This is the kind of story you’ve been reading about in the news lately. My mom is now 86. Always very private with her finances. She has lived alone for 12 years on fixed income from my father’s military annuity. She recently had a series of severe health problems. This is when I find out how much trouble she’s in. Due to predatory lending, She has mortgaged all of her equity in her property away to stay where she was living, including $20,000 in credit card debt and a $50,000 2nd mortgage loan. The last mortgage was given to her at age 84! Now, once her bills are paid, counting insurances and utilities, she was left with barely $100 to buy basic necessitates without using credit.
Her last bout of illness took her short-term memory and she is now unable to live on her own. We have checked her into an assisted living facility. However, the cost of this facility consumes her $2800 per month annuity. A she probably has only has a few years left, do we declare bankruptcy for her? Do I stop paying the credit card debts? Do I let them foreclose on the mortgages? How do we or can we protect her annuity from the creditors?
Posts Tagged ‘Equity’
Elderly mother aged 86 with $250,000 debt – no equity?
Is American Equity Life Insurance Company a company which can be trusted?
American Equity sells fixed annuities, Have they ever defaulted on paying there customers there monthly payments on fixed annuities or any other investment?
Learn About Equity Index Annuities
‘Save for a rainy day’ is a wise old saying and there are many ways you can prepare for the sunset of your life. Investing in an annuity is one way. An annuity is a long-term, interest-paying contract offered through an insurance company or financial institution. An equity indexed annuity is an annuity that earns interest that is linked to a stock or other equity index. Depending on how those stocks fare will determine what you gain. The equity index annuities, as in any kind of investments, have to be kept untouched for a long period. The typical time is a minimum of 7 years. This will ensure that you get the full benefit of having invested in an equity index annuity.
The equity index annuities are basically an option of investment that is offered by insurance companies. They actually provide you with the benefit of investing in the stock market without the associated risks of losing your money. So, in an equity index annuity, your principal is never lost and even in a worst case you may take some interest back home. The flip side of this however is that even if the stocks that the equity index annuity is invested in gives high returns, you will not receive the full returns but just a percentage. So you do not get the maximum returns for your equity index annuity but just a part.
This is however the compensation that the insurance companies who offer you the equity index annuities receive, for providing you with a safety net throughout the term of the annuity. The percentage of returns (i.e. the gain of the index) that your equity index annuity brings you is determined by the participation rate. This rate is pre-decided and varies and to know this you have to read the fine print prior to signing on the documents. The general participation rate offered for most equity index annuities is between 70 to 90 percent.
The equity index annuities are therefore seen as a conservative and prudent investment.
They became quite popular during the previous bullish run in the market and insurance companies saw them as an excellent means of combining the security of a guaranteed return with the boom of the stock market. All equity index annuities offer a minimum interest rate and its value also does not fall below the guaranteed minimum percentage of the premium paid i.e. 90 percent at least.
However to achieve maximum benefits, your equity index annuities should not be withdrawn before the term. If you do even a partial withdrawal it will definitely affect the interest you receive. Like all investments, this is best kept for a long term. This will also help your equity index annuities even out and recover if the index plunges. As we know the stock market is volatile and this needs to be kept in mind when investing. Also there are definite withdrawal penalties that you would have to pay as well.
How then do the insurance agencies benefit from offering equity index annuities? The insurance companies reinvest the premium amounts that you pay and this is usually invested into bonds. Since the participation rate is fixed, they have to pay only those set rates of interest to the investors of the equity index annuities and the insurance companies profit the balance.
Equity index annuities are generally affiliated to a particular stock market index such as the S&P 500 or the Dow Jones Industrial Average. However as the equity index annuities combine features of a typical insurance product with the traditional security they do completely fall into each of those specific categories.
As a typical insurance product you are guaranteed minimum return and in terms of securities your investment is linked to the equity market. However it all depends on the features that your equity index annuity provides and it may or may not be a security. The typical equity-indexed annuity is not registered with the SEC.
So then how does one know which equity index annuity is best for oneself? The only way is to find out as much as you can about the equity index annuity before you decide.
Ask a lot of questions like which stock market index does the equity index annuity use? What participation rate is being offered to you? Are there any hidden charges in terms of any fees or deductions payable? You have to run through a number of equity index annuity offerings before making your decision.
So save for a rainy day and do it the equity index annuity way!
Equity Annuities: Managing Retirement Risk
Equity annuities offer a good avenue for managing retirement risk because they provide the potential for a good return without the potential losses of principal associated with traditional investments. Equity annuities invest most of their premiums into a fixed annuity, with the rest placed in several equity-index call options.
Owners of equity annuities do give up some potential gains in exchange for the no-risk feature, but the equity-annuity approach remains attractive to retirees and to individuals who are nearing retirement. Their retirement assets are totally protected from loss – and are guaranteed to achieve a gain – so they experience the chance to share in rising markets. Investors who have suffered from market volatility find the trade-off offered by equity annuities to be a prudent approach.
Equity annuity plans work by indexing, or linking, their credited interest rate to an equity index, like the Standard & Poor’s 500 Composite Stock Index or the NASDAQ. While the credited rate is connected to the stock market in this way, the amount of the principal investment is never put at risk. This means that a declining stock market will not have a negative impact on the value of assets held in an equity annuity.
Equity annuities, also called equity-indexed annuities, differ from other kinds of fixed annuities in the way they credit interest to the contract’s value. Most fixed annuities calculate interest on the basis of a rate established in the contract, but equity annuities determine this rate with a mathematical formula that reflects changes in the index to which the plan is tied. With this formula, additional interest is calculated and then credited. The amount of additional interest depends on the specific features of the annuity.
An equity-indexed annuity is similar to other fixed annuities in that it guarantees to pay a minimum interest rate, which will be applied even if the interest rate linked to the index is lower. So equity-indexed annuities are a good choice for investors who want to maximize their gains at little risk. If the stocks in the market lose value, these annuity plans do not suffer any losses, but if the stocks rise in value, the annuity owner benefits from the increase.
The company that issues the equity-indexed annuity will impose a limit on the maximum returns to be received from a bull market, however. This is the trade-off for the protections they offer during market downturns. The limit is based on the indexing method used by the annuity company. The most common method is the participation rate, which is typically set at 90 percent. This means that the annuity is credited with 90 percent of the growth in the index.
Some equity-indexed annuities use the annual-reset method to credit interest. This lets investors lock in permanent gains in a rising market, while the annuity “resets” during a volatile market period and locks the rate in to a lower level. The lower this reset level is, the greater the chance for future gains.
Eh – Financial Planning: Annuities : What Is An Equity Index Annuity?
An equity annuity index allows someone to participate in the stock market. Participate in the stock market by using an equity index annuity with tips from a registered financial consultant in this …
Investing: Equity Indexed Annuities
Maybe you’ve recently maxed-out your 401(k) and your IRA, and you’re still looking for ways to save for retirement and defer taxes. If so, a relatively new tool on the market may help you meet your financial goals. It’s called an Equity Indexed Annuity (EIA) and it’s gaining in popularity.
Equity indexed annuities take advantage of the security of annuities and potential market gains. They’ve gained media attention as an insurance product that can profit from gains in market indexes. According to USA Today, currently 41 companies offer a total of 131 equity indexed annuities. The combination of the security of an annuity and the potential growth of the stock market has led to an increase in the amount of annuities purchased and also the amount of scrutiny given EIAs by the media and regulatory groups
Like a regular fixed annuity, you put money into an annuity in return for interest and a steady stream of income after you’ve retired. Income guarantees are based on the claims-paying ability of the insurance company. The difference is that with an equity-indexed annuity you have the potential to earn more future savings depending on the performance of the index to which it’s tied. Many EIAs are based on the Standard & Poor’s 500 index.
One possible downside is that the insurance company with whom you contracted for the annuity can set limits on the amount of market gain you actually receive. While you still have an opportunity for adequate growth, it may not always be at the same level as the index.
Insurance companies can limit your potential gains in several ways. For example, they can put a cap on your growth. If they assign a 10% cap, and the market increases 20%, you get only 10% of the gain. They can also give you only a percentage share of the index performance. For example, if they set the rate at 70% of index performance, and a particular index rose 10%, you would earn 7%. Finally, they can implement margins or spreads. If your margin was set at 4% and the market rose 10%, your annuity would rise only 6%.
How and when interest is credited to your EIA is an essential component as well. Some EIAs calculate interest by comparing your account value at the beginning of the year to its value at yearend. Assuming a gain, the difference is added to your account using the guidelines above. Others take the value of your EIA then add the value gained after the entire term of the EIA which could be many years.
One of the biggest advantages of EIAs lies in taxes. Future income and earnings in an annuity generally offer tax-deferred growth. This is especially helpful if you expect to be in a lower tax-bracket during retirement.
Keep in mind that EIAs are primarily a retirement savings vehicle and usually have a penalty for early withdrawal. There is an additional 10% tax penalty if you withdraw before age 59 1/2. However, many annuities have a provision that allows you to withdraw 10% of your funds without paying a penalty. Withdrawals will reduce the amount paid to beneficiaries at the time of death.
As with most investments, there is always risk, and you should consult carefully with a financial professional before you choose to invest.. As an alternative to traditional retirement savings, EIA’s may be a viable option to help you plan for retirement.
Equity Indexed Universal Life Insurance: the Best of Both Worlds?
Although equity indexed annuities have been around for a number of years, equity indexed universal life (EIUL) insurance is a relative newcomer to the life insurance marketplace. EIUL is a spin on universal life (UL) insurance, a popular policy type because you can increase or decrease your death benefit as your needs change and your premiums can be adjusted accordingly. UL policies also build a cash value against which you could borrow or even use to pay your premiums.
The equity indexed concept is relatively simple: the amount of interest credited to your policy’s cash value is tied to the performance of a particular index (the S&P 500 is one of the most popular), so that in years where the index performs well your interest crediting rate will rise, and in years where the index performs poorly, your interest crediting rate will fall.
Most policies guarantee that your interest crediting rate will never fall below zero so that you won’t lose money (you just won’t make it). They also have a cap as to how high a crediting rate they will pass on to you. This range of possible rates is often described as offering “upside potential with downside protection.”
How It Works
Typically, the big choice facing life insurance buyers is whether to go with a “safe” universal life policy that offers a minimum guaranteed rate but limited potential for cash accumulation or to go with a more “risky” variable life policy that offers greater potential for earnings but no protection against losses in the market.
EIUL insurance is an attempt to fill the gap between these two approaches. EIUL is universal life insurance in which the cash value is linked to a certain index. If the index is higher at the end of the year, your cash value may go up. If the index stays flat or goes down, your cash value earns the minimum guaranteed interest rate (say, 2 percent). You should note, however, that when your index goes up it doesn’t mean that your cash value increase will reflect the full index increase, due to fees, and dividends and capital gains aren’t included in the cash value’s calculation.
But are these new products the best of both worlds? Let’s take a look at both sides of the coin.
The Pros and Cons
One advantage of EIUL is the potential for higher interest crediting rates than a traditional universal policy. Another advantage is that it offers greater protection from market downturns than a variable life insurance policy.
Stephan Mitchell, product & competition analyst for Pacific Life Insurance Co., based in Newport Beach, Calif., points out that while these products are not a cure-all, they can offer “an attractive middle ground for buyers who saw the market downturn of 2001-2002 and are looking for some guarantees.” These products can offer some peace of mind to buyers looking for a mix of guarantees and some potential for cash accumulation.
However, there can be disadvantages to having an equity indexed product. The chief disadvantage of an equity indexed product is that it comes equipped with slightly higher risk than a traditional universal policy. Also, the cap rate the maximum rate you may earn limits the upside potential compared to a variable policy and may be changed periodically by the insurance company.
Steven Weisbart, economist for the Insurance Information Institute, also cautions that “the crediting rate system in these products is probably not familiar to would-be buyers and agents.” Since there are so many “moving parts” to one of these products, it is sometimes difficult to figure out what the product actually does at first.
EIUL insurance policies do fill a void between the traditional bookends of the modern insurance marketplace, but it would be an overstatement to term them the best of both worlds. EIUL has neither the appealing guaranteed rates of universal life nor the true market participation of variable life insurance. However, EIUL does offer an attractive third option for buyers and may be ideal for folks whose needs have been overlooked by existing insurance choices.
Is It Right For Me?
Equity indexed universal life insurance may be right for you if you fit the following criteria: The potential cash accumulation of variable life insurance is enticing to you but seems too risky and the guarantees of universal life are comforting to you but the potential for cash value accumulation seems too low.
If these conditions describe you, then an equity indexed universal life insurance policy may be an avenue for you to explore. But before deciding on a particular product, be sure to research the insurance company behind it.
After all, the amount of interest you are credited is in the hands of the company and whatever guarantees the product offers are only as solid as the insurer itself. Just as with other types of insurance, always check into the insurer’s ratings (A.M. Best, Moody’s, Standard & Poor’s, etc.) to get a better picture of how strong the company is financially.
Visit Insure.com for a free universal life insurance quote.
National Agents Alliance Partners With American Equity
National Agents Alliance President and CEO Andy Albright talks to American Equity President Ron Grensteiner about why now is a great time to sell annuities.
Housing Equity Plans
When the going is good and home prices keep rising, the gap between the resale value and what you owe on the mortgage keeps widening. So, if your home is worth $250,000 but the mortgage debt is only $100,000, the equity is $150,000. That’s a big slice of unrealized capital value just sitting there. You may have the same result by different means. No matter what happens to the resale value of your home over the years, you may pay off the mortgage. That means the entire value of your home is an asset. That gives us two different scenarios. Younger owners may decide they want to cash in the rising capital value of their home with an equity loan or line of credit. This gives them immediate spending money. A “cash out” loan can be secured as a second mortgage or the line of credit can be charged on the equity. Alternatively, the motivation for the loan may be to finance some big ticket item like home improvements. All these options work well so long as the resale prices keep rising, but the plan creates problems if house prices fall because now you’re in negative housing equity territory, i.e. you owe more than your home is worth. Worse, there are few buyer out there willing to pay your asking price. The second scenario is slightly different. This sees the house as savings. A couple might maximize payment of the mortgage so that, when their children are ready to go to college, they can refinance to pay their tuition fees. This would be an alternative to an endowment insurance package. Or a couple might sit on their home as an asset until they are ready to retire. Then they cash out the equity and buy an annuity. This gives them income to supplement the pension and gives them a comfortable retirement. Whichever the scenario, both groups need to ensure that they get the best deals. Using a site this gives you maximum access to the lenders with available funds. Comparing the quotes gives you the best chance of find a deal that will suit your needs.
An Introduction to Equity Release Mortgages
The equity release mortgage (also known as a lifetime mortgage or a reverse mortgage) is becoming an increasingly popular method by which seniors can tap into the equity in their homes, providing them with cash in the form of a lump sum or supplementary income.
Who can get an Equity Release Mortgage?
There are a few simple criteria you must meet to be eligible.
- Be a UK Citizen
- Own your own home
- Be over a certain age (typically 55 to 62 depending on the individual scheme and the company offering it)
- Own a property worth at least £40,000 to £70,000 (again, the exact amount depends on the company offering the scheme)
- Some companies may allow you a small outstanding mortgage balance as long as you agree to pay it with funds from your equity release mortgage
How it Works
Most schemes allow you to borrow a cash amount that amounts to between 20% and 50% of the value of your property. The exact amount depends on your age (or your partner’s age-whichever is the lowest). In general, the younger you are, the lower the amount you can borrow.
You can receive the loan money as regular instalments, as one large lump sum, or in smaller lump sums at irregular intervals. Interest accrues on the amount you borrow, in the same way as with a conventional mortgage, meaning that interest will accrue more slowly if you choose to receive money via instalments rather than as one large lump sum.
The money you borrow via an equity release mortgage does not need to be repaid until the property is sold. At this point, the full balance of the loan is due, including interest.
There are four main types of equity release mortgage: home income plans, the interest-only mortgage, the lifetime mortgage, and the home reversion scheme.
Home Income Plan
The owner of the property takes out an equity release mortgage and uses the lump sum to purchase an annuity that provides income for life. Interest payments on the mortgage are deducted from the annuity. The mortgage does not have to be repaid until the home is sold.
Advantages
- You are guaranteed an income for life, and don’t have to worry about interest accruing, as this is paid from the annuity.
- The amount you owe on the mortgage remains constant-if the property increases in value over time, you or your heirs benefit
Disadvantages
- Inflation may reduce the value of the annuity over time.
Interest-Only Equity Release Mortgage
The equity release mortgage is used to provide a lump sum, and the borrower must make monthly interest repayments. The principal balance must be repaid in full when the property is sold.
Advantages
- The amount you owe on the mortgage remains constant, so any increase in property value benefits you or your heirs
- You have fixed monthly repayments (if you choose a fixed-rate mortgage)
Disadvantages
- You must be able to ensure that you can cover interest payments over the life of the loan
- Choosing a mortgage with a variable interest rate is risky
Lifetime Equity Release Mortgage
The equity release mortgage is used to provide either a lump sum or monthly instalments of cash (the borrower can also choose to receive a combination of both types of payment). When the property is sold, the balance of the loan, including principal and interest, is paid in full.
Advantages
- Provides a larger income than the home income plan or interest-only mortgage
Disadvantages
- It will be difficult to estimate the amount of equity left in the property until it is sold
Home Reversion Equity Release Mortgage
The owner of the property sells their home (or a portion of the equity) to a lender, and receives a lump sum or monthly income. The lender takes a share of the proceeds when the property is sold, taking a share that is proportional to the amount of equity they purchased. For example, if you sell 50% of the equity, the lender will take 50% of the proceeds from the sale of the property.
Advantages
- You will always know exactly how much equity you own
- You or your heirs benefit from an increase in property value
- No repayments-even interest-in your lifetime
Disadvantages
- The lender will not pay market value for the equity
Look for a SHIP-approved Equity Release Mortgage
Plans that are approved by the Safe House Income Plan guarantee that you will never end up owing more than the home is worth, even if the property market changes, and no matter how much interest you accrue. You cannot build up negative equity in the property, and will not pass debt to your estate in the event of your death.
What Are Equity Index Annuities?
What Are Equity Index Annuities?
There is a new class of annuity that provides a portion of market index performance with a no-loss provision. It is known as the equity index annuity. This new type of annuity is not a security, as you might suspect, but it is classified as a single-premium traditional annuity. It is an annuity because it meets the strict insurance department requirements for interest guarantees and guarantees against loss of principal, and it provides traditional annuity benefits. Let’s look at what makes this such an attractive savings option.
No-Loss Provision
The first and possibly most-attractive provision of equity index annuities is the no-loss provision. This means that once a premium payment has been made or interest has been credited to the account, the account value will never decrease below that amount. This provides safety against the volatility of the market index to which the annuity is linked.
Interest Guarantees
The next benefit that appeals to many people is interest guarantees. Most policies have a cap (the maximum interest rate that can be credited to a policy in a policy year) and a floor (the minimum interest rate that can be credited in a policy year). The cap rate can vary from no cap to a fixed percentage, but the floor is generally zero. This allows the policyholder to benefit from potentially high returns and be guaranteed at the same time that no money will be lost.
Competitive Rates of Return
With concerns over inflation and making sure that investments will meet our future needs, many people have turned to the equity market for higher returns. It makes sense when you consider how well the S&P 500 index has performed historically.
Traditional Annuity Benefits
Equity index annuities offer the same benefits as traditional annuities. Notable among these are tax-deferred growth and early withdrawal of funds without penalty. This early withdrawal is usually conditioned upon the annuitant’s death or admittance to a nursing home.
Note that most annuities have surrender charges which are assessed in the early years of the contract if the owner surrenders it before the company has had the opportunity to recover its costs. The earnings portion of withdrawals are taxable as ordinary income and, if made prior to age 59 ½ are subject to a 10 percent federal tax penalty.
Equity index annuities typically offer other benefits that are not generally included in traditional policies: a 100 percent money-back guarantee, no front-end sales charges, and no annual management fees. Equity index annuity values fluctuate with changes in market conditions.
Of course, EIAs are not appropriate for every investor. Participation rates are set and limited by the insurance company. So an 80 percent participation rate means that only 80 percent of the gain experienced by the index for that year would be credited to the contract holder. Also, like most annuity contracts, EIAs have certain rules, restrictions, and expenses. Some insurance companies reserve the right to change participation rates, cap rates, the spread/asset/margin fees or other fees either annually or at the start of each contract term. These types of changes could affect the investment return. It is prudent to review how the contract handles these issues before deciding whether to invest.
Guarantees are provided by the issuing insurance company. The performance of any index is not indicative of the performance of any particular investment. Individuals cannot invest directly in any index. Past performance is no guarantee of future results.
Richard Evans