Annuities 101
What are the advantages of an EIA?
By: Gary Minkin

  All annuities offer multiple tax breaks, but an EIA can also solve the dilemma of safety vs. the quest for a better return.  It is a blend of many important features of other annuities.  Experts tend to agree that the stock market has risks, but also has enormous long-term potential.  So, beyond the scope of fixed annuities, an EIA offers potential for better returns by tying performance to a major stock market index, such as the S & P 500.  But unlike variable annuities, an EIA can deliver safety with no risk, as in fixed annuities.  I canít over-emphasize how important it is to eliminate all market risk to the buyer for at least a portion of his or her assets.


How does an EIA work?  First, EIAs are issued only by insurance companies.  Generally, itís ďHeads Ė you win; Tails Ė you break even,Ē with some unique features.  Suppose we move to LAS Vegas for a year.  In the process, you have your bank cash a check for $100,000.  thatís a lot of money, and knowing a bit about the casinos, you might be a little nervous about losing your hard-earned cash.  So I decide to make you a very interesting offer.  You can play the tables all year on your $100,000.  I will guarantee in writing that no matter how bad you do, you cannot lose!  If you stay with it, the worst you can do is break even, and come home with your original $100,000. 


So, whatís the catch?  You canít lose a penny, but the catch is, you only get to keep part of your winnings.  When itís Heads, you win.  But if itís tails, you will only break even.  The best EIAs run seven to ten years, and early surrender charges apply.  There is also a lot more information to absorb before you reach for your checkbook.  But this brief scenario might be a good start.


I might be interested, but how do I select an insurance company?  Strong financial ratings from perhaps two of the major rating services are recommended.  Insist on a company certified by IMSA, the Insurance Marketplace Standards Association.  This organization reviews sales and marketing material and brochures, illustrations of costs and benefit, and systems and procedures for dealing with problems and complaints.  Few companies have earned this seal, which is a testament of high ethical standards and full disclosure in all dealings with the public. 


How do I select an agent to help me purchase an EIA?  First, you might find more flexibility and more competitive products by avoiding S & Ls and banks.  Always avoid a ďone company fits allĒ sales person who has narrowed his or her field (and your choices) to a single insurance company.  Seek out an experienced full-time professional agent who has one or more of the industryís advanced credentials.  These include Million Dollar Round Table (MDRT), Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC), Certified Financial Planner (CFP), Life Underwriters Training Council Fellow (LUTCF) or Certified Personal Financial Advisor (CPFA).  Also insist on membership in the National Association of Insurance and Financial Advisors (NAIFA).  Each of these are impressive kudos, requiring years of study plus a series of comprehensive courses followed by rigorous testing.  Each also has a strict code of ethics and a system for dealing with unprofessional conduct. 


Good luck and good hunting.


The purpose of this short summary is to stimulate discussion of business, savings, or estate planning issues, not to give tax advice.  Clients should contact their tax or legal advisors regarding their individual situations.  I will answer annuity related questions by mail only.  Send your question and a SASE to the above address.



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Last modified: November 08, 2002