What is Arbitration in Annual Insurance?
In the world of annuity insurance, the annual insurance and life insurance policy can be utilized to achieve maximum benefit. This is commonly referred to as “arbitration in annual insurance.” Many investors have heard of the term arbitration in the securities world to explain the simultaneous buying and selling of shares or other investments. This is done to try to exploit different market prices for the same asset. Arbitration can also mean leveraging, and there are ways to benefit from insurance and annuity products to maximize contractual benefits and guarantees for each policy.
How Does Arbitration in Annual Insurance Work?
Arbitration in annual insurance involves purchasing an immediate annuity policy and a life insurance policy at the same time. The structured insurance can be either single or joint with the spouse. It is important to organize both the insurance and the life insurance policy to achieve maximum benefits, so it is crucial to fully understand each.
What is a Single Premium Annuity?
The oldest type of annuity provides the highest contractual profitability of any type of annuity. A single premium annuity is a net transfer of retirement plan risks that can be structured to ensure guaranteed income for life, income for a specified period, or a combination of both.
By setting up the annuity with the spouse (the joint beneficiary), the guaranteed income covers both lives. The highest contractual profitability will be structured as “joint life only.” If you wish to ensure that 100% of the initial capital will go to a family member upon the death of both the husband and wife, the highest contractual structure would be “life with installment refund” or “life with cash refund.”
There are no fees for a single premium annuity, and a guaranteed cost of living adjustment (COLA) can be contractually assured at the time of application. Annuity income can begin 30 days after the date of the policy issuance, but you can also defer it for up to one year.
Benefits of the Strategy of Arbitration in Annual Insurance
This strategy works really well because all benefits are contractually guaranteed. Although “arbitration in annual insurance” is usually fully allocated, here’s a common setup and its corresponding benefits:
– The single premium annuity is purchased in a joint life structure so that guaranteed income flow for life is assured for both parties.
– A life insurance policy (preferably term) is purchased for one of the spouses. The benefit amount can be determined at the time of application, along with the required monthly or annual premium.
– The required premium amount for the annuity is calculated so that the income flow from the annuity covers the life insurance premium throughout the insured spouse’s lifetime.
– Upon the death of the insured spouse, the death benefit from the life insurance policy is passed tax-free to the named beneficiary.
– The guaranteed lifetime income from the annuity continues uninterrupted for the surviving spouse, who also receives the tax-free death benefit from the life insurance policy if they are the named beneficiary on the policy.
There are many other insurance strategies that use leverage to achieve maximum contractual benefits. However, the strategy of arbitration in annual insurance described is the most common and widespread.
The Balance does not provide tax, investment, or financial services and does not offer advice. Information is provided without regard to the investment objectives or risk tolerance or financial circumstances of any specific investor and may not be suitable for all investors. Past performance is not indicative of future results. Investing involves risks, including the risk of loss of capital.
Source:
Leave a Reply