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Annuities

What is an annuity?

An annuity is a tax deferred retirement savings vehicle issued by an insurance company. An annuity offers unique benefits: the advantages of tax-deferral and the optional security of a guaranteed lifetime income stream at withdrawal.

What are some of the benefits of an Annuity?

Tax-deferral potential.

With an annuity, the return on your principal is tax-deferred, with taxes only payable at the time of withdrawal. Simply put, this means taxes will not be due while you accumulate your retirement dollars. Taxes are only due when you decide to access your funds. The result over the long-term is additional dollars available to earn interest and/or investment returns. With Qualified Annuities the principal is pre-tax, and is not taxed until it is withdrawn. If purchasing an annuity with before-tax dollars (either through a Qualified Plan or with rollover amounts), you should understand that while the annuity contract does not provide additional tax-deferral benefits, it does offer features such as a death benefit, income options, and other non-tax-related benefits

The security of guaranteed* income.

When you are ready to withdraw your annuity funds, you may choose to receive a payout in a form unique to annuities: a guaranteed income stream. Depending on the payout option you choose, you may receive either fixed or variable amounts for a range of time periods and guarantee levels. Once your payout income begins, you will pay taxes only as distributions are paid to you a portion at a time. The money earmarked for future taxes remains in your account earning interest.

*The guarantee is backed by the financial strength of the issuing company.

What are some other considerations of an Annuity?

There are certain charges and expenses associated with an annuity. These vary depending on the annuity and may include the following types of charges: mortality and expense risk charge, administration charge, contract charge, funding option expenses and a withdrawal charge. All charges are fully discussed in the prospectus for each variable annuity.

What are some Annuity Options?

With an annuity you may elect to accumulate annuity dollars in one of two ways. If you prefer a fixed rate of return, you may opt for a fixed rate annuity. Or, if you are interested in the growth potential of investing in the stock and bond market, you may select a variable annuity. In terms of access to these funds, you may elect an immediate or deferred payout. Generally, once you begin receiving annuity payments, you cannot change the method or frequency of the payments.

Time-frames:

• Deferred Annuity. A deferred annuity has two distinct phases: accumulation and payout. During the accumulation phase, you make contributions to the annuity with either one lump sum or periodic payments. The contract will shift into the payout, or withdrawal, phase when you elect to have your annuity dollars distributed to you in the form of an income. Generally, the issuing insurance company guarantees this income for life and/or certain time periods.
  
• Immediate Annuity. With an immediate annuity you bypass the accumulation phase by depositing a single premium payment. This lump-sum premium payment will immediately begin to generate an income stream. This is usually known as a "Single Premium Immediate Annuity," or SPIA for short.
  
  Note: Taxes are due upon withdrawal and penalties may apply if money is withdrawn prior to age 59 1/2.
  
  Deferred Annuity Program Types:
  
• Nonqualified Annuity. For tax purposes, annuities are classified as qualified or nonqualified. Anyone may purchase a nonqualified annuity. Only monies that have already been taxed can be contributed to a nonqualified annuity. Any interest and/or gains grow tax deferred until withdrawn at some time in the future.
  
• Qualified Annuity. A qualified annuity must meet a number of requirements under the Internal Revenue Code. It is generally offered through an employer-sponsored plan. Employee contributions are made with pre-tax dollars, thus lowering the employee's current taxable income. These contributions then accumulate within the annuity on a tax-deferred basis. An Individual Retirement Annuity (IRA) is an example of a qualified annuity offered directly to individuals.
  
  Deferred Annuity Product Types:
  
• Fixed Annuity. With fixed annuities, earnings accumulate based on a fixed rate of return. Your principal, or premium payment, and the rate of return are guaranteed by the issuing insurance company.
  
• Variable Annuity. A variable annuity accumulates earnings based on the performance of the underlying investments of the annuity contract. Unlike fixed annuities, principal and rate of return are not guaranteed. Your account value will fluctuate as the stock and bond markets move up or down.*

Investments in a variable annuity may yield positive or negative results and investors may lose their original investment.

Immediate Annuity Product Type:

Single Premium Immediate Annuity (SPIA). To start an SPIA, you deposit one premium payment from your retirement plan or other appropriate sources of funds. By establishing an SPIA you can be paid a guaranteed income for as long as you live. Your income payments will be based on principal as well as interest, rather than interest only. With an SPIA, you have numerous payout options to choose from. Here are a few examples of your annuitization options*.

• Life Annuity with No Refund. With this option, you will receive distributions for as long as you live. Upon your death, payments cease; there is no beneficiary. As a result, the income from this option is generally higher than the income from a life annuity which offers a refund.
• Life Annuity with Cash Refund. In addition to receiving distributions for as long as you live, you are guaranteed at least the purchase value of the annuity. Should you die before receiving all of the money you paid into the contract, your beneficiary will receive the balance in a lump sum.
• Life Annuity with Installment refund. This option is similar to a Life Annuity with Cash Refund except that your beneficiary will receive the balance in installments rather than in a lump sum.

*These options are available by annuitizing a deferred annuity as well as by purchasing an immediate annuity.

Call 800-350-8005, extension 8153 and ask for your free booklet "Exploring Annuities".

Disability Income

Disability can threaten everything you have worked for. Illness or accidents can happen to anyone. If it happened to you, you could lose your greatest assets, the ability to work and earn an income.

Too often people assume they can relay on Social Security or disability insurance benefits from their employer to replace income. Income from these sources is often unavailable or just not enough. Any money saved could quickly disappear.

Living Expenses ?

If you could not work, how would you pay your expenses. Even if your income stops, the bills keep coming in. Housing, utilities, food, clothing, education, and auto expenses are just a sample of the continuing financial obligations.

College Funding?

Is college in your children's future? It may not be if your income stops unexpectedly.

Retirement Funding?

A sudden illness could keep you from adding to your nest egg. In fact, you may need to break into it to meet everyday living expenses.

What happens to your dreams?

College, retirement, a vacation home are things you have worked for, don't take a chance, protect your income today.

Whether you need full coverage or need to supplement existing coverage, a disability income policy can meet your specific needs.

How do you assess your needs?

How much disability insurance you need depends upon your current income requirements. Disability policies often limit coverage to a percentage of earnings or to a maximum dollar amount. Would this limited amount be enough for you and your family to live on? Would you have alternative means of support?

Disability benefits are sometimes subject to income tax. You need to determine if your benefits are subject to tax and, if so, how much would be left after taxes are paid.

If the insurance was purchased on your behalf by your employer, the benefits will generally be taxable when you receive them. If you pay for the coverage, benefits are generally tax free.

To start your analysis, estimate your "short-term and "long-term" income requirements.

Short-Term - Short-term needs are often addressed in two ways. An employer sick pay plan pays employees for sick days which are usually earned annually. Additionally, an employer may have an accident or sickness plan that pays partial or full salary, after some waiting period, for a defined period of time (for example, up to two years).

Long-Term Disability - a disability that exceeds a specified period of time. The actual number of days or months considered "long-term" will vary by insurer. Compare these needs with the benefits you are entitled to, if any, from federal programs (such as Social Security), state programs (such as worker's compensation), and any group coverage (such as that provided by your employer).

If these benefits do not fully meet your needs, investments or other assets close the gap? If not, you may need to consider an individual disability policy. If you do decide to purchase an individual disability policy, you should look closely at the:

Perils Covered. A policy may provide benefits resulting either from accidental bodily injury alone (accident only coverage) or from accidental bodily injury or sickness (accident and sickness coverage).

What does this mean to you?

The broader coverage is usually well worth any increased cost in premium.

Maximum Benefit Period. You may choose a benefit period ranging from as short as six months to as long as your lifetime (sickness coverage is often limited to age 65). You should select a benefit period based upon your needs.

What does this mean to you?

If you need permanent protection, you should consider buying coverage with longer benefit periods (for example, to age 65) for both accidents and sickness.

Definition of Disability. Understanding the definition of disability in a particular policy is critical. The definition could refer to an inability to perform the duties of any occupation, or of your occupation, or of your specific job. In addition, the definition may require either partial or total disability.

What does this mean to you?

Look at the definition of disability. Does disability mean inability to do your regular job for a certain period of time? Or inability to perform any job or one that you are "reasonably" suited by education, training or experience? Or is it a combination of both definitions?

The best policies define disability as the inability to do your regular job for a certain period of time. Under these policies, you know you're covered when a disability puts you out of your job. This type of policy costs more; but the increased peace of mind you gain is generally well worth the increased premium.

Waiting Period. The waiting period is the number of days after a covered disability occurs before benefits begin. The period can range from no days for accidents and seven days for sickness to as much as one or two years for accidents and sickness. When selecting a disability policy, you should coordinate the waiting period with any other coverage you have.

What does this mean to you?

A small increase in the waiting period can produce a considerable savings in premium. If you have other resources available to cover short-term needs, you can allocate more premium dollars to build a more adequate long-term protection program.

What products are available?

A disability policy is either short term (up to two years) or long-term (up to age 65 or for life). Many policies are classified by whether they can be renewed.

These are some more key concepts of information:

• Non-Cancelable. Cannot be canceled (except for nonpayment). Usually, this kind of insurance can be renewed at your option without a rate increase.
  
• Guaranteed Renewable. Can be renewed at your option, but the premiums may increase.
  
• Guaranteed Insurability. Means that additional coverage may be purchased even if your health deteriorates.

Did you know?

The cost of disability insurance is higher for women because historically women have lived longer and have filed more disability claims.

Tips: It is generally advisable to purchase a policy that cannot be canceled. This feature gives you the assurance that the risk of disability will be covered throughout the term of the policy.

You also want to level premiums throughout the life of the policy. That way, you can budget and plan for the cost of covering this risk.

Premium and policy considerations

Premium rates depend on your age, health and occupation, all of which are significant factors in determining your disability risk. Older people are at a higher risk of disability, as are people involved in hazardous work. Your premium will also depend on the amount of income you are trying to replace. The higher the dollar amount of your coverage, the higher your premium.

Did you know?

If you earn $40,000 after taxes and can work for 20 more years, your job is an $800,000 income stream!

Here are some sample premiums for individual disability income insurance policies:

Annual Premium With

• Waiting Period
• Age Monthly Benefit 60 Days 90 Days
• 45 $2,000 $1,100 $ 850
• 50 $2,000 $1,400 $1,050
• 55 $2,000 $1,700 $1,300

There are many other provisions you should consider in purchasing or analyzing disability insurance, including:

Coordination of Benefits (COB). Means that the amount of the payments you might be entitled to receive from the insurance company will depend, in part, on one or more other benefits you may receive as a result of your disability. Typically, a certain target benefit is established and the policy makes up some or all of the shortfall.

Return of Premium. Is a provision that requires that part of your premium be refunded if no claims are made for a stated time as defined in the policy.

Additional Purchase Options. Gives the younger insured who cannot afford premiums for larger policies the option of purchasing additional insurance at a later time.

Cost of Living Adjustment. Provides an increase in coverage equal to the increase in the cost of living as measured by the consumer price index. This may increase your premium by 20%-25%, but the increase in benefits makes this provision worth considering.

Residual Benefit Riders. Pay some benefits if you return to work part-time while still disabled. These riders are also called partial, proportional, gradual recovery or presumptive disability.

Other Considerations

A Business Overhead Expense policy can be tailored to fit your needs. There are many options available. For more information contact us at 1-800-350-8005, extension 8186.

Disability Buy-Out

Many businesses plan for the death of a business owner but fail to plan for the financial exposure that occurs in the event of disability. When the owner of a small business becomes disabled, the results can be devastating. Would your business survive if you or one of your partners became disabled and were unable to work?

A disability buy-out agreement helps you prepare for this contingency before it becomes a reality. The disability buy-out agreement is either between the business owners themselves or between the owners and the business organization. The agreement establishes a predetermined price and a buyer for the business interest. Disability buy-out insurance is commonly used to provide the funds needed to fund the buy-out.

Benefits of a Disability Buy-Out Agreement

• Assures a definite price and buyer under mutually agreeable conditions.
• Creates an automatic market for the business interest.
• Assures customers, creditors, and employees of business continuity.
• Business control retained by active owners.
• Assures funds are available to execute the purchase.
• Funding the Disability Buy-Out Agreement
• To fund a disability buy-out agreement, business owners may use one of four options:
• Current Cash Flow -- This option may require a huge increase in profits to avoid a significant drain on the business.
• Sinking Fund/Sell Assets -- Since most businesses cannot save enough money for a "sinking fund," selling assets is the more likely scenario. Unfortunately, this may leave the business vulnerable at a critical time.
• Borrow Funds -- Borrowing can be a very costly solution. Plus, because of the unsure nature of the business after an owner's disability, it may be difficult to qualify for a loan.
• Insurance -- Disability buy-out insurance is the most cost-effective solution. The buyout is funded immediately, at minimal cost to the business. Disability insurance provides essential funds for the business at a time when the business itself must recover from the loss of a key contributor.
• A Disability Buy-Out policy can be tailored to fit your needs. There are many options available. For more information contact us at 1-800-350-8005, extension 8186.

Key Person Insurance

Every business has key employees critical to the success and profitability of the business. What would happen to your business if one of your key employees died? Key employee insurance protects your business from the financial impact of losing a crucial employee.

Key employee insurance helps you and your business by providing funds when a valuable employee dies. The business pays all the premiums and is the beneficiary of the life insurance policy on the key employee's life. If the employee dies, the proceeds are paid to the business to use as it wishes. The benefit, which is tied to the value you've placed on your employee's impact to the bottom line, can be used to hire and train a replacement or to pay other business expenses.

Benefits of Key Employee Insurance

• The company receives needed funds which help meet financial obligations and train a replacement.
• While the employee is alive, the cash value of the policy is available for the business to use in a variety of ways.
• Creditors may be more apt to extend credit if the business has protected itself against the loss of a key employee.
• Death proceeds are received income tax-free.

Key Person Insurance coverage can be tailored to fit your needs. There are many options available. For more information contact us at 1-800-350-8005, extension 8186.

Other Plans

Today there are numerous options and plans for business owners. At BOLLINGER we can work with you. These are a just a few of the financial strategies we can help you with:

• Dual Benefit Plans
• Deferred Compensation Plans
• Split Dollar Plans
• Buy-Sell Planning
• Exit Strategies for Business Owners
• Salary Continuation Planning

You need to take control, to put the proper controls in place to assure that the distribution of your assets will provide for your family's financial security. Establish controls to eliminate or reduce the effects of estate taxation.

• All aspects of your estate can be controlled:
• Specific bequests
• Survivor's access to estate assets
• Degree of involvement of heirs in business activities
• Power of trustees and executors to manage your estate
• The amount and timing of estate taxes
• Estate taxes can diminish your estate

Estate taxation is a major concern. Depending on the size of your estate, the tax can equal 60% of your estate. Without proper planning estate taxes and costs could be greater than the assets transferred to your family. The marginal rate of 55% is applied to taxable estates between $3,000,000 to $9,999,999.

• There are basic techniques for controlling estate taxes:
• The unlimited marital deduction
• The unified credit
• Annual Gifts

There are also complex techniques for controlling estate taxes. Because taxes and costs can drain an estate of more than half its value, estate planning professionals have developed a number of sophisticated techniques to control estate taxes. Because such techniques are risky, complicated and applicable only to certain situations, an attorney should be consulted to evaluate and implement them.

Paying estate taxes

Estate assets and loans

Assets of the estate and heirs may be used to pay estate taxes. When there is insufficient liquidity, assets may have to be sold or exchanged to pay the tax.

Life insurance provides money to pay estate taxes exactly when the funds are needed. The cost of a life insurance policy is a small fraction of its ultimate value.

The key to the use of life insurance to provide funds to pay estate taxes is to prevent the proceeds themselves from being taxed. This is best done though the use of a life insurance trust.

Periodic check up

One you have established an estate plan, be sure to do periodic check ups. Your life style, income, responsibilities and expenses can change over time. There are worksheets available which you can use on a regular basis to make sure you are on the right track.

Changing jobs

If you've been contributing to an employer-sponsored retirement program and leave your employer, what should you do with the retirement savings you have accumulated there?

One option is to have your company directly transfer the funds to another qualified program. A direct transfer avoids tax consequences. For a transfer vehicle, many people choose an IRA which allows your retirement savings to remain tax-deferred.

IRA - Individual Retirement Accounts

An IRA is a program designed for tax-advantaged retirement planning (certain salary limits set by the government apply; contact your tax advisor). IRAs must be "funded" with a specific investment product of your choice, such as CDs, and mutual funds. IRAs offer a variety of uses:

• Saving for retirement if an employer doesn't sponsor a retirement program or sponsors a retirement program with only limited options.
• Directly rolling over your vested dollars from a company retirement program after leaving a job or retiring.

Also, there are two types of IRAs:

Traditional IRAs, which allow you to defer taxes until withdrawal.

Roth IRAs, which allow you to contribute after-tax dollars - any gains are tax-free.

• A Roth IRA can be established by individuals, under certain adjusted gross income limits, by means of an annual $4,000 contribution, $5,000 if you are 50 and older or by rolling over one's Traditional IRA into the Roth IRA, a process known as "conversion."  Income phase out limits may apply.  See your tax advisor for more information.
• Not all IRA owners are eligible to convert or contribute to a Roth IRA.
• Distributions from a Roth IRA can be completely tax-free (contributions and earnings) if certain requirements are met.

For more information please call Bollinger at 800-350-8005, extension 8153.

The aforementioned material is a product and service listing and is not intended to be an offer for the sale of securities. Securities products are offered by prospectus.

Securities offered through Registered Representatives of Tower Square Securities, Inc, a securities broker/dealer (Member NASD/SIPC).  Bollinger Insurance is a separate entity from Tower Square Securities, Inc.

Craig Johnston, Aaron Katzoff, Paul Schilling, Shawn Hotz, Susan Shamlian, Paul Smith, and Natalie Summerfield are registered representatives of Tower Square Securities.  They are collectively registered for the sale of securities products in CA, NJ, and NY and are licensed to sell life insurance products in all 50 states.   Craig Johnston's California Life and Variable license number is 0D25291

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