K a n s a s C i t y L i f e I n s u r a n c e C o m pa n y
For Agent Use Only — Not For Use With Clients
Fixed annuities
Agent Sales Guide
Fixed Annuity Agent Guide Index What Is a Fixed Annuity?................................................... 2 Specifications Chart.......................................................... 3 Fixed Deferred Annuities.................................................. 4 Meeting Buyer Needs.................................................... 4 Putting Money into the Contract..................................... 4 Contract Values............................................................ 5 Interest Crediting.......................................................... 5 Guaranteed Interest. ..................................................... 5 Contract Value Bonus Feature......................................... 5 Distributions................................................................ 5 Free Partial Withdrawals................................................ 6 Systematic Partial Withdrawals....................................... 6 Market Value Adjustments. ............................................ 6 TSA Loan Provision....................................................... 6 Lifetime Income Rider................................................... 6 Nursing Home Waiver................................................... 6 Maturity Date............................................................... 7 Single Premium Immediate Annuity................................... 7 Split Annuity Concept....................................................... 8 Taxation of Annuities........................................................ 8 Defining the Owner, Annuitant and Beneficiary................................................................. 9 How to Get Your Business on the Books..........................10
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What Is a Fixed Annuity? A fixed annuity is a contract between an individual and a life insurance company in which the individual deposits an amount of money with the company. While on deposit, the insurance company promises to pay interest and ultimately provide payments of a fixed amount over a specified period or throughout the lifetime of one or more persons. Annuities are currently the only financial product that can guarantee income payments that cannot be outlived.
receiving an income until a future date. All Kansas City Life Insurance Company annuities allow for immediate withdrawals within specific limits. Fixed annuity contracts guarantee a minimum rate of interest, but the life insurance company can, and often does, credit a higher rate. Annuities also have attractive tax benefits that enhance the effect of interest earnings in the contract.
Most people purchase annuities for long-term needs, meaning they do not plan to make withdrawals or begin
Advantages of Tax Deferral Interest earned in an annuity is fully tax-deferred until it is withdrawn or received as income from the contract. This allows the contract value to grow faster when compared to a taxable investment, such as a CD.
Compare the accumulation of a single $100,000 deposit on a tax-deferred basis with the accumulation on an aftertax basis (assuming a 28 percent tax bracket). As you can see, the longer taxes are deferred, the greater the benefits!
Tax-Deferred Investment vs. Taxable Investment Interest Rate – 4.00% Deferred Tax After-Tax Accumulation Accumulation* Year Year Year Year
5 10 15 20
$115,599
$115,254
$134,577
$132,834
$157,668
$153,096
$185,761
$176,449
These figures are provided for informational purposes only. Actual rates may be higher or lower. Both columns are after-tax values. The deferred tax accumulation pays tax only at the time withdrawals are made. After-tax accumulation pays tax annually. * A 10% federal tax penalty may be imposed on withdrawals made prior to age 59½. In addition, surrender charges may be assessed to early withdrawals.
Advantages of Fixed Annuities
n Fixed annuities are a sound investment for your
clients who are less willing to risk market fluctuations.
n n
Fixed annuities are a safe and guaranteed way to provide retirement income.
n
Fixed annuities help clients by allowing them to name a beneficiary and avoid probate. Fixed annuities offer great flexibility and control in distribution of assets to loved ones.
Most annuity contracts offer lifetime payments, guaranteeing specified payments to your clients until death.
n For even greater control and added flexibility, fixed annuities allow owners to name a trust as the beneficiary. n
Fixed annuities offer safe, guaranteed, competitive interest rates for growth and/or income; and under current tax laws, owners pay NO income taxes on gains until money is withdrawn from the annuity.
n
The interest earnings within a nonqualified fixed deferred annuity are not counted toward income that subjects Social Security benefits to income taxation. If you shelter enough income in deferred annuities and bring the owner’s income below the current tax thresholds for a single or married tax- payer, he or she may pay no tax (federal or state) on their Social Security income.
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Fixed Annuity Specifications The following is not intended to be a complete description of Kansas City Life’s fixed annuity products. Please refer to other information in this Agent Guide or to the Product Guide on the Kansas City Life Illustration System for details. Complete Name Issue Ages Markets Minimum Deposit Requirements Maximum Deposit Deposit Modes Available Guaranteed Interest Rate
SecurityTrackSM
GrowthTrackSM
Annuitant: 0-80 Owner: 0-90
SelecTrack 7SM Annuitant: 0-80 Owner: 0-90
SelecTrack 10SM Annuitant: 0-80 Owner: 0-90
Qualified & Nonqualified $5,000 single $50 monthly/$600 annual
$10,000 $250,000 without prior approval Single
Single, Annual, SA, Qtrly, Monthly (PAC or CB) Between 1% and 3%. Between 1% and 3%. See Page 5 for information See Page 5 for information on the on the redeterminable redeterminable guaranteed interest rate. guaranteed interest rate.
Initial rate is guaranteed for 5, 7 or 10 years. After that, the guarantee is between 1% and 3%. See Page 5.
0.25% credited on each contract anniversary if contract value is $50,000 or more. Not guaranteed.
1.00% of contract value credited on first contract anniversary.
Death Benefit
Annuitant: Contract value Owner, if other than Annuitant: Cash surrender value
Annuitant & Owner: Contract value
Load-Free Withdrawals
N/A
Annuitant: Contract value Owner, if other than Annuitant: Cash surrender value before MVA
Up to 10% of the contract value at the beginning of contract year may be withdrawn once per contract year.
Systematic Withdrawals
Annual, SA, Qtrly or Monthly. Minimum $100. Replaces load-free withdrawal. Surrender charge assessed when cumulative withdrawal exceeds 10% of contract value at beginning of contract year.
Annual, SA, Qtrly or Monthly. Minimum $100. Replaces load-free withdrawal. Surrender charge and MVA assessed when cumulative withdrawal exceeds 10% of contract value at beginning of contract year.
403(b) and 501(c) market.
N/A
Loans Nursing Home Waiver
Owner confined to licensed nursing home for at least 90 days. Contract value transferred to immediate annuity with at least 3-year payout. $30 deducted from contract value at end of contract year. Waived if contract value is $10,000 or more or if $600 or more premium paid during contract year.
Annual Administrative Charge
Year Charge Year Charge
Market Value Adjustment (MVA)
Annuitant: 0-85 Owner: 0-90
Annuitant & Owner: 0-85
Accumulated Value Bonus
Surrender Charge (Based on Contract Year)
SelecTrack 5SM
1-2 3 4 5
8% 7% 6% 5%
6 7 8+
N/A
Year Charge Year Charge
4% 2% 0%
1 2 3 4 5 6
10% 9% 8% 7% 6% 5%
7 8 9 10 11+
4% 3% 2% 1% 0%
Year
Charge
1 2 3 4 5 6+
10% 9% 8% 7% 6% 0%
Year Charge Year Charge 1 2 3 4
10% 9% 8% 7%
5 6 7 8+
6% 5% 4% 0%
Year Charge Year Charge 1 2 3 4 5 6
Applies to surrenders in excess of the load-free amount and annuitization.
N/A
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10% 9% 8% 7% 6% 5%
7 8 9 10 11+
4% 3% 2% 1% 0%
Kansas City Life’s Fixed Annuities Kansas City Life’s fixed annuity portfolio includes a variety of products, all of which are designed to meet the financial needs of your clients*: n Fixed Deferred Annuities
Product Approval Information on www.ikclife.com The most current product approvals can be found on the Kansas City Life Illustration system website with just a few clicks of your mouse.
• SecurityTrackSM
1. Go to www.ikclife.com.
• GrowthTrackSM
2. Click on discover.
• SelecTrackSM 5, 7 and 10
3. Click on state product availability.
n Single Premium Immediate Annuity (SPIA)
*Crediting rates are updated monthly in the Info of Interest section on www.kclic.net. Click on Product Information in the Sales & Marketing Center.
Kansas City Life’s Fixed Deferred Annuities offer clients:
n Safety of principal.
n Tax-deferred accumulation.
n No up-front costs – all money deposited into a
fixed annuity contract earns interest immediately.
n Easy access to funds, if needed. A surrender
penalty may apply to withdrawals in excess of 10 percent of the contract value.
n Guaranteed death benefits.
n Control of income and taxes – your clients can
determine when to withdraw their money, exercising control over payments on taxable gains.
n Social Security income tax advantage.
n Income the clients cannot outlive.
SecurityTrack SecurityTrack in Oregon GrowthTrack GrowthTrack in Oregon SelecTrack SPIA
Meeting Buyer Needs Determining which Kansas City Life fixed deferred annuity best suits your clients’ needs depends on several factors: n How long does the client want the current interest
The following fixed annuity brochures are available for use with your clients. These brochures may be ordered through the Online Sales Materials Catalog on www.kclic.net, by e-mailing the Supply Department at supply@kclife.com, or by calling ext. 8247 in the Home Office.
Brochure
While each of Kansas City Life’s fixed deferred annuities has distinctive traits, these annuities share many common contract provisions. For a quick look at what each one offers, refer to the specifications chart in this manual on Page 3. For more detailed information, refer to the Annuity section of the Product Guide on the Kansas City Life Illustration System.
Client Sales Materials
If you have questions or need assistance, please contact the illustration system development team by e-mail at illustrationhelp@kclife.com or by phone at 800-572-2467, ext. 8162.
Fixed Deferred Annuities
n Competitive rates.
4. Click on the desired state you want and a list of all approved products and riders will be displayed.
Form Number 6468 6468A 6545 6545A 1469 6705
Brochures are also available in PDF format in the Sales Materials section of the Sales & Marketing Center on www.kclic.net.
n How soon does the client plan to use the money?
n How much is the initial deposit?
n Will this be a one-time, lump-sum premium?
Or will the client make ongoing deposits?
Putting Money into the Contract Kansas City Life’s fixed deferred annuities offer a wide range of flexibility in determining the amount and frequency of premium payments. The SelecTrack 5, 7 and 10 are single premium plans. The GrowthTrack and SecurityTrack are flexible premium plans that provide the following payment options.
n Single premium payment.
n Regular, periodic payments. n Lump-sum premium followed by periodic
n You can print them on your color printer.
n You can e-mail them to clients.
n You can post them on your Home Office-
rate guarantee?
approved website. 4
payments.
n Unscheduled payments.
Kansas City Life requires prior approval for annuity premium payment amounts in excess of $250,000. Please contact Matt Dolliver, Associate Actuary, at 800-572-2467, ext. 8532, for more information.
Contract Value
n The contract value is equal to the premiums
paid plus interest earned, minus partial withdrawals and annual administrative charges, if any.
n The cash surrender value is the amount available
to the contract owner in cash upon a full surrender of the contract. The cash surrender value is the contract value minus any applicable surrender charge and any loan and loan interest.
Kansas City Life does not deduct a sales charge for annuity premium payments. However, Kansas City Life will deduct a charge for early surrender, partial surrenders*, or election of a non-life annuity payment option. Surrender charges are administered to cover expenses incurred in the distribution of contracts. * All Kansas City Life deferred annuities allow one partial with- drawal, for up to 10 percent of the contract value, once each contract year without incurring a surrender charge.
Federal Reserve’s 5-year Constant Maturity Treasury monthly average rate for the November of the previous calendar year. The formula for the guaranteed rate equals the 5-year Constant Maturity rate reduced by 1.25 percent rounded to the nearest .05 percent. This calculation is subject to being at least 1.0 percent but not more than 3.0 percent. Clients are notified each year when the new guaranteed rate is determined.
Contract Value Bonus Features SecurityTrack may pay a bonus equal to 0.25 percent of the contract value (including interest earnings) on every contract anniversary on which the contract value is $50,000 or more. This bonus is not guaranteed and may be discontinued at the discretion of the Company. GrowthTrack pays a bonus equal to 1 percent of the contract value (including interest earnings) on the first contract anniversary. This bonus is guaranteed by an endorsement to the contract at the time of issue. Kansas City Life may choose to discontinue this contract endorsement for future policies at the Company’s discretion. There are no contract value bonuses available on the SelecTrack plans.
Interest Crediting
Distributions
Interest rates credited to fixed deferred annuities are determined by Kansas City Life, subject to the minimum guaranteed rates of each plan. Rates may vary by plan and the date the premium is received. Current rates for the SecurityTrack and GrowthTrack plans are guaranteed through the end of the calendar year. SelecTrack rates are guaranteed for the term chosen – 5, 7 or 10 years. For a complete description of credited rates and guarantee periods, please see Info of Interest in the Product Information section of the Sales & Marketing Center at www.kclic.net. Rates are updated monthly.
Guaranteed Interest The guaranteed interest rate for the SecurityTrack, GrowthTrack and SelecTrack is initially determined when the contract is issued. The initial guaranteed interest rate applies to the contract until the end of the surrender charge period (7 years for SecurityTrack, 10 years for GrowthTrack and 5, 7 or 10 years for SelecTrack). For the SelecTrack, the initial credited rate is guaranteed through the surrender charge period of 5, 7 or 10 years. The initial guaranteed interest rate is subject to change each month for new applications received.
One of the major advantages of nonqualified fixed deferred annuities is the choice of distribution options without entering the annuity payout phase. n Lump Sum – When the owner surrenders the contract and receives the cash surrender value. The cash surrender value received in excess of the premiums paid will be considered taxable interest in the year received.
n Withdrawal – The owner requests an amount
less than the cash surrender value on a one- time or periodic basis and the annuity stays in force. Withdrawals during the accumulation phase are treated as withdrawals of interest earnings first and are taxed as income in the year withdrawn. To the extent that a withdrawal exceeds earnings, that portion of the withdrawal is considered a tax- free return of principal.
Free Partial Withdrawals Beginning in the first contract year, all Kansas City Life deferred annuities offer the contract owner one partial surrender per contract year with no surrender charges. This partial withdrawal may be for up to 10 percent of the beginning-of-contract-year contract value. If the full 10 percent is not taken, the remaining amount does not carry forward to the next contract year. If the contract is set up for systematic partial withdrawals, this option is not available.
After the surrender charge period of the contract has elapsed, the guaranteed interest rate will be determined annually for each subsequent policy year based on the 5
Systematic Partial Withdrawals Beginning in the first contract year, the contract owner may elect to receive interest or systematic partial withdrawal payments. Each payment must be a minimum of $100 and can be received annually, semi-annually, quarterly or monthly. Changes to this election may be made only once per contract year on the contract anniversary. If the total payments for the contract year exceed 10 percent of the beginning-of-contract-year contract value, then any applicable surrender charge will apply to the excess payments. The contract owner is not entitled to any other free partial withdrawals during a contract year in which he or she has elected to receive interest or systematic partial withdrawal payments, even if those payments do not exceed 10 percent of the contract value.
Market Value Adjustment Withdrawals made from SelecTrack plans in excess of the free withdrawal amount will be subject to a Market Value Adjustment (MVA). This can be either a positive or negative adjustment, based on the movement of treasury rates from the time the contract was issued to the time of withdrawal or surrender. The MVA protects Kansas City Life when interest rates are high and provides a benefit to the contract owner when rates are low. By using the MVA, Kansas City Life can provide your customers with higher interest rates. Please refer to the Product Guide on the Kansas City Life Illustration System for full details on how the MVA is calculated. The MVA will be applied to full surrenders, partial withdrawals that exceed the free amount and annuitization. The MVA is not applied on death benefits, nursing home benefits or free partial surrenders. The MVA is not applicable to contracts issued in Delaware, Iowa, Indiana, Maryland, Minnesota, Missouri, Montana, New Jersey, North Carolina, Oregon, Pennsylvania, Utah and West Virginia.
TSA Loan Provision Loans are available on all SecurityTrack and GrowthTrack plans in the tax-sheltered annuity (TSA) market [403(b)/501(c)(3)]. Loans are available after the completion of the first contract year, and only one loan for every 12-month period is allowed.
n The minimum loan amount is $2,500.
n
The maximum loan amount is the lesser of 50 percent of the cash surrender value or the maximum allowed by the TEFRA guidelines as a non-taxable distribution.
Contact the Customer Services Department at 800-5722467, ext. 8060, for a loan quote.
Eight percent annual interest will be charged on the loan balance. The cash surrender value securing the loan will earn the guaranteed interest rate provided by the contract. All loans must be repaid within five years with regularly scheduled monthly payments. Failure to make the scheduled monthly payment will result in default on the loan and the entire original loan amount could become taxable. Loans may be paid off early without penalty.
Lifetime Income Rider The Lifetime Income Rider (LIR) is an optional benefit that you may add to your client’s Kansas City Life deferred annuity contract. The LIR provides a way to generate lifetime income but also maintain control of the deferred annuity funds through the provisions of the deferred annuity contract. The key LIR features are: • The growth of the Guaranteed Withdrawal Balance (GWB) in years when no withdrawal is taken from the contract. • Provide lifetime income while maintaining control of the deferred annuity contract, and • Have lifetime income increased if the client is confined to an eligible nursing home.* If no withdrawal is taken during the year, the GWB will grow by 7.2 percent in contract years 1-10 and by 4.0 percent in years 11-20. The growth of the GWB helps increase the Lifetime Income Amount (LIA) that is available when your client wants to start receiving income. The LIA is determined by the amount of the GWB when your client wants to start income, the age when the income starts and whether or not the income is on a single-life or joint-life basis. In addition, the LIA will increase by 50 percent if the owner is confined to an eligible nursing home and meets the conditions specified in the contract*. Currently, the annual charge of this optional rider is 0.40 percent of the GWB per year. *The Nursing Home Confinement Enhancement is not available in California, Connecticut, Florida and Maryland.
Nursing Home Waiver (NHW)* If Kansas City Life receives satisfactory proof that the owner is admitted to a licensed nursing home, the contract value may be paid out equally over at least a three-year period with no surrender charges assessed or market value adjustment. The owner must be confined for at least 90 days. Kansas City Life will transfer the contract value, less any indebtedness, to a specified period payout contract. *NHW is not available in California, Massachusetts or Pennsylvania for SelecTrack and California or Pennsylvania for GrowthTrack and SecurityTrack.
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n Use the SPIA to help your clients pay for expenses that will be relatively short term in duration, such as a child’s college expenses, child support or alimony. n Will your client retire before he or she is eligible to receive Social Security and/or other retirement benefits? Use the SPIA to help bridge the gap in income until those benefits start. n Use the SPIA to fund a long-term care or a life insurance contract. Kansas City Life requires prior approval for contracts in excess of $250,000. Contact Matt Dolliver, at 800-572-2467, ext. 8532, for more information.
Maturity Date All Kansas City Life fixed deferred annuities are issued with a specific maturity date, which is stated on the contract. However, that date can be extended indefinitely, as long as doing so is not in violation of any tax laws. The maturity date for GrowthTrack, SecurityTrack and SelecTrack is the later of: n The contract anniversary following the annuitant’s 85th birthday; or
n The 10th contract anniversary.
Single Premium Immediate Annuity
Clients’ needs are almost innumerable; so are the options Kansas City Life offers. The SPIA is available for both qualified and nonqualified monies. The income periods are available from three to 30 years (or for as long as a person lives under a life income) payable monthly, quarterly, semiannually or annually. The income can be for:
One of the largest financial risks facing your clients today is outliving their assets. Lifetime annuities from Kansas City Life can help you remove that risk from your clients’ financial plans. Annuities are still the only financial vehicle that can guarantee an income for life, and Kansas City Life’s payout factors have historically been among the highest in the insurance industry. Not only can the Single Premium Immediate Annuity (SPIA) guarantee lifetime income, there are additional options that guarantee a minimum return of the initial investment or guaranteed payments for a stated period of time – regardless of when the annuitant or owner dies.
n A specified time period.
n A specified amount.
n Your client’s lifetime – with or without minimum time-period guarantees.
n Your client’s and his or her spouse’s lifetimes with
The flexibility offered by Kansas City Life allows you to tailor the SPIA to meet your clients’ specific needs:
survivor benefits – with or without minimum time-period guarantees.
The chart below summarizes the many options available.
Kansas City Life’s Income Options Income for a Fixed Period Income for a Specified Amount Income for a Specified Period Qualified and Nonqualified
Lifetime Income Individual Life
Joint Life
Life Only Period Certain and Life Installment Refund
Life Only Period Certain and Life
Qualified and Nonqualified
100%, 75%, 66% or 50% to Survivor Qualified and Nonqualified
Explanation of Annuity Payout Options
Life Only — Payments will be made to the designated recipient during the lifetime of the annuitant. There is no guaranteed period and no guaranteed total payment amount. Certain and Life — Payments will be made for a specified number of years (minimum of three years and a maximum of 30 years), and will continue to be paid as long as the annuitant lives. Installment Refund — Payments will be made until the total payments equal the amount of the single premium invested, and will continue for the rest of the annuitant’s life. Specified period — Payments will be made for the number of years chosen by the owner. (The owner may choose a desired income amount, which will determine the length of the contract, based on the single premium amount invested.) Joint and Survivor Life — Payments are made during the lifetime of two persons. Payments continue until the death of both recipients. Joint and Survivor Certain and Life — Payments will be made for a specified number of years (minimum of three years and a maximum of 30 years), and will continue until the death of both recipients. 7
Split Annuity Concept For each deposit made, two contracts are issued – a deferred annuity and a SPIA for a specified period payout. The basic idea of the split annuity concept is that while receiving the income from the SPIA, the deferred annuity grows to the amount of the original deposit by the time the payments from the SPIA cease. This, of course, assumes interest-crediting rates are sufficient to allow it to do so.
n
Under an immediate annuity as defined in IRC Sec. 72(u)(4). Purchased with a single premium or annuity consideration, with an annuity start date within one year from the date of purchase, providing substantially equal payments not less frequently than annually during the annuity period.
IRA exceptions to the premature distribution penalty:
This concept is only available in the nonqualified market.
n Attainment of age 59½.
Taxation of Annuities
n Attributable to the owner’s death or disability.
Single Premium Immediate Annuity Each scheduled payment from a nonqualified SPIA includes a taxable portion and a non-taxable return of investment. To calculate the taxable portion, the exclusion allowance must be determined. This exclusion allowance ratably returns the investment in the contract throughout the life of the payment stream. To determine the exclusion allowance for the specified period or the specified amount options, divide the investment (cost basis) by the total amount to be received from the contract. This is the portion of each payment that will not be taxable (excluded from income); the balance will be reported as income to the owner. To determine the exclusion allowance for any nonqualified annuity based on life expectancy, contact Support Administration at 800-572-2467, ext. 8691, in the Home Office. All distributions from a qualified annuity will be considered fully taxable in the year payments are received.
IRS Penalties for Withdrawals Prior to Age 59½ Nonqualified annuity exceptions to the premature distribution penalty: n n
Made on or after the owner’s attainment of age 59½.
n n
A series of substantially equal periodic payments, not less frequently than annually, made for the life or joint life expectancy of the contract owner and his or her beneficiary. Payments may not be modified for the greater of five years or age 59½.
Any distribution attributable to the owner’s death or disability.
Attributable to pre-TEFRA cost basis. (Investment in the contract prior to Aug. 14, 1982.)
n
Made for medical care to the extent allowable as a medical expense deduction. Only amounts in excess of 7.5 percent of the individual’s AGI escape the penalty.
n For payment of health insurance premiums if
the contract owner has been receiving unemployment compensation for at least 12 weeks. n Used to pay “higher education” expenses for the contract owner, contract owner’s spouse, children or grandchildren. n Qualify as “first time” home buyer distribution with a lifetime limit of $10,000. n
A series of substantially equal periodic payments, made at least annually, for the life expectancy or joint life expectancy of the contract owner and his or her beneficiary. Payments may not be modified for the greater of five years or age 59½. (A one-time election is allowed to change the calculation method to the RMD method.)
TSA exceptions to the premature distribution penalty: n Attainment of age 59½. n Attributable to the contract owner’s death or disability. n
Made for medical care to the extent allowable as a medical expense deduction. Only amounts in excess of 7.5 percent of the individual’s AGI escape the penalty.
n
A series of substantially equal periodic payments, made at least annually, for the life expectancy or joint life expectancy of the contract owner and his or her beneficiary.
n Properly made to an alternate payee under a qualified domestic relations order (QDRO).
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Taxation of nonqualified deferred annuities (assuming all basis is post-TEFRA basis): Nonqualified deferred annuities are taxable to the extent of the gain in the contract at the time of distribution or taxable event. The taxable portion on a partial withdrawal is the lesser of the contract gain or the actual withdrawal. Example 1 Bob Smith, age 49, has a nonqualified deferred annuity with a contract value of $52,300.50 and a surrender value of $50,731.48. His cost basis in the contract is $35,000.00. Mr. Smith requests a partial withdrawal of $26,000.00.
$52,300.50 -35,000.00 $17,300.50
Contract Value Less Cost Basis Total Gain*
$22,000.00 $49,000.00 $82,497.63 $105,914.95
Requested withdrawal amount Less pre-TEFRA basis Portion subject to taxation Pre-TEFRA basis Post-TEFRA basis Pre-TEFRA earnings Post-TEFRA earnings
Distributions from qualified deferred annuity contracts are always reported as 100 percent taxable. If the contract contains after-tax contributions, the taxpayer will be required to file the correct forms with his or her IRS Form 1040 providing proof of such. These distributions will also be subject to the premature distribution penalty unless one of the exceptions applies.
Requested withdrawal amount Less Gain Total portion not subject to taxation
However, the gain is calculated differently on a full surrender. The gain on a full surrender is the difference between the surrender value and the cost basis. Assume the same facts in Example 1, except Mr. Smith now requests a full surrender. $50,731.48 -35,000.00 $15,731.48
$25,000.00 -22,000.00 $ 3,000.00
Contract proceeds that contain a mixture of pre- and post-TEFRA basis are taxed as follows: first, pre-TEFRA basis is returned, then pre-TEFRA earnings, followed by post-TEFRA earnings, and finally post-TEFRA basis.
Because the contract gain, $17,300.50, is less than the requested withdrawal amount, the full gain is taxable and the balance of the withdrawal is not taxed. As it is, had Mr. Smith requested a withdrawal of $15,000.00, the full $15,000.00 would have been taxable because the withdrawal amount is less than the contract gain.
Although Mr. Smith is only 49, in Example 2 the gain would not be subject to the IRS 10 percent premature distribution penalty because the income is allocable to the pre-TEFRA investment.
When calculating the taxable gain on a partial withdrawal, the gain is the difference between the contract value (without regard to any surrender charges) and the cost basis.
$26,000.00 17,300.50 8,699.50
and post-TEFRA basis of $49,000.00. Mr. Smith requests a partial withdrawal of $25,000.00. The taxable portion on this withdrawal will be $3,000.00 because the pre-TEFRA basis will be recovered first in any withdrawals.
Surrender Value Less Cost Basis Total Gain on Surrender*
* The taxable portion would also be subject to the IRS 10 percent premature distribution penalty because Mr. Smith is not yet 59½.
If a contract contains both pre-TEFRA (contributions prior to Aug. 14, 1982) and post-TEFRA cost basis (contributions after Aug. 13, 1982), the gain on partial withdrawals is taxed according to the first-in, first-out rules up to the amount of the pre-TEFRA basis. Example 2 Bob Smith, age 49, has an annuity with both contract and surrender values of $259,412.58. The contract contains pre-TEFRA basis of $22,000.00
Defining the Owner, Annuitant and Beneficiary There are three people involved in the purchase of an annuity: the owner, the annuitant and the beneficiary. The owner is the person who originally puts the money into the annuity contract and controls it. The owner has the right to make changes to the contract, as he or she owns the investment in the annuity, which is (for estate planning purposes) also included in his or her gross estate. The owner can be more than one person; if so, the owner does not have to be related to the annuitant. A trust, a son or daughter, or even a friend can be the owner of an annuity contract. The annuitant is the person who will receive an income from the contract. If the contract also has an owner, the annuitant’s life expectancy is used to calculate income payouts. The annuitant CAN BE someone other than the owner. The annuitant can also be more than one person, but only if the contract is annuitized or issued as a SPIA with a joint and survivor option. Contingent Owner Prior to Jan. 18, 1985, annuity owners were allowed to name a “contingent owner.” This contingent owner
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would take control of the proceeds from the annuity upon the death of the original owner. However, a new law enacted in 1985 changed this process. Contingent owners are no longer acceptable on Kansas City Life annuities. For example, prior to 1985, a husband and wife could purchase an annuity. The husband might have been the owner and the annuitant, with the wife acting as the “contingent owner,” and the couple’s two children are listed as the beneficiaries. If the husband had died, the wife would have controlled the proceeds, because she was the “contingent owner.” On all contracts written after 1985, the children now receive the proceeds because they are the beneficiaries. It is important that clients know who they want the proceeds given to – a spouse or children, etc. That person (or persons) should to be listed as the beneficiary on the annuity contract.
applicable). Originals required for submission: • 1035 Exchange Assignment (Form 1035C) • Transfer form for qualified plans and IRAs to an IRA (Form 6708) • Transfer Form for traditional IRA to a Roth IRA (Form 6710) Split Annuities For the applicant ■■ GrowthTrack: Annuity Disclosure Statement Flexible Premium Deferred Annuity – Form M597 (if applicable) ■■ SecurityTrack: Annuity Disclosure Statement Flexible Premium Deferred Annuity – Form M598 (if applicable) ■■ SelecTrack: Annuity Disclosure Statement Single Premium Deferred Annuity – Form M681 or M460** ■■ Annuity Disclosure Statement Single Premium Immediate Annuity – Form M680
For submission to Customer Services ■■ Application for Annuity (one copy for fixed annuity and one copy for immediate annuity) – Form A161* ■■ Supplemental Information for Life Insurance and Annuities (Replacement) – Form M444** ■■ Supplemental Contract Form – 277 ■■ Immediate Annuity Suitability Worksheet – Form M654** Fixed Deferred Annuities ■■ Fixed Annuity Suitability Worksheet – Form M653** For the applicant ■■ Annuity Needs Analysis - Fact Finding Worksheet For Deferred ■■ GrowthTrack: Annuity Disclosure Statement Flexible and Immediate Fixed Annuities – Form M582** Premium Deferred Annuity – Form M597 ■■ Appropriate 1035 Exchange and Transfer of Funds form (if ■■ SecurityTrack: Annuity Disclosure Statement Flexible applicable). Originals required for submission: Premium Deferred Annuity – Form M598 • 1035 Exchange Assignment (Form 1035C) ■■ SelecTrack: Annuity Disclosure Statement Single Premium • Transfer form for qualified plans and IRAs to an IRA (Form 6708) Deferred Annuity – Form M681 or M460** • Transfer Form for traditional IRA to a Roth IRA (Form 6710) ■ ■ Signed copy of split annuity proposal For submission to New Business
How to Get Your Business on the Books
■■ Application for Annuity – Form A161* ■■ Supplemental Information for Life Insurance and Annuities (Replacement) – Form M444** ■■ Fixed Annuity Suitability Worksheet – Form M653** ■■ Annuity Needs Analysis - Fact Finding Worksheet For Deferred and Immediate Fixed Annuities – Form M582** ■■ Appropriate 1035 Exchange and Transfer of Funds form (originals required for submission): • 1035 Exchange Assignment (Form 1035C) • Transfer form for qualified plans and IRAs to an IRA (Form 6708) • Transfer Form for traditional IRA to a Roth IRA (Form 6710) Immediate Annuities For the applicant ■■ Annuity Disclosure Statement Single Premium Immediate Annuity – Form M680 For submission to Customer Services ■■ Application for Annuity – Form A161* ■■ Supplemental Information for Life Insurance and Annuities (Replacement) – Form M444** ■■ Supplemental Contract Form – 277 ■■ Immediate Annuity Suitability Worksheet – Form M654** ■■ Annuity Needs Analysis - Fact Finding Worksheet For Deferred and Immediate Fixed Annuities – Form M582** ■■ Appropriate 1035 Exchange and Transfer of Funds form (if
*For state-specific forms requirements, please use the forms tool on the Kansas City Life Illustration System, www.ikclife.com. **Submit where required by state. For state-specific forms requirements, please use the forms tool on the Kansas City Life Illustration System, www.ikclife.com.
Tips for completing the forms Annuitant n n n
Print full name (include any former names). Never use initials when the person has a given name. Record given name of married women (i.e. ‘Mary J. Jones’ not ‘Mrs. John H. Jones’). n Enter sex, date of birth, state of birth, Social Security Number (SSN) and other applicable information. Owner n
It is important that all ownership information be accurate and complete. The owner has legal control of the contract, and Kansas City Life must directly consult with the owner on all contract transactions. The current contract forms state that the annuitant is the owner unless otherwise shown in the application. n Indicate in this section if the contract is to be
10
collaterally assigned, and enter the name and relationship of the assignee. A signed and notarized collateral assignment form must also be submitted; use either the American Bankers’ form or Home Office Collateral Assignment Form No. 269A. n Ownership of a contract by a minor can cause problems in exercising contract rights and privileges. It is recommended that, on contracts issued on a minor, an adult be named as owner. If the contract is to be transferred to the minor upon the minor’s 21st birthday, the owner must request that this action take place. A transfer of ownership such as this must be indicated in the Special Requests section of the application under the Uniform Transfer to Minors Act (UTMA) or Uniform Gift to Minors Act (UGMA). If not listed as such, the change of ownership will be treated as a taxable distribution to the original owner. Note: The age of majority is 18 in some states. n The Social Security Number (SSN) or Taxpayer Identification Number (TIN) of the owner must be provided. If the owner is a guardian or custodian for a minor, ward or incompetent person, furnish the SSN of the minor, ward or incompetent person. If the owner is an individual or proprietorship, furnish the SSN of the individual; if a corporation, proprietorship, partnership, irrevocable trust or other organization, furnish the TIN of the corporation, proprietorship, partnership or other organization. n If the owner is a revocable trust, check the trustee box and furnish the date of the trust, the complete name of the trust, and the name and TIN of the grantor in the Special Requests section of the application. For nonqualified annuities only: If the owner is not the annuitant, the beneficiary for the owner is automatically the annuitant unless otherwise noted on the application. If the beneficiary for the owner is not the annuitant, the name and relationship of the owner’s beneficiary must be given. Beneficiary Please list at least one beneficiary on the application form. The beneficiary is the person named to receive the proceeds (cash value of the contract) at the death of the annuitant or owner before the maturity date. Plan
n Enter the correct plan name, indicate whether the
premium will be flexible or single, and enter the annual premium payable.
Check the box next to the type of annuity being requested.
n
n Answer the “rollover” question and indicate the amount of money transferred, if applicable. Replacement 11
n The replacement questions must always be answered “Yes” or “No.”
n If answered “Yes,” the appropriate replacement
forms must accompany the application to the Home Office. The State Compliance Department provides current information on requirements of the replacement regulations to general agents and agents. Replacement forms may be obtained from the Supply Department.
Licensing Before selling any Kansas City Life product, agents must:
n Ensure you are appointed by Kansas City Life
and licensed by the appropriate authority in the state/jurisdiction in which you are/will be writing applications and where the client resides.
n
Ensure the product is approved for sale in the state/jurisdiction in which you are/will be writing applications, as well as the state/ jurisdiction in which the annuitant resides.
Commissions Commissions vary based on your agent contract for the plan sold. Please refer to your agent contract or talk with your general agent regarding details on commissions payable on Kansas City Life’s fixed annuities.
Contacting the Home Office Correspondence directed to the Home Office should be sent to one of the following addresses:
New Business Department Kansas City Life Insurance Company P. O. Box 219428 Kansas City, MO 64121-9428 Fax: 816-753-7078 E-mail: newbusiness@kclife.com
Customer Services Kansas City Life Insurance Company P.O. Box 219272 Kansas City, MO 64121-9272 Fax: 816-931-3585 E-mail: customerservice@kclife.com
Licensing Department Kansas City Life Insurance Company P.O. Box 219139 Kansas City, MO 64121-9139 Fax: 816-753-4982
To contact the Home Office by telephone, please call 800-572-2467. Our normal hours of operation are Monday through Friday, 8 a.m. to 4:15 p.m., Central Time.
Notes
3520 Broadway Kansas City, MO 64111 (816) 753-7000 www.kclife.com
Note: The coverage described in this guide is for the fixed annuity portfolio of Kansas City Life Insurance Company (Home Office: Kansas City, Mo). Contract forms J134, J179, J180 and J181; Lifetime Income Rider form number R222; form numbers may differ by state. Coverage may not be available in all states.
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