish some or all of the following: Increase after-tax yields on fixed-income assets by 100% or more with similar risk. Create significant tax benefits today, when combined with effective leverage. Reduce or eliminate taxes in one s estate on both registered and corporate assets. 3

4 Insured Annuities The Basics What is an insured annuity? How and why do they work? In their simplest form, insured annuities are a combination of life annuities and life insurance that create a fixed return that pays a monthly income over a person s lifetime and upon their death returns the original principal. In this regard, they are similar to bonds (which pay a fixed income over a period of time and then return the original principal), except that the maturity date is the death of the insured/annuitant and not a fixed date in the future. They are, however, very different from bonds in the following ways: A significant portion of the income generated is tax-free, and that amount is larger if the annuity is prescribed and if the annuitant is older. For a basic insured annuity, it is ideal if the insured annuitant is age 60 or over. To qualify for an insured annuity, one needs to be in reasonably good health (there are exceptions to this which we will explore later). Annuities are usually locked-in contracts with no ability to redeem before death (and then only as a result of the life insurance being payable). Annuities owned personally by the annuitant receive a different tax treatment (prescribed) than when owned by a third party, such as a holding company or trust (non-prescribed). For most situations, prescribed tax treatment of annuities offer the lowest net tax. Let s examine how an insured annuity might compare to other fixed-income securities such as bonds or GIC s. We ll assume we have a 65-year-old investor with a $4,000,000 portfolio of which $1,000,000 (25% of the total) is in very secure bonds and GIC s with an average yield of 4% (as of September 2006). We can now compare what happens if this investor acquires an insured annuity to replace these fixedincome securities. First the steps to create an insured annuity are as follows: 1. Apply and get approval for a life insurance company to issue a $1,000,000 guaranteed fixed-premium policy. Usually this type of insurance is term-100 and, when combined with a universal life insurance plan, may also be called level cost of insurance (LCOI). 4

5 2. Acquire a $1,000,000 life-only prescribed annuity from a different life insurance company (more than one company can be used). Payments can be designed to be paid monthly or annually (in this case, we will assume annually in arrears). 3. Part of the annuity payment will go towards the life insurance premium and the rest will be income to the owner. 4. Upon the death of the insured annuitant, the annuity will end and the life policy will be paid out as a death benefit tax-free (other more sophisticated tax planning can be done with the death benefit, as will be shown later). The table below shows the gross and net results between an insured annuity and fixed-income assets with a 4% yield. Bonds & GIC s vs. Insured Annuity Income Vehicle Bonds/GIC Insured Annuity Capital Invested $1,000,000 $1,000,000 Annuity/Interest Income $40,000/yr $83,000/yr Life Insurance Premium $0 $28,000/yr. Pre-Tax Cash Flow $40,000/yr $55,000/yr Taxable Amount (prescribed) $40,000/yr $24,000/yr Tax Payable (43.7% tax rate) $17,500 $10,500 Net After-Tax Income $22,500 $44,500 Pre-Tax Equivalent Yield 4% 7.9% Improvement in After-Tax Income $22,000/yr (98%) As you can see in this case, the investor has about twice the after-tax income and about the same level of investment risk. So this begs a number of questions: How can this be? Why isn t everyone doing this? What s the catch? Let s try and address these and other questions. There are several reasons why insured annuities work in the right circumstances: Life insurance rates for guaranteed premium products such as term- 100 are lower than they should be based on today s current interest rates. Some actuaries suggest that if current rates hold over the longterm, that term-100 rates would need to rise by about 30-50%, depending on the lapse assumption used. Life companies also assume 5

6 that a certain percentage of individuals buying life insurance policies will cancel the plans before they die. These individuals are subsidizing those who hold their policies until death. However, older individuals who buy life insurance policies tend to keep them in force and have very low lapse rates. Right now, consumers who buy fixed-premium policies are getting very attractive rates at all ages. This is unlikely to last indefinitely. At the same time, annuity rates for healthy older individuals are higher than they should be. A 65-year-old smoker gets the same annuity rate as a 65-year-old non-smoker, but it is reasonable to assume that the non-smoker will live, on average, 5 to 6 years longer. There has been some discussion about life companies requiring medicals before issuing annuities, but so far it has only been required with impaired annuities. Annuities are essentially the mirror image of a life insurance policy. In the case of the annuity, the life insurance company is providing insurance against you living too long, whereas a life insurance policy which provides insurance against dying at a young age. The older you are, the lower the taxable amount of annuity income you receive will be. If it is owned personally, the amount is set up by a specific formula approved by the CRA and it is prescribed. If owned by a third party, then the taxable amount is a factor of age and interest rates and is specific to the insurance company issuing the annuity (non-prescribed). The fact is that even after paying for the life insurance premium there is a significant amount of the net annuity income that is tax-free (about 60% for 65-year-old male when the annuity is prescribed). When insurance companies issue either a life policy or an annuity, they are in effect making a bet. In one case, they are betting you will live a long time (the life policy); in the other case, that you will have a relatively shorter life expectancy (the annuity). When we acquire a life policy from one company and an annuity from another, they are to some degree disagreeing on how long you will live. That difference of opinion affords us the ability to obtain arbitrage and improve a client s results. This is combined with the fact that one can shop amongst many carriers for the best life insurance and annuity rates and improve the net performance of an insured annuity. By way of example, consider the following: 6

7 5 th Best companies Best Companies Annuity Income ($1M annualized) $78,000 $83,000 Insurance Premium $34,000 $28,000 Net Income $44,000 $55,000 Tax Payable $10,000 $10,500 After-Tax Income $34,000 $44,500 Improvement in After-Tax Return (%) 31% more These are some of the reasons why insured annuities work. So why doesn t everyone use them? These examples are for non-registered funds and not all individuals have these types of assets. The person buying the annuity was a healthy 65-year-old. For younger people the strategy has to be designed differently. Finally, an insured annuity is an irrevocable investment decision and there is no current market for selling insured annuities as there is for bonds and, in some cases, GIC s. (Note: there is now a market in what is called viatical, or senior settlements that can provide liquidity for insured annuities. In addition, we shall later look at how creative leveraging can provide a liquidity event if and when needed.) What we have considered so far, is a basic insured annuity structure that provides significant improvement in after-tax yields to similar risk fixedincome assets. How else can insured annuities be used and what can be done to enhance the return to the investor? We will look at five additional approaches for insured annuities that can be done separately or together to create different outcomes and improve the overall return on net invested capital. They are: 1. Registered insured annuities using registered capital for the annuity purchase. 2. Corporate insured annuities using corporate capital for the annuity and the life insurance. 3. Leverage using bank or other financing with any type of insured annuity to create enhanced yields and tax benefits. 4. Leveraging the life insurance alone using structured or custom designed leverage to make the net after tax cost of the life insurance lower. 7

8 5. Age Arbitrage Buying the life insurance at a younger age and the annuity at an older age to increase the after tax cash flow of the insured annuity. We have seen situations involving up to 4 of these approaches in one structure. In some cases, the internal pre-tax equivalent yield can be improved from the 7.9% (shown previously) with the basic insured annuity, to well over 20% per year. Obviously the higher returns use leverage and have additional risks, but in many cases those risks are less than other strategies that use leverage with other asset classes (such as margin accounts being used to buy equities or mortgage financing to acquire real estate). While we have been able to show many clients how to maximize their fixedincome returns with creative use of insured annuities, there are some important caveats. Each situation is specific to the client. Factors such as age, health, risk tolerance, current asset mix, taxes, and corporate structure are important. Make sure you prepare a custom analysis that is client-specific and that you have reviewed other what if? scenarios such as higher or lower tax rates in the future, or different interest assumptions. Insured annuities are one approach in an overall portfolio design. They are not inherently better or worse than other strategies, but rather complimentary. With this in mind, let s briefly review the use and potential impact of these five approaches. Registered Insured Annuity In this case, the individual or couple take part or all of their registered capital and use it to buy an annuity. The annuity might be a Joint Life based on their combined life expectancies, or it can be two annuities with each spouse using their own registered assets to buy their own annuity and life insurance. (This requires that one look at all of the alternatives to see which one creates the best outcome.) If the annuity chosen is joint, then the life insurance chosen would be a joint last to die term-100 (or variation). Upon the death of the second individual, the annuity income would end and their estate (or better still, their directly named beneficiaries) will receive the life insurance proceeds. When done well, the following benefits should be created: 8

9 The income from the registered assets will be guaranteed and provide a steady income with no market risk. The principal value of the registered assets can flow to the estate or beneficiaries free of tax as a life insurance death benefit. Since registered assets are usually taxed in one s estate at the highest rate (plus probate fees), almost 45% of the value is then gone in one form of tax or another. For those with a holding company, the life insurance premiums can be funded through the Holdco, and that can create additional benefits through the capital dividend account of the company. It should be noted that the income received from the annuity is fully taxable (since it comes from registered assets) and that under most circumstances, the life insurance premium is not deductible. It is for this reason that we often recommend pre-funding the life insurance with corporate assets where possible, or buying the life insurance well before buying the annuity (age arbitrage e.g.: My wife and I acquired a large joint last to die policy when we were age 50 to be used with our registered assets which we shall annuitize when we are age 69. Using today s interest and tax rates, we should comfortably earn a 12% pre-tax equivalent return on our life insurance premiums considerably more than we now earn on the fixedincome portion of our portfolio). Here is a specific example for an older couple who want to apply this strategy, but have no life insurance. Assume Fred and Ethel are age 68 and 67 respectively and are relatively conservative investors with a $2,000,000 portfolio of which $500,000 is registered and the rest of the capital is in their holding company. Here are the steps they would take to acquire a registered insured annuity and the results they would get: Use their $500,000 to acquire a joint registered life annuity which will pay an income of $40,000 per year for as long as they both live. When they have both passed away, the annuity payments will stop. Use $200,000 of corporate non-registered savings to pre-fund a universal life term-100 plan. The plan would have a face amount of $700,000. This is equal to all capital being invested ($500,000 for the annuity and $200,000 to pre-fund the policy). Upon the last to die of Fred and Ethel, their company would receive $700,000 tax-free and most, if not all, of that death benefit would be paid to the capital dividend account of their Holdco. So in the end, their results would be: 9

10 Total funds invested $700,000 Annual income $40,000 per year (about 5.7%) Capital and Income guaranteed All taxes on registered assets eliminated (about $220,000) Their Holdco able to pay up to $700,000 as a tax-free dividend to their estate or beneficiaries (maximum value approx. $210,000) This gives Fred and Ethel a solid basis of safe investment capital with a yield well above current market rates and a very attractive long-term tax result. At the end, we ll look at how much Fred and Ethel could have improved their returns had they acquired the life insurance at a much younger age. Corporate Insured Annuity In simple terms, this is really the same structure as a basic insured annuity except that both the life insurance and the annuity are owned by a company (usually the insured annuitant s holding company). This impacts how the income is taxed and how the death benefits will be taxed. The main reasons an individual would choose this approach over the basic model are: Most or all of the individual s investment capital is in the company. There is a desire to create a large capital dividend account credit from the death benefit received (tax benefits to the estate can be as much as 31% of the insured annuity). The insured annuity will be leveraged (see below). From a cash flow point of view, basic and corporate insured annuities are the same. However, as mentioned above, the taxable income levels are different as shown in the following table. Generally speaking, a corporate insured annuity will have a higher long-term tax liability on the income it generates. (A more efficient version of this structure is to have the life insurance owned corporately, but the annuity owned personally with a prescribed tax treatment.) 10

11 Prescribed vs. Non-Prescribed Taxation: Annual Taxable Amount $50,000 $45,000 $40,000 $35,000 Taxable Amount $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $ Age Prescribed Taxation Non-Prescribed Taxation Leverage and Insured Annuities: For more sophisticated investors and those who are comfortable with increasing risk in order to increase returns, leverage can work very well with insured annuities. However, as we shall also review, using leverage with insured annuities is complex and requires close attention to the terms of any loan and the tax results that one hopes to achieve. General structure: 1. A company or individual acquires an insured annuity. 2. The insurance and the annuity are provided as security for a loan with a third party lender (usually a bank but not necessarily). 3. The annuity will become non-prescribed if it is part of the loan security. 4. Funds from the loan are used to acquire new investments or put into a business owned by the borrower. With the above, one can expect some or all of the following results: Annuity income net of insurance premiums will pay for most, if not all, of the interest cost of the loan (of course, this will depend on the loan terms see issues below). The interest will be tax-deductible if used appropriately and within CRA guidelines. 11

12 Much of the annuity income will be tax-free. Some portion of the life insurance premium will be deductible, as long as CRA guidelines are met (IT-309R). This amount is called the Net Cost of Pure Insurance (NCPI) and tends to increase each year as the insured ages (insurance companies provide schedules for NCPI which are specific to each policy). The additional tax deductions above may reduce or eliminate taxable investment income on other assets as shown in the example below. Let s use the example of the insured annuity we used in the first example and further assume the following: The annuity and insurance are owned corporately. The loan is used to acquire income producing real estate with a pre-tax yield of 7% 75% of which is taxable (after depreciation). The individual is a male age 65. The insured annuity is $1,000,000. The life premium is $28,000 per year and the average NCPI for the first ten years is $20,000 per year. The annuity is $83,000 per year and the average taxable portion is $30,000 per year. Loan rate is fixed for ten years at 6%. Cash Flow Taxable Annuity Income $83,000 $30,000 Less Life Insurance ($28,000) Net Insured annuity $55,000 $30,000 Investment $70,000 $52,500 Less Interest Expense ($60,000) (60,000) Insurance Deduction ($20,000) Net $65,000 $2500 In the above example, the net income after interest expense is $65,000 per year, but only $2500 of that income is taxable after other deductions. In addition, there is still a significant capital dividend account credit that will be created upon death (maximum of $1,000,000). Using leverage with insured annuities (either corporate or individual) involves a lot of factors and issues which have to be reviewed in detail. When done well the results can be impressive, but consider these questions and issues first before implementing any program: What are the terms of the loan? Are they interest only or does principal have to be repaid? If so, how much and when? Is the rate fixed or floating on the loan? Would the rate on the loan be better if other collateral was provided? 12

13 Should the loan be for 100% of the insured annuity or a lesser amount (as would be the case with real estate)? What is the pre- and after-tax return of the net invested capital in the insured annuity? How much has the leverage increased that return, and is it worth the risk of the loan? Should a structure such as this be part of a larger estate planning approach that might involve the use of trusts or a comprehensive corporate reorganization? We can provide a detailed spreadsheet analysis that will answer many of these questions and allow clients to make changes to assumptions so they can see the impact of tax and interest rates. Age Arbitrage: It goes without saying that if one could acquire the life insurance coverage at a lower rate while maintaining the annuity income, then the return for an insured annuity would be better. The simplest way to obtain lower life insurance rates is to acquire the life insurance coverage at a younger age than the annuity. For example, a 50- year-old, non-smoking male can buy $1,000,000 of term-100 coverage for about $12,000 per year vs. $28,000 at age 65. Does it then make sense to buy insurance many years before one would buy the annuity? If so, what is the return on all of those years one is paying the life insurance premium, but not obtaining any annuity income? How would this compare to buying the least expensive 5- or 10-year renewable term policy and converting to a term-100 plan at age 65. The short answers to these questions are: The long-term rate of return for most term-100 policies is between 6-8% after tax annually based on normal life expectancy. That means that unless you can invest the premium and earn that return for the rest of your life, you cannot accumulate the equivalent of the life insurance death benefit.* If the policy is funded through a company and you take into account premiums you are currently paying on renewable-term life insurance that is in force until your retirement, the return above would have to be between 8% and 10% annually after tax (15-18% pre-tax). Buying term-100 policies at an early age is a good economic and investment decision, as just about any pricing actuary for any life company will tell you. 13

14 * The rate of return on a fixed life insurance premium can be shown in this example. A male age 65 N/S would pay a premium of $28,000 /yr for a $1,000,000 policy. Based on a life expectancy of age 83, the return is 7.5% /yr after tax, or about 14% before tax i.e.: the insured needs to earn 7.5% per year for 18 years to make $28,000 /yr grow to $1,000,000 after tax. However, it is combining these earlier acquired policies with annuities that helps create substantial after-tax cash flows later on. Let s examine two case studies. A Case Study Examination Let s look at a quick overview of the two scenarios we will work with: Case Study #1: Acquire a level term coverage at a younger age. Buy a life annuity at age 65 with cash from a non-registered portfolio that is currently in bonds, first mortgages, and preferred shares (lowrisk, income producing assets). Borrow on the insured annuity and other assets to acquire income producing assets (in this case, we ll assume it is real estate with an 8% cap rate the net income after expenses is 8% annually). Case Study #2: Acquiring a joint last to die level term coverage on a couple that will also be paid up at their retirement age. Buying a joint life annuity with their registered funds at age 69 (when they would normally buy an RRIF). Not using any leverage. In both cases, we will examine specific numbers and measure the beforeand after-tax returns we can earn on the life insurance and the annuities when they are combined in this way. We will also look at the tax benefits we can create for our estates by structuring the ownership of the insurance and annuity as efficiently as possible. Let s set the scenarios. Case Study #1: Let s assume we are starting with Robert Townsend, who is age 55 currently, and has life insurance coverage of $3,000,000 which is a 10-year renewable term and will remain in force until his age 65, at which time it will be cancelled. Current premiums for this coverage are $8500 per year. Bob owns a business which is quite successful and which he plans on selling in ten years. He also has a holding company which has current investments 14

15 in it of $2,500,000. With reasonable growth and cash from the sale of the business, he expects that portfolio to be between $7M and $10M by his age 65. The Basic Strategy: Change the current renewable term plan to a universal life plan with level term to 100 as its base. Premiums for this type of level term are just slightly higher than regular term-100. From a tax perspective, however, they afford a number of flexible options that far outweigh the relatively small premium differential between the plans. Premiums will be funded by his operating company, but the policy will be transferred to his holding company if and when the business is sold. The ultimate beneficiary of the policy would be the holding company. The annual premiums for $3,000,000 of coverage is about $47,000 per year, or $38,500 more than the renewable 10-year term plan At age 65 he will purchase a $3,000,000 annuity. Ideally, the annuity would be funded and owned personally, but it will still work very well if done corporately. Based on today s rates, the annuity would generate $252,000 of income of which $66,000 would be taxable and the rest of the income would be a tax-free return of capital. At this point, the annuity income will be used to fund the life premium. So after insurance costs, the insured annuity will generate a cash flow of $207,000 per year of which only $66,000 is taxable. That works out to a cash return of 7% pre-tax and almost 70% of that return would be tax-free. That is the equivalent of a pre-tax return of 11.5%. Bob could easily be satisfied with this return as a replacement for the fixed-income portion of his portfolio (today, bonds, preferred shares, GIC s, and first mortgages would provide before-tax returns in the range of 4-6% annually less than half of the result of Bob s insured annuity). Bob can choose to leverage some, or all, of the insured annuity. If we assume he leverages all of it at today s long-term interest rates of 6%, then the cost to service the loan would be 6% x $3M = $180,000. It is important to remember the rules noted above with respect to using leverage and insured annuities. In Bob s, case he is choosing to reinvest the proceeds of the $3,000,000 loan into a real estate asset that has a 7% cap rate (net income yield) of which 75% is taxable after depreciation. In addition, the life insurance will be used as part of the security for the loan. When we put all of that together, the following should be the end result. 15

16 Cash Flow Taxable Annuity Income $252,000 $66,000 Less Life Insurance ($47,000) Net Insured annuity $207,000 $66,000 Investment $210,000 $157,500 Less Interest Expense ($180,000) (180,000) Insurance Deduction ($47,000) Net $237,000 ($3500) Bob now has increased his investment income from $210,000 per year (of which 75%, or $157,500, is taxable annually) to $237,000 per year and all of that is tax-free or tax-deferred. This is an increase of almost $100,000 per year to Bob in his spendable after-tax income. If we measure this as a return on his decision at 55 to acquire a UL policy with level term costs for $47,000 per year, the annualized return is more than 13% after-tax, or about 25% per year pre-tax. These are outstanding results and start with the decision to lock- n the life insurance rates as early as possible. It is important to remember that all aspects of this strategy must be done with proper care to ensure maximum benefits. These include: Proper ownership and structure of both the life insurance and the annuity. Ensuring the loan arrangement is fixed in terms of rates and is as low as possible (likely involving the use of other assets as collateral). All tax issues require expert input and review from your tax advisor before proceeding. But when done well, the outcomes are excellent. Case Study 2: Fred and Ethel Mertz (who we read about earlier) are now assumed to be age 53 and 51 respectively, and currently have $600,000 of RRSP/IPP funds accumulated. Based on reasonable investment assumptions, they expect to have those assets grow to $2,000,000 by Fred s age 69 (which is when they must start to RRIF or annuitize their registered assets). In this use of insured annuities, we will not consider leverage (although it can be done). Rather, we will look at this approach as the following: A high yield alternative to fixed-income investing. 16

17 A way to eliminate income tax on registered assets that pass upon the death of Fred and Ethel to their estate. (For most residents of BC, that tax is 43.7%. If the Mertz s have $2,000,000 of registered capital at retirement, then the tax would be about $875,000.) So the steps for Fred and Ethel are: 1. Acquire a joint last to die UL policy (erm-100 base) that will be funded by the time they plan on retiring (in this case, we ll assume Fred s age 65 or 12 years). Assuming a 4% long-term rate of return, the premiums will be about $24,500 for 12 years and funded though Fred and Ethel s holding company. 2. At Fred s age 69, the registered funds would be annuitized. Using today s rates, the income would be about $150,000 per year on $2,000,000. Based on today s yields, if these funds were invested in bonds with a similar investment risk to the annuity, the annual interest would be about 90,000 per year (4.5%). 3. Upon the last to die of Fred and Ethel, the life insurance plan will pay $2,300,000 ($2M plus the cash value of the policy) tax-free to their holding company. From there it can be paid tax-free to their estate or to their other beneficiaries, thus saving hundreds of thousands of dollars of tax on the RRIF proceeds passing to their estate. We can measure the return generated by acquiring the joint life insurance policy in terms of the higher cash flow from the annuity when they retire and the tax savings generated in their estate. In their case, the after-tax return on the policy premiums will be 7% annually (13.2% pre-tax).* This is much higher than the Mertz s are earning in their holding company on their fixedincome investments (in fact, for most people, it is more than the long-term return they earn on all of their investments). This is a very simple and straightforward way for Fred and Ethel to dramatically increase their risk-free rate of return on their registered funds when they retire. At the same time, they can transfer the cash value of these funds to their children, grandchildren, or whomever they choose, with no tax. As with other analyses, this one needs to be reviewed on a case by case basis to determine how the results would work for each situation. * All illustrated returns assume current interest and tax rates are being used. We have built spreadsheet models that allow any assumption for both tax and interest to be measured so one can understand the impact of different assumptions. 17

18 Conclusions: Insurance is usually considered to be an expense and not an investment (certainly not an investment that creates cash flow before the death of the insured). On the other hand, annuities are known as being very safe, illiquid, and with relatively low returns. The purpose of this document is to show that none of the usual assumptions regarding life insurance and annuities have to apply. One can use them to create significant, risk-free returns and simultaneously enjoy substantial tax benefits both now and as part of an estate planning process. Each situation is truly unique and many of the approaches we have reviewed are interchangeable so virtually an infinite number of outcomes are possible. Individual analysis is the key to achieving a truly personalized result. Finally, structures such as insured annuities are far more flexible than the nature of their fixed and guaranteed structure would suggest. In this environment of low fixed-income yields, they can be a significant contributor to far better outcomes. 18

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