Homer’s first strategy using this combination of annuities and life insurance is called a “guaranteed income plan.” He uses the example of a woman who has $1 million in liquid assets, from which she receives $20,000 per year after paying $10,000 per year in taxes. …

What is annuity arbitrage?

Annuity arbitrage is a sophisticated financial planning technique that can be used to transfer wealth out of an estate tax-free and create income for life for a surviving spouse or other beneficiary. A single premium immediate annuity (SPIA) and term life insurance are the perfect products to use in annuity arbitrage.

Can you fund life insurance with an annuity?

Annuity funds are used to purchase life insurance. WHO CAN BENEFIT? You may have used annuities as a savings vehicle as part of your financial plan. The beneficiaries of the policy would then be paid a generally tax-free death benefit and avoid the taxes associated with inheriting annuity funds.

How is an annuity similar to life insurance?

Life insurance and annuities both allow individuals to invest on a tax-deferred basis. Life insurance pays an individual’s loved ones after they die. Annuities take payments upfront then dole out a lifelong income stream to policyholders until they die.

Can you leverage an annuity?

In the annuity world, it’s possible to leverage an annuity and a life insurance policy for maximum benefit. It is commonly referred to as “annuity arbitrage”. Many investors have heard the word arbitrage used in the securities world to explain the simultaneous buying and selling of stocks or other investments.

What is the best reason to purchase life insurance rather than annuities?

The annuity offers tax-deferred savings and retirement income. Simply put—life insurance protects your loved ones if you die prematurely while the annuity protects your income if you live longer than expected.

What does SPIA stand for in annuity category?

An SPIA is a contract with an insurance company where you give them a lump sum of money, and the insurance company pays you a set amount every month for the rest of your life.

Which is better term life insurance or SPIA?

Just like term life insurance is “pure” insurance, a SPIA is “pure” income. The terms are simple and standardized. Because of this, there are lots of insurance companies out there competing for your business. This competition keeps prices (and agent commissions) lower and provides you a better deal.

What makes a SPIA a good investment option?

An SPIA is a simple commodity. The terms are simple, standardized, and pure. Because of this, there are lots of insurance companies out there competing for your business. This competition keeps prices (and agent commissions) lower and provides you a better deal. There are plenty of bells and whistles that can be added on to an SPIA.

Are there any annuities similar to term life insurance?

If there were a product among annuities similar to term life insurance, it would be a single premium immediate annuity (SPIA). What is a SPIA? A SPIA is a contract with an insurance company where you give them a lump sum of money, and the insurance company pays you a set amount every month for the rest of your life.