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Compass Insurance Offers A Tax-Deferred, CD Style Annuity

Compass Insurance Agency provides you with a variety of insurance providers to help you build a policy that gives you and your family the reassurance in your financial security when it matters the most. Our agents offer a high level of service to aid you in all your life insurance and annuity questions. At Compass, we offer a 3% fixed rate for a 5 year, tax deferred CD style annuity.

What Is A Fixed Annuity?

A fixed (CD style) annuity is an interest-paying contract issued by an insurance company in which a lump sum payment or series of payments are made. In return, you obtain regular disbursements beginning immediately or at a given point in the future (deferred). The main purpose of an annuity is to provide a steady stream of income during retirement.

  • Deferred Annuities are meant to accumulate assets on a tax-deferred basis. This is purchased through a single payment or multiple premium payments and have an accumulation period that is a short-to-long term. The advantages include:
    • Security. There is a minimum guaranteed value requirement so that one will never lose any of the principal money reserves if the annuity is held for the full term.
    • Bypass Probate. This allows your designated beneficiary immediate possession of the death benefit of the annuity.
    • Income. With no other financial vehicle, the annuity can have the ability to annuitize (converts an annuity investment into a series of periodic income payments) the contract for a guaranteed income stream for either your lifetime, a certain period of time or a combination of both.
    • Tax Deferral. With interest credited to one’s contract not being taxed at the Federal or State level until a receipt of the money is taken, it allows for you to earn interest on a premium and on the money that would have been used to pay taxes.
  • Immediate Annuities are meant to convert a lump sum into guaranteed income. This is purchased through a single premium payment and has a payment period that begins within one year of purchase. The advantages include:
    • Paying you a guaranteed stream of income.
    • You are allowed to choose the duration that meets your individual needs and protects your beneficiaries.
    • Has various uses:
      • Retirement income.
      • Life insurance funding.
      • Elderly parent support or child’s education needs.
      • Charitable giving.
      • Child support or alimony.
      • Income replacement from deceased spouses.
      • Fixed-period debt obligations.

What Is An Index Annuity?

Index annuity yields returns on a client’s contributions based on a specified equity-based index. Index annuities never expose one’s principal to market risk which allows you to only benefit from tax-deferred earning, withdrawal privileges, built-in guarantees and a premium bonus without directly investing in the stock market. These annuities offer a 10% first-year bonus and grow with a portion of the market growth with no loss guarantee if the market declines. There are various credit accounts that one can choose from to allocate their premium payment. This includes:

  • Fixed Rate Account is a one-year fixed interest rate set then the contract is issued. The rate is set annually, which provides for a guaranteed rate that can be used for a portion of your assets. Any subsequent premiums that are received during the first contract year, interests are credited based on the fixed rate declared at the beginning of the contract year.
  • Index-Based Accounts can be one of the following:
    • One-Year Point-to-Point Cap Index is when an index value at the end of the contract year is greater than the value at the beginning. You will receive index credits based on the increase, subject to a specified cap. Caps are reset annually.
    • One-Year Average Cap Index is when the average of the daily index values for the contract year is greater than the value at the beginning of the contract year then you will receive index credits based on the increases multiplied by the participation rate. The participation rate is reset annually.
    • One-Year Monthly Cap Index is when the index crediting is based on the cumulative sum of capped monthly changes over a one-year period.
      • Each of the monthly gains is subject to a cap, but there is no floor on monthly declines.
      • Index credits are calculated on an annual basis and will never be less than zero.
      • The monthly cap is rest annually.
    • Two-Year Average Cap Index is when the average of the monthly index value over two contract years is greater than the value at the beginning of the index period, you will receive index credits based on that increase up to a specified cap. The cap is rest every two years.

Index Annuities allow for a free withdrawal up to 10% of the accumulation value each year, with a lump sum or annuitization options. Lump sum options are when your contract’s cash surrender value is available to you at any time in the form of a lump sum. Whereas, annuitization options entail payment for life, payment of a designated amount, or payment for a certain period of time. You also determining the schedule that best fits your financial circumstance.

When Can I Start Making Withdrawals?

A person’s income withdrawal may begin any time after the second contract year and age fifty in which you are eligible to withdraw over the duration of your lifetime. These income withdrawals can be taken monthly, quarterly, semi-annually, or annually through either an income withdrawal percentage or benefit based.

  • Income Withdrawal Percentage is based on your age that the time you first receive income and will never change once you start the withdrawals.
  • Benefits Base is calculated as premiums, plus any applicable bonuses; however it is not available upon surrender, death or annuitization. These will be increased by any additional premiums, including any applicable bonus. However, this only occurs prior to withdrawing.

Although income withdrawals can be done at any time after the age of fifty, the longer you wait to withdraw can provide you with a significantly increased income over the remaining years. These are also a possibility to withdraw more than your specified withdrawal income amount at any time; however the amount will reduce any future withdrawals permanently.

What Is An Annuity Rider?

Annuity income riders are an attached benefit to a deferred annuity policy that solves for longevity risks by providing a lifetime income stream. These typically have an annual fee which is deducted proportionately from each crediting account. To qualify for the rider, the owner and annuitant must be the same person and joint owners must be spouses.

Riders can be terminated. This can happen only after the second contract year at the owner’s request. Once the rider is terminated it cannot be restarted. There are special circumstances in which a rider can be automatically terminated. This includes:

  • Upon the death of the first contract owner, unless spousal continuation is elected. Spousal continuation is when upon the owner’s death the spouse is the sole primary beneficiary and can start income withdrawals as early as the contract’s third year or if they attain the age of 50. If the spouse is at least 50-years-old and withdrawals already occurred, they will continue as based upon the same dollar amount until the surviving spouse’s death (for joint owners) or will be recalculated based on the current Benefits Base and the surviving spouses age (single owners).
  • Upon full surrender.
  • Upon Annuitization.
  • Upon contract ownership change (other than a spousal continuation or addition of a spousal joint owner).
  • Upon excessive withdrawals that reduce the accumulation value to zero.
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