Annuities and Insurance: How British Expats Can Protect Themselves | Ask An Expert with Mark Maurer

Understanding life insurance and annuities is essential for making informed and beneficial financial decisions when moving to America. These financial products differ significantly between the UK and the US. Decades ago, the process of getting insured in the US was much simpler, with far fewer options than there are today. 

In this episode of We’re The Brits In America, Richard Taylor – dual UK/US citizen and Chartered Financial Planner, and Mark Maurer – President and CEO of LLIS, discuss the complexities of insurance and annuity products in the United States that often take expatriates by surprise when they’re cross-border financial planning. 

Richard and Mark take a detailed look at: 

• The key differences between UK and US insurance products, and the nuances of the American market. 
• The pros and cons of different policy types and how they fit into broader financial strategies. 
• Indexed Universal Life (IUL) policies, their features, and why they may not always be the best investment option. 
• The different types of annuities, common misconceptions, and when they might be appropriate for investors. 
• The potential downsides of tax deferral and how taxation works with annuities. 
• Income riders on annuities, their benefits, and the cost implications of these add-ons. 

 

More about We’re The Brits In America:

With the right financial advice, landmines that threaten expat wealth can be avoided. Often encountered by U.S.-connected expats, these financial landmines are more numerous, more hazardous, and less understood than almost anywhere else in the world. As a result, non-cross border professionals, wealth advisors, and even international advisors are often unaware of them. But don’t worry, We’re The Brits In America has you covered.

We’re The Brits In America is dedicated to helping ambitious U.S.-connected expats and immigrants navigate those challenges — and thrive. Whether you’ve moved to the U.S. for opportunity, or are an American seeking adventure and growth abroad, our job is to equip you with the tools and insights you need to succeed.

If you’re enjoying the show, please consider leaving a 5 star rating and review to help the mission, which is to help expats and immigrants thrive in America. Visit planfirstwealth.com to learn more about our services and connect with Richard Taylor on LinkedIn.

We’re the Brits in America is affiliated with Plan First Wealth LLC, an SEC-registered investment advisor. The views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views or positions of Plan First Wealth.

Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Plan First Wealth does not provide any tax and/or legal advice and strongly recommends that listeners seek their own advice in these areas.

About Richard

Richard Taylor is a British expat, dual citizen (UK & US). Originally from Bolton, he now lives in Greenwich, CT, where Plan First Wealth has its head office.

As the firm’s leader, Richard launched Taylor & Taylor, now Plan First Wealth, and continues to fuel the firm’s growth. Richard is a Chartered Financial Planner (UK – CII) in addition to holding the IMC (CFA UK) and Series 65 (US – FINRA).

Connect with Richard on LinkedIn

TRANSCRIPT:

Richard Taylor, Founder of Plan First Wealth:
[00:00:16 – 00:02:10]
Welcome to the we’re the Brits in America Podcast, a Plan first wealth podcast dedicated to helping ambitious expatriates and first generation immigrants thrive in America. I’m your host Richard Taylor and Plan first wealth is the business I founded and run today and we work with successful American and international families living across the US Helping them to make the most of their opportunity living and working in America. While Plan First Wealth LLC is an SEC Registered Investment Advisor, the views and opinions expressed in this program are those of the speakers and do not necessarily reflect the views and positions of PlanFirst wealth. Information presented is for educational purposes only. Alright, let’s get back to this week’s show. Welcome to our Ask an Expert show where I invite a fellow professional to come in and talk to me about the issues we think Brits and America need to be aware of if they are going to thrive here. My guest today is Mark Maurer. Mark is the President and CEO of llis. LLIS is an insurance broker, but critically llis only work through fee only financial advisors such as Plan first wealth and I’ll explain why that is such an important distinction shortly. So I’ve asked Mark to come in to the show today for two reasons. One, to simply discuss and introduce the American insurance and annuity market. It’s very different to the UK and I’m sure most other places and I still find it bewildering after nearly a decade here. So so I can’t imagine what it’s like for clients. And secondly, because I am sick of seeing insurance, particularly permanent insurance and annuities abused and missold. I see it every week in my business, I hear about it constantly and I ask Mark to come in and help us decode some of this stuff to help us understand what’s legit, what’s not, and hopefully help our listeners avoid some of the traps I’ve seen others fall into. So without further ado, let’s get into this. Hi Mark, welcome to we’re the Brits in America.

Mark Maurer:
[00:02:11 – 00:02:12]
Richard, thank you for having me.

Richard Taylor, Founder of Plan First Wealth:
[00:02:12 – 00:02:16]
Before we get into the good stuff, just give us a bit of a background on you and Llis.

Mark Maurer:
[00:02:16 – 00:03:14]
Lis is 26 years old. It was started by Judith Maurer, who I call mom when we’re not in the office and working with with family advisors helping with permanent life insurance. Over the time we’ve added working with term insurance Disability insurance, long term care annuities, which mean definitely something in the UK for the most part than they do over here and expanding all those things. So advisors who have clients with existing policies, we review those to say here’s what they have and is it any good or using our other example, client needs a million dollars of life insurance. There’s five or six different things that will be $1 million death benefit. But what are the intricacies? How much do we want to have it just be life insurance? Do we want to make it cash value? Do we want to have investment components? Do we want to add long term care riders? All these things that the more complicated you make it usually the more, the more it costs.

Richard Taylor, Founder of Plan First Wealth:
[00:03:14 – 00:04:30]
Right, let’s talk about, let’s talk about insurance annuities. Right. So we just want to set the scene here because I’m going to come across very skeptical to everyone listening and I’m sure that’s going to trigger a few people. I am not anti insurance and anti annuity. I mean that in the very narrow definition of what I mean when I talk about insurance and annuity. So for me a brick went over here is insurance is essentially term assurance. Yes, it’s whole of life in the UK But I’m always most people were thinking about term insurance. I’m a big fan, got lots of it myself. Literally I’m organizing another policy right now through you guys. So you know, keep adding to it and annuities, annuities that I am familiar with, which is just very simply, you have a gob of money and you give it to an insurance company and they give you promise to give you an income for life that’s an immediate annuity. Huge fan of these. That was endurance annuities for me. And then come to America and you know, I’ve been inundated and so have our clients with permanent life insurance index universal life annuities which are mean something completely different and hideously complex. So help us, help us understand the insurance annuity landscape as a lie. That’s a big saying that I realize. Yeah. Oh and by the way, please make it really simple and do it in a few minutes.

Mark Maurer:
[00:04:31 – 00:04:32]
You got 35 seconds.

Richard Taylor, Founder of Plan First Wealth:
[00:04:32 – 00:04:33]
Yeah.

Mark Maurer:
[00:04:33 – 00:06:07]
Okay. So term insurance is what we probably work with advisors, their clients. 90 plus percent of the time you have a death benefit that lasts for a certain period of time. There’s no cash value, there’s no investment component. It is a pure form of insurance like our health insurance, our homeowner’s insurance, anything that says I’m paying for this Each month. And if I die, somebody gets a million dollars and I hope that I don’t need it. And so I’m going to lock it in for 10 years, 15 years, 20 years, till my kids are out of the house, till college is paid for, till I get to retirement age. And by working with the only advisors who are managing the investments and debt repayment and all that, we hope that it lines up perfectly that my 20 year term policy expires in 20 years. I have enough in asset savings to live and I don’t need the life insurance anymore. That’s sort of the ultimate goal. Then you add in all the other types of policies which are the same death benefit, but it might add some investment components. So you have a whole life policy, you have a universal life policy variable, Universal life policy index, universal life policies that all have the same million dollar death benefit. But now we’re adding the fact that I’m going to pay a lot more in premium, but I’m building up some cash value inside of these policies.

Richard Taylor, Founder of Plan First Wealth:
[00:06:08 – 00:06:15]
A lot more in premium. Right. And the premiums don’t stay static, do they? Premiums increase as you get older.

Mark Maurer:
[00:06:15 – 00:06:59]
So with a, with a whole life policy you have a fixed premium for the rest of your life, but it’s fairly high because you’re paying more now when you’re young and healthy, kind of to offset the expenses of this policy when you’re in your 80s and your 90s, any of those permanent types of policies are going to. Because if we think of a term policy and a 45 year old gets a 20 year term policy, the odds are that they’re going to outlive that term policy. It was, they’re 65. Right, right. That’s why we have the insurance, just in case. But if you have a whole life policy that says this is going to be around for your lifetime, the insurance company is planning on, on paying it out where a term they’re assuming that you don’t.

Richard Taylor, Founder of Plan First Wealth:
[00:06:59 – 00:07:01]
So can I just be an insurance nerd for a minute?

Mark Maurer:
[00:07:01 – 00:07:02]
Sure.

Richard Taylor, Founder of Plan First Wealth:
[00:07:02 – 00:07:06]
Do you, do you have the difference between insurance and assurance over here? Is that a thing?

Mark Maurer:
[00:07:06 – 00:07:08]
No. So I don’t know.

Richard Taylor, Founder of Plan First Wealth:
[00:07:08 – 00:07:39]
So in the uk, and I don’t know if it’s like an old English thing, but in the UK it’s actually called life assurance and life insurance. And life insurance is for something that may, fingers crossed, won’t, but may happen. And life assurance is for something that will happen. It’s guaranteed. You know, you get, we’re guaranteed to die, so it’s life Assurance. Obviously. Obviously. The, the U.S. when we, when, when the first settlers came over here and started the nascent insurance industry, they were like, let’s just, let’s do away with this. We’ll, we’ll over, we’ll complicate everything else, but we’ll, we’ll do away with this.

Mark Maurer:
[00:07:39 – 00:07:42]
We’ll make annuities. Not what annuities are anymore.

Richard Taylor, Founder of Plan First Wealth:
[00:07:42 – 00:07:47]
Yes. You know, it’s these permanent ones that have, these are the ones that get all the attention.

Mark Maurer:
[00:07:47 – 00:08:32]
Right. And, and they get the attention because they have the high premiums and because they may have surrender charges which say that in the first few years if you want access to your money, there’s, there’s some limits on how much you can get back. And those are the ones that people put in the $5,000 for a few years, realize that maybe that wasn’t the best option. They can’t afford them anymore and they’ve put in $20,000 in premium and might get back five or six. And nobody likes that. So that’s one of the reasons that sometimes these get a bad rap is they may or may not have been appropriate in the first place. And then by the time somebody figures that out, there are these penalties attached to them.

Richard Taylor, Founder of Plan First Wealth:
[00:08:32 – 00:09:17]
They get a bad rep as well because they kind of position as like, oh yeah, don’t waste your money on term assurance. Well, I really is a stretch considering term assurance a waste. You know, like considering your car insurance premium is a waste. And it’s marked as like, I don’t. If you’re throwing away money on term insurance when you could be building up a cash value in it without really explaining that, you know, that’s not, that’s a very over simplistic way of, of positioning it. But it feeds into this very human desire of ours not to just not just to, to be what, what might, what they perceive as setting fire to money. It’s not, we know it’s not. You know, it’s not. But it just praise on that and.

Mark Maurer:
[00:09:17 – 00:10:28]
And part of it goes back to not that many years ago, decades. But there were, we didn’t have the options that we do now where everybody has a, you know, Fidelity, a Vanguard brokerage, account, Robinhood, all of these things, your 401ks IRAs, 529 plans. Not too many decades ago, you either had your money in the bank, in a savings account, maybe a CD or a whole life policy. Most people didn’t have access to all the different investment options that we have now, which once you start making things you Separate them out to almost the core of what they are, they all become more efficient. So when my only two options were a bank, a CD at the bank or to put some money in, my whole life policy was a form of forced savings with the death benefit, which was better than nothing. But then we introduced term and now we can separate them out. And now I’ve got, you know, 529 plans for my kids and my 401k with matching @ work and all of these different pockets that I can say these are all more efficient for, for what they were designed for.

Richard Taylor, Founder of Plan First Wealth:
[00:10:28 – 00:10:46]
You know, you said that to me once. I admit it never occurred to me. You know, once you said it, it all made sense. When you think about the early like sales books, Frank Betga was all, it’s all life insurance. And I’d never, I’d never realized that they were really the first, the first tool in the toolbox.

Mark Maurer:
[00:10:46 – 00:11:22]
Yeah. And it’s just, it’s held over and, and so some of the sales book, the playbook is still, still out there. And for some people it may still be a good option. But for a lot of people, since we have so many things available, our phones allow us to do so many different things. I could probably go buy some stock right now and something I’ve never heard of, it might take me 45 seconds. All the things that we can do that just weren’t available as places to put our money that weren’t, weren’t the bank, the CD or. And that was pretty much what most people had.

Richard Taylor, Founder of Plan First Wealth:
[00:11:22 – 00:11:43]
So Mark, what, what’s, what’s the one that’s really hot right now? Is index universal life or universal iul? Assuming I’m not mixing up products here. I see that, I see this market as well. One, you know, don’t throw away money on term. Two, I think it offers access to, to track indices, but with floors, ceilings and floors, which I consider to be a flawed concept.

Mark Maurer:
[00:11:43 – 00:11:44]
Right.

Richard Taylor, Founder of Plan First Wealth:
[00:11:44 – 00:12:07]
Easy sell, but flawed concept. And then there’s a whole pay yourself tax free infinite banking, you know, stuff that people real and people. But I, I’ve been on, I’ve been in meetings when I’ve, people have got this stuff and they say to me, yeah, but I can, I can take from this tax free contact and just create a tax free income. So help us understand what, what’s going on with these things.

Mark Maurer:
[00:12:07 – 00:13:02]
What, what they are and what’s going on. So, so let’s, let’s talk about sort of the crux of over here, the tax benefits of permanent life insurance. When you Put your premiums in, it grows on a tax deferred basis. So I don’t pay taxes along the way as it’s as I have earnings at some point in time, if I’ve built up enough cash value, I can take withdrawals of my cost basis. So all that premium I paid in was with after tax money. So I can take that back out tax free first. Then what I can do is I can take loans against my gains and not pay taxes on those. So I took out my tax free money first. Now I’m taking loans against what would be otherwise taxable if I just cashed in the policy. And as long as the policy stays in force at my death, my beneficiaries get a tax free death benefit. Now it might be really reduced if I took all the money out.

Richard Taylor, Founder of Plan First Wealth:
[00:13:03 – 00:13:07]
And you have to pay the loan back out of the death benefit first, presumably.

Mark Maurer:
[00:13:07 – 00:14:09]
Right. So the loan, the loan is paid back from the death benefit. So it may end up with a $5,000 death benefit after paying back the loan. But as long as that’s a positive number, there’s no taxes due. Now all of that takes an amazing amount of timing and maintenance to make it work. So I think that’s sometimes where, where it goes wrong in the first spot. The projections, all of these things are based on projections which are either based on if it’s a variable policy investment performance, if it’s an indexed universal life, the indices performance, even a regular universal life or whole life has some dividends or interest earnings. So things that somebody projected in 1982 aren’t going to work today because in 82 they thought we were going to have 6%, 8% interest rates every year, not almost nothing for a decade. So there’s just maintenance and ongoing things that make that all these things have to be revisited. And I think that’s a big problem.

Richard Taylor, Founder of Plan First Wealth:
[00:14:10 – 00:14:34]
Someone sets a policy up in the 80s and they project forward based on interest rates of what even double digit interest rates. We then have years, a decade plus like where we have none. Right. So the policy is not earning anything, it’s not growing. Meanwhile your premiums are increasing, is that right on growing? So your premiums, unless you’re paying them out of pocket, they start eating the policy essentially.

Mark Maurer:
[00:14:34 – 00:16:04]
Right. So all those sort of the internal mechanism of a life insurance policy is you put in your premiums, you add interest and you take out cost of insurance every year. When I get older, my costs of insurance are increasing every year. But I’m hoping that then my cash value is growing on the other side to offset that when I have lower interest rates than what I thought, my costs of insurance are still going to go up, but I have less money in the pot to, to offset those. So yes, instead of if I was paying $10,000 a year and assuming a 6% interest rate, I was going to have blank at age 65 and it ends up being 4% interest, I’ll have less because A, I have less earnings and those costs of insurance still keep coming out. So sometimes people think when I get to 65, I can start taking loans of $10,000 a year. But if nobody’s looked at that for a while, they’ll start taking those loans and realize I don’t have as much cash value as I thought I would to allow me to take out that much. We’re almost projecting or talking about things that happened a long time ago or issues with what’s in the future. But even those kind of subtleties are what, what make these surprises for people of that, well, I thought I could do this based on an illustration or a proposal I saw 20 years ago. Most of us don’t check on these every few years to see is that still working. We just kind of think I paid my premium. So that’s what’s going to happen.

Richard Taylor, Founder of Plan First Wealth:
[00:16:04 – 00:16:34]
So you have a situation where people are paying the premiums but the cash value is still going down. Right. Because the premiums aren’t meeting the cost of the insurance any longer. And then what happens if they, they basically can’t carry on paying the premiums and, or they, they eat all the value in the policy. Let’s say they have taken out, let’s say they’ve taken. Someone’s got used to taking out $10,000 a year in a tax free loan. But 20 years later in the mid-80s, it just isn’t not sustainable anymore. They can’t, they can’t keep it going. What happens then?

Mark Maurer:
[00:16:35 – 00:16:46]
So either the policy lapses for falls apart, they’re just, there’s zero kind of total cash value and the policy lapses and if there’s any taxable event at that point, they get a 1099.

Richard Taylor, Founder of Plan First Wealth:
[00:16:46 – 00:17:08]
Sorry Mark, just so I’ve taken all the growth out, right? As a loan, I’ve not paid any tax on it, right. I can’t maintain the policy anymore. It lapses. I get a 1099 for 20 years worth of withdrawals I thought were tax free, right. Because they’re alone and I haven’t got the money anymore because I’ve got no money left in my policy. Is that.

Mark Maurer:
[00:17:09 – 00:17:28]
Yes. So that’s. That’s one of the problems. That’s. Sometimes we do policy reviews where. Where that’s almost the situation and people took a 10. We call it a snowball rolling downhill. If someone takes a $10,000 loan 20 years ago, that loan may have been charged 8% interest for the last however many years.

Richard Taylor, Founder of Plan First Wealth:
[00:17:29 – 00:17:48]
Wait, wait. So that example before, I said 20 grand, 10 grand a year for 20 years, 200 grand. But each tranche has got its own rate of interest applied to it. So the first tranche has got 20 years or 19 years at 8%. The next tranche has 10 grand, has got another 18 years at 8% and so on and so forth.

Mark Maurer:
[00:17:48 – 00:17:53]
Yeah, it just adds. It’s just a giant. It’s just a giant loan. Loan balance growing. So.

Richard Taylor, Founder of Plan First Wealth:
[00:17:53 – 00:17:59]
So that’s 200 grand. Wait, so does that mean the income then is being assessed at, like, you know, more than that as well?

Mark Maurer:
[00:17:59 – 00:18:12]
That just depends. That, that depends on how much gain there was in the policy at that point. But we hope either person passes away before it gets to that zero, because the nice thing is that then there’s no tax due.

Richard Taylor, Founder of Plan First Wealth:
[00:18:13 – 00:18:23]
This is the whole infinite banking thing. Yeah, yeah, you get to take our money tax free, and yeah, there’s an interest rate, but you’re paying yourself rather than a bank. Is that accurate?

Mark Maurer:
[00:18:23 – 00:19:19]
So let’s take a loan. We’ll do our same example. I take a $10,000 loan against my life insurance policy in the most favorable situations, then that $10,000 goes into a side, kind of a side account, and that $10,000 in one pocket is going to earn, let’s say, 3%. At the same time, the loan balance is going to be charged 3%. So my $10,000 in my left pocket grew to 10, 3. 103 in that pocket in my other pocket now my loan balance is 10, 3. A lot of policies, you pay more for a loan than that other. So that’s called a wash loan or preferred loan. But I still, if I wouldn’t have taken that loan, I would have, you know, 10, 3 in. In the side and not alone.

Richard Taylor, Founder of Plan First Wealth:
[00:19:19 – 00:19:20]
So.

Mark Maurer:
[00:19:20 – 00:19:31]
So at that point, I almost, almost zeroed out any earnings as compared to having kept it in the policy and earned 300 bucks and. And used something else.

Richard Taylor, Founder of Plan First Wealth:
[00:19:31 – 00:19:36]
It’s not necessarily as good as it sounds. You know, you’re not paying yourself.

Mark Maurer:
[00:19:36 – 00:19:58]
Right. I didn’t and I didn’t. I didn’t pay myself interest. I didn’t make money. Richard, if I, if I, you know, if I give you a Loan and say, you know, I loan you 10, $10,000 and you pay me 10,300. I made money with a whole life policy or any type of loan. You don’t really earn. The, the most favorable is you didn’t lose money.

Richard Taylor, Founder of Plan First Wealth:
[00:19:58 – 00:20:23]
Just before I get into the uses of it, I also want to talk about one of the other things that I see this being sold as is people are understandably skittish about markets. Markets go up, they go down over time. They go up by more than they go down. We’ve got a lot of. But there is and always will be a market for smoothing those returns, you know, or protecting from the downsides, however temporary.

Mark Maurer:
[00:20:23 – 00:20:23]
Right.

Richard Taylor, Founder of Plan First Wealth:
[00:20:23 – 00:21:17]
And this is where I see coming in for these, these, this types of life insurance index life insurance and this and the like is where the performance will be linked to a stock market, let’s say the s and P500. Right. And it’ll be capped at another 8% a year. But it can’t go down. And people love that and I get it. But what I do think is dramatically misunderstood is the true impact of that over a long time. Because people think, oh, 8% is a, is great, I’d be happy with 8% a year. But what people don’t understand is while stock market returns may average 8, 9 over 30, 40, 50 years, the reality of it is all that growth comes from a couple of years that are in at 20 markets on average. Markets go market, the SMB goes up three out of four years. One year it goes down, one year it goes down. You’re not losing any money that year.

Mark Maurer:
[00:21:17 – 00:21:18]
Right.

Richard Taylor, Founder of Plan First Wealth:
[00:21:18 – 00:21:28]
But another year it goes up, it’s like 1%. The other two years it goes up like 20%. So people don’t understand how much they’re leaving on the table with that.

Mark Maurer:
[00:21:28 – 00:21:28]
Right.

Richard Taylor, Founder of Plan First Wealth:
[00:21:29 – 00:22:21]
And you know, I don’t necessarily blame the insurance industry for coming up with a product that meets some people’s needs because it is good that people are investing and some people do need a little bit more protection than you can get from stock market investing. And I, I’m a stock market investor. That’s what I do. I am biased to that respect. But I do understand that there is a need for an array of, of, of solutions. Some people, some people just aren’t emotionally equipped for it. That being said, I think it’s overdone. I think it’s oversold, I think it’s overplayed. I think it’s over positioned as like protect yourself from downturns. And I see people who do have the emotional fortitude to invest, leaving good money on the table because they’ve been sold on, never goes down. Tax free withdrawals, don’t waste money on term assurance. And it just kind of winds me up.

Mark Maurer:
[00:22:22 – 00:22:34]
I don’t, I don’t disagree with, with any of that. You’re absolutely right. You have your, your 0 and your 8. But you need to participate in the 32s sometimes.

Richard Taylor, Founder of Plan First Wealth:
[00:22:34 – 00:22:35]
Yes.

Mark Maurer:
[00:22:35 – 00:22:44]
And unfortunately sometimes the negative 12s. But you have to get those plus 32s to get that 8% over 6% over the long run.

Richard Taylor, Founder of Plan First Wealth:
[00:22:44 – 00:22:44]
Yes.

Mark Maurer:
[00:22:45 – 00:24:37]
And the way it was explained to me one time is that if you put the money in the regular universal life policy and let’s say it’s 4%, you’ll earn 4% for the next year. It’s not going to go up, it’s not going to go down. Insurance companies, what they’re doing is they’re taking that and basically buying puts and calls hedges on these different indices. If it’s worth 4% now you’re sort of hedging the zero and then some potential upside. But on average you can’t get blood from a turnip. You can’t say, I’m going to basically give you lots of good ups and no downsides without it costing something. So. Exactly. Over time I, I read something that said on average an index UL might have one one and a half percent return more than a fixed policy. Because you’re just trading, you’re trading the cost for those, for those hedges. There’s no free lunch. It can’t be too good to be true. And a 7 or 8% in a camp in a 7 or 8% environment looks good. Like you said, in a 15% it’s okay. And next year when it’s 1%, I got one, I didn’t get 15 and one, I got seven in one. So it’s okay. But it’s a way to illustrate market like returns on a policy that is not subject to security. Variable policy that really does invest in sub accounts, there’s a lot more scrutiny, a lot more steps, a lot more licensing that has to go through it. And indexed you well because, because there are sort of those, those caps, those, those safeguards but you’re not actually investing in. It is different, a whole different set of licensing than a, than a true variable policy.

Richard Taylor, Founder of Plan First Wealth:
[00:24:38 – 00:24:51]
You know Mark, I don’t really see variable, I see indexed Iuls, that’s what I see. And, and I believe it’s because it’s an easy sell and I believe it’s miss sold on that basis.

Mark Maurer:
[00:24:51 – 00:25:26]
And you have, yeah, you have zero is your hero and some kind of neat catchphrases on it. But yes. And for some people maybe that is, as you said, the only way that they might be able to A have life insurance, B, have something that’s going to outperform, you know, 3% interest rate. But I would say for, for most people, especially those with, with financial advisors who can say put premiums here for this goal here for this goal and you know, just low premium over here for term insurance for death benefit protection makes most sense.

Richard Taylor, Founder of Plan First Wealth:
[00:25:30 – 00:26:02]
Right? So Mark, before I get back on my high horse and start railing about annuities, let’s talk about the actual use cases. Now I do want to stress like I, I, I’ve, I’ve been pretty negative on this stuff and I think, you know, I stunned by that. What I see day to day is when we take on a client who’s got, who, who’s got an iul. I always wish they hadn’t. I just don’t think it’s fit for purpose for them. Now that being said though, that’s nine times out of ten. I know there are use cases, permanent life insurance. Talk to us about the, the, the use cases, the actual use cases.

Mark Maurer:
[00:26:02 – 00:29:18]
Who knows what estate taxes are going to be? But estate taxes is still an issue for some people, not near as many today as it was in the past. But having permanent life insurance inside of a, usually an irrevocable life insurance trust to help offset estate taxes due at death is still valid. Sometimes permanent life insurance for equalizing an estate. One kid, you know, the majority of somebody’s wealth is in a business or a farm. One kid runs the farm and one kid does something else somewhere, you know, who knows where. You don’t want to have to sell the farm so that kids can get their half of the estate. So life insurance can do that at death. People with special needs children, where the kids don’t have necessarily a shortened life expectancy, we use permanent life insurance, sometimes a second to die policy. So that when, you know, as parents we care for our kids and we do it all for free and we do it when we’re tired and even when we don’t want to. And so as long as one parent is around, they’re going to care for those kids. Even if mom and dad are 80 and the kids are 60, you just will. But then when both parents aren’t around now that care needs to go to somewhere else. Is it, is it a facility? Well, you need money for that. Maybe it’s a sibling, but the sibling has their own life. Maybe they need to move to be able to accommodate a special needs sibling at that point. So permanent life insurance comes into play there when someone, you have the two parents and no parents are alive anymore and somebody still needs care and some people just want it. To your point, you know, an index universal life policy that’s being sold as an investment probably isn’t usually the best fit. But there are people who have permanent life insurance. I come from insurance people, so I know that my parents have some that goes eventually to my brother and myself. I have a little bit of permanent insurance for my kids. The majority of what I have is term because I don’t want to spend that much money on it. I want the low cost term and do all of my saving and investments and be able to maybe make gifts to them while they’re alive. When they need a down payment on a house. Not necessarily to leave them leave kids a bunch of money when they’re beautiful. With the way we live, parents are dying at 90, 95. Their kids are 60, 65. You need money when you’re trying to buy your first house. You don’t need it when you’re basically retired. Like great, you know, thanks mom and dad, but I really could have used that when we were, you know, had to renovate our house. So for the most part sometimes people want it. They might have been the beneficiary of a life insurance policy at one point but then that’s where advisors or we can come into sort of the situation and say here’s what you really need or somebody showing you $1 million policy. Maybe, maybe it’s 100,000, maybe it’s 250. Sometimes our, our jobs I’m sure you know, is clients have something set in their mind. Sometimes if we tell them no, no, no, eventually they’re going to find somebody who will sell it to them and will sell them the million dollar whole life policy. Sometimes our job is say I really hear that. I think 250 would be a good set base on your budget and all.

Richard Taylor, Founder of Plan First Wealth:
[00:29:18 – 00:29:33]
These, these things or haven’t heard they’ve seen someone on TikTok who in front of a flip chart, always a man in front of a flip chart drawing LLCs and trusts and lines and life insurance and telling them how they. That’s how the, the secrets of the rich and famous avoid paying tax.

Mark Maurer:
[00:29:34 – 00:29:34]
Yes.

Richard Taylor, Founder of Plan First Wealth:
[00:29:34 – 00:29:38]
Oh God, this stuff that it makes your toes curl.

Mark Maurer:
[00:29:38 – 00:29:56]
Yes. And we’re more vanilla when it comes to life insurance. Term insurance There’s a few scenarios where permanent insurance makes sense, but for most people, I think the cost of it as compared to term and all the other investment options we have, they’re better off with term.

Richard Taylor, Founder of Plan First Wealth:
[00:29:57 – 00:31:30]
And this is why financial advisors come to LLIs, right, because that’s our belief and our way of thinking. Okay? So if you look, it’s a, it’s a, it’s a tool in the toolbox, but it’s a, it’s a Phillips head screwdriver, it’s not a mallet, you know, it’s not a hammer and it’s used like a mallet. So. Right, let’s give them a break from, from life insurance and let’s move on to the, the illuminating topic of annuities. Annuities for me, as I said before, big fan. For me, an annuity is an immediate annuity. You, you give an insurance company a load of money, they give you a guaranteed income for life. You know, ideally inflation linked, but that’s not as big a thing here. And I moved to America and annuities are investments in their own. Right, right. With loads of riders and stuff. And, and yeah, I found it all very bewildering. Now I’ll tell you what really annoys me the most about annuities. I find them really convoluted and complex, you know, with all these different riders and stuff. And annuity to me is such a, in its essence, it’s such a simple, simple product. Just like as I say, swapping a lump sum for a, for a, for a guaranteed income. Whenever, and this is without fail, whenever we’ve taken on a client who has already gotten annuity, we always groan because in the fat finding meeting, they will tell us what they think they have got. And when we actually get it and open up the bonnet and look at what’s going on. It is nothing like what they think and it is never better.

Mark Maurer:
[00:31:31 – 00:32:33]
Annuities, the core is that here’s an insurance company, here’s the money, pay me an income stream for life. You read old books and people talk about giving their servants an annuity or all of these fun things, and that’s all it was. Now we’ve added it where it’s not necessarily an income stream, but it’s another tax deferral vehicle like life insurance. You put in a lump of money, it grows on a tax deferred basis. Now with an annuity, your tax treatment when you start to take money out isn’t as favorable. You take out your gains out first. There’s no loans when you die with an annuity, it can pass to your spouse tax free or not as a non taxable event. But if there’s any money left over and you leave it to your kids, they’re going to owe tax on the gain. So the best part about it is the tax deferral in life, as you said. Now, now we can add guaranteed lifetime withdrawal benefit riders and guaranteed minimum income riders.

Richard Taylor, Founder of Plan First Wealth:
[00:32:33 – 00:32:39]
Just, just, just, just taking it back for one second. So tax deferral. Because I do often it’s, it’s positioned as that. So you.

Mark Maurer:
[00:32:39 – 00:32:39]
Yes.

Richard Taylor, Founder of Plan First Wealth:
[00:32:39 – 00:33:12]
Million dollars put into an annuity, not into a brokerage or whatever, because you get tax deferral. Right, Great. Yeah, you do. But correct me if I’m wrong here. You turn your 1 million into 1.5 million. You’ve not paid tax along the way. But when you come, if you do withdraw it as a lump sum, let’s say you dissolve the annuity and you pull out your 1.5 million, that 500,000 now isn’t, is taxable to income tax rates. So yes, you’ve deferred it, but your tax rate on that income is going to be way more than it would be for capital gains, right?

Mark Maurer:
[00:33:12 – 00:33:28]
Yep. 100% taxables, ordinary income or and let’s say I just wanted to take out some money. The first 500 I take out is going to be all taxes first. So I take all of my taxable money out first and then I take out the basis you’ve got.

Richard Taylor, Founder of Plan First Wealth:
[00:33:28 – 00:33:35]
You can’t, you can’t manipulate that in any way. You can’t say I’ll do 50% basis, 25% growth, it’s 100% income.

Mark Maurer:
[00:33:35 – 00:33:56]
The only way you could would be to annuities it to our income stream. Now when I do it as an income stream, then each payment is part gains, part basis. But if I just kept it, if I just kept it as that growing annuity, when I start taking a hundred thousand dollars out, my first $500,000, all.

Richard Taylor, Founder of Plan First Wealth:
[00:33:56 – 00:34:18]
Taxes up front, can you always annuitize? So if I’ve got 1.5 million with let’s say AXA, is there always an option to, even if I haven’t selected it at the beginning with one of these riders that we’ll talk about, is there always an option to annuitize? And do I have in the UK we call an open market option. Can I shop around to other providers other than axa or am I stuck with axa?

Mark Maurer:
[00:34:18 – 00:35:25]
No, you’re yes and no or no and yes, depending on which one I’M answering first. So yes, every annuity is going to have some built in annuitization table. So you can always call in and say what would if I wanted to turn this into an annuity media, we call them immediate annuities here. Immediate meaning that payments start within the next 12 months. So I’m going to turn into an immediate annuity. It’s going to start paying me the X amount per month. What are access rates? And they’re going to give you their rates. But then we can also do look at other providers and there’s what’s called a 1035 exchange. 1035 is a section of the Internal Revenue code that says we can transfer those cash values over to a new annuity company. The cost basis transfers over the taxes, transfer over. Note no taxable event transferred. Kind of like rolling an IRA from one provider to another. All the parts of it transfer over. So if Integrity or principal or Prudential or whoever has better annuitization rates, then that’s an option on the table.

Richard Taylor, Founder of Plan First Wealth:
[00:35:25 – 00:35:42]
I’m more okay with that. That makes sense. As long as the annuity itself for the 10 years or 15 years I had it beforehand, isn’t expensive, isn’t overly expensive because there’s different fees on these wrappers and you have access to decent investment options underneath.

Mark Maurer:
[00:35:42 – 00:36:40]
And even with annuities, you have like our life insurance, you have fixed annuities which says we’re going to pay you 3.5% for the next seven years. No more, no less. You have variable where you’re picking the, the mutual fund options inside these annuities. And a good, you have your good old indexed, you know, we have our old indexed annuities too where Instead of getting 3 and a half percent fixed, it might have a floor of 0 and a cap of 4 or cap of 4 and a half. Long time ago though, you would see caps of 5, 6 or 7% on annuities. One of the, I guess sort of my pet peeves about the index policies is that the indices, those caps can change. So even though I get a policy or get an annuity with a 7% cap next year, it could be 6% or 6 and a half percent.

Richard Taylor, Founder of Plan First Wealth:
[00:36:40 – 00:36:44]
Right. That just defeats the purpose that I.

Mark Maurer:
[00:36:44 – 00:36:53]
Would probably change my tune on, on index policies if I think those things could stay the same or change my tune a little bit. Maybe not, maybe not 100%.

Richard Taylor, Founder of Plan First Wealth:
[00:36:55 – 00:37:07]
Well, so can we talk about riders then? Because what, what you’ve outlined for me for, I could kind of get behind that honestly, again, subject to certain Specifics. But they’ve always got these expensive and complicated riders.

Mark Maurer:
[00:37:08 – 00:37:58]
Yep. Yeah. The most, the most common one is that, that in anything with an income rider. And what these will do is they’ll say if I, if I put in $100,000, I’m going to sort of have this, this phantom account that’s growing at 5%. And at some point in time, that $100,000 has grown at 5%, let’s say it’s grown to $200,000. This other account says at some point in time you can start taking income and we’re going to pay you an income based on $200,000, whatever my calculation might be, regardless of what the actual cash values are. So when clients hear I’m definitely going to earn 5% every year, many times it’s in this income account. It’s not their actual cash value, not their actual money.

Richard Taylor, Founder of Plan First Wealth:
[00:37:59 – 00:38:00]
They’ve not heard that.

Mark Maurer:
[00:38:00 – 00:38:01]
They’ve not heard that.

Richard Taylor, Founder of Plan First Wealth:
[00:38:01 – 00:38:12]
I’m not doubting that’s. I’m not doubting that’s what, that’s what been told to them. But the thing that’s lodged in there is, what you’re saying is, is this 5% a year guaranteed to get this amount back as income? That’s what’s, that’s what’s lodged.

Mark Maurer:
[00:38:12 – 00:38:44]
Yes, I’ve, I’ve heard it on, on radio ads here in Tampa. I know what they’re saying, the type of policy they’re talking about, but the way they’re saying it is not exactly. It’s kind of like our. Kind of like our loans. It’s not wrong. Yeah, but the way that you’re kind of saying it, I’m not sure is the most accurate. So those are. Usually you’re paying one 1.5% per year for these riders, one and a half.

Richard Taylor, Founder of Plan First Wealth:
[00:38:44 – 00:38:49]
Percent for the rider on top of the other, the fee for the contract.

Mark Maurer:
[00:38:49 – 00:38:50]
Yes, yes.

Richard Taylor, Founder of Plan First Wealth:
[00:38:50 – 00:38:53]
Usually that’s additional massive expense.

Mark Maurer:
[00:38:53 – 00:39:13]
So who would it be good for? Let’s say someone is five, six years away from retirement and has just enough money that if nothing goes wrong, we can retire. So someone would say, if we put it in this annuity, if the market goes up, great, this rider didn’t really do much. But if nothing, if things really go.

Richard Taylor, Founder of Plan First Wealth:
[00:39:13 – 00:39:33]
South, could we just go back to explaining the rider? Because I think I missed a part. So you put your 100 grand in. Yes, that’s going to be linked to whatever it’s linked to, whether it’s a fixed annuity or linked. But there’s a separate thing going on over Here, this income rider, it’s a fact, like a phantom account. Right. And that’s a, a 5% a year. Is that, does that have a term on it or is that just to.

Mark Maurer:
[00:39:33 – 00:39:38]
A certain date, usually 10 years, something like that, but it can, it can go on longer.

Richard Taylor, Founder of Plan First Wealth:
[00:39:39 – 00:39:49]
So based on this, this, this hypothetical with the guarantee attached to it, what happens? So you get to that end of that 10 years, what happens?

Mark Maurer:
[00:39:49 – 00:40:06]
So you decide whether you want to turn on the income rider or not. Let’s say I put in my $100,000. My income rider grew to $200,000. It’s going to pay me 5% on $200,000 or $10,000 a year for life.

Richard Taylor, Founder of Plan First Wealth:
[00:40:07 – 00:40:18]
That’s set at the beginning, not when you take the policy out. Okay. So you’re getting this hypothetical annual increase and a guaranteed amount with withdrawal amount if you turn that on. Okay, got it.

Mark Maurer:
[00:40:18 – 00:40:23]
So I can, it grew to 200. I can get $10,000 a year if I turn this rider on.

Richard Taylor, Founder of Plan First Wealth:
[00:40:24 – 00:40:24]
Yeah.

Mark Maurer:
[00:40:24 – 00:40:30]
If my account value is, my actual cash value is $80,000 because we’ve had a horrible market.

Richard Taylor, Founder of Plan First Wealth:
[00:40:30 – 00:40:31]
Yeah, yeah, yeah.

Mark Maurer:
[00:40:31 – 00:40:32]
Then it’s a good deal.

Richard Taylor, Founder of Plan First Wealth:
[00:40:32 – 00:40:33]
Totally.

Mark Maurer:
[00:40:33 – 00:40:44]
If my account value is $250,000, well, then it’s not really worth anything because why wouldn’t I just use the $250,000 for income?

Richard Taylor, Founder of Plan First Wealth:
[00:40:44 – 00:41:27]
You get to this point, you can and you can, you can pick and to pick, whichever. But it’s just that you’ve paid, you’ve paid for the privilege of having that decision along the way, that one and a half percent extra one to one and a half percent, which will have hampered your real account value. Right. So you’ve probably, you’ve cut into that over the 10 years, still might have outperformed, but you’ve given yourself more choices. Okay, I do. Right. So I, I mean, that’s expensive, but I get it, it’s expensive, you know, but I, I, I can see the benefit. And the scenario you outline there is a classic one when, you know, you meet someone who just, he just wants out. They’re just done. They want out. You really can’t afford to, you know, expose them to the market that much. And that is a solution.

Mark Maurer:
[00:41:27 – 00:41:46]
But, and that’s, you know, it so many things I, I try to find, I try to find the good parts because so many times I see it where somebody’s been paying for this rider for however many years, and they said, we don’t plan on using this annuity for income. And as you said, we see the, we see the Opposite side.

Richard Taylor, Founder of Plan First Wealth:
[00:41:46 – 00:41:52]
I see people in the 40s with these and it’s like, why, why you? Why are you paying two and a half percent for this annuity?

Mark Maurer:
[00:41:52 – 00:42:28]
Like what, in your 40s, your two and a half percent is better off accumulating. Yeah, so. So to me, I think where these were sort of that writer. We have lots of people. I’m never going to use this for income. Well, then don’t pay for the rider. You’re in your 40s. Yeah, I probably shouldn’t even have been an annuity in the first place because you’re probably not maxing out your 401k or your Roth or doing a 529 plan for kids, you know, but when you’re in your 20s and you have two, two and a half decades of, you know, getting the market growth, that two and a half percent really eats into that over that many years.

Richard Taylor, Founder of Plan First Wealth:
[00:42:28 – 00:43:17]
Really is into that. Yeah. You know, you got me thinking. You know, you said before someone in the 40s, you just shouldn’t, you have no need for this. You should be max out your 401k first. You should be putting money into at 529, you know, all the, all these boxes to tick first. Forget income riders. Just think Fox standard annuity, not immediate annuity, just putting a lump of money into an annuity. When or if does that ever make sense over say a brokerage account, which is going to get. So let’s say someone’s ticking, they’re maxing out the 401k, they’re putting money into 529, they’re saving money in already, they’ve got term insurance, they’re saving money into a brokerage account already. Is there ever a point where for tax diversification or something that an annuity makes sense? Bear in mind it’s going to be taxable to income tax.

Mark Maurer:
[00:43:18 – 00:45:01]
So because we work with fee only advisors who usually are able to. And as you talked about the taxes of an annuity, when you want to take it out, it’s not cap gains, it’s ordinary income. It’s all so advisors who have multiple options at their disposal. An annuity usually isn’t a great fit. So I would say for the most part, I don’t remember the number of advisors who have said, let’s put, and I’ll say new money into a variable annuity, into an indexed annuity, just for the accumulation component. In the last two or three years, with fixed interest rates being up higher. We’ve seen, we have seen some advisors who say, my client is very risk averse CDs are paying 2%. I can’t necessarily get them into bond funds but fixed annuities are earning 5%. So I have seen some very clients, advisors who are very risk averse putting new money into a fixed deferred annuity that says it’s got a guaranteed period, a guaranteed interest rate, no ifs, ands or buts. The other portion of any annuities that we work with are thinking a lot like you, partly because it’s an income rider or a rollover from somebody’s existing annuity, that expensive annuity that doesn’t have any bells and whistles that they bought 32 years ago or 15 years ago. But for the most part, I would say large, large majority is either going to be risk averse people looking for that fixed annuity or something with some sort of of income rider slash that immediate annuity that’s going to start, start paying out.

Richard Taylor, Founder of Plan First Wealth:
[00:45:05 – 00:46:34]
Well, this has been great. So look guys, this has been a really technical episode. I know we’ve talked life insurance and annuities and we’ve gone pretty technical and I make no apologies for that. Right. This is, I just hope that some people will hear this and maybe see through some of the messaging that they get bombarded with and make better decisions. And I’m not, I know I’ve been a bit negative, but I’m not, I’ve not. I don’t mean to slam the whole industry. There are really great use cases for all this stuff and insurance and annuities are a critical piece of the financial landscape, the financial tapestry. I’m all for that. I just see abuses. Like one of the things I see right now, Mark, is there’s a company who I believe are convincing everyone to roll the 401ks into IRAs and they’re slamming them into annuities because annuities pay commission. Right. That’s the really, really ugly end of this. Right. That’s the vast majority of people involved in this aren’t doing that. But that is something I’m hearing a lot of and it makes my blood boil. And then just the stuff that we see on a daily basis is people, we just pick up clients and they tell us they’ve got X and we look at it and it’s Y. And Y is never as good as X. So I hope people listen to this and they understand enough of it. But what I’ll do is I’ll. When I hear people talking, I’ll send them to the pick this episode up and just hear from Her So and hear from, from relatively impartial. I know we’re not totally impartial. Right. We’re in the industry. But relatively impartial people discussing this, the use cases, the, the abuses and, and they, and it can help people. So thank you.

Mark Maurer:
[00:46:34 – 00:47:28]
Of course. Well, and, and as you said, there’s, there’s uses for it. That’s why we love working with fee only advisors. Because I can, I can talk to you and say tell me about the clients, tell me about their specifics. A index, universal life policy. Like your point of a mallet is not good or bad, but if I want to fix my watch, I don’t want to use the mallet. So we get to work with advisors that tell me about the clients, what are their goals or plans, where are they, how many kids do they have, how old are their kids, what are their goals? And we get to factor in these things and sometimes say it’s working pretty well. Maybe we don’t. Maybe we keep with that and add term. Sometimes it’s just not working at all. And we really need to free up cash flow and we find ways to, to unwind them. But like you said, they’re not all bad. There’s a lot of, a lot of good to all this. But just so many times it feels like there could be a plan B.

Richard Taylor, Founder of Plan First Wealth:
[00:47:28 – 00:47:30]
Right, Mark, where can we find you?

Mark Maurer:
[00:47:30 – 00:47:39]
L l I s.com or my email is Mark M A R K Maurer. M A U R E R l l I s.com or through you or.

Richard Taylor, Founder of Plan First Wealth:
[00:47:39 – 00:47:41]
Any, I was going to say any.

Mark Maurer:
[00:47:41 – 00:47:43]
Fee only advisors but hopefully through you.

Richard Taylor, Founder of Plan First Wealth:
[00:47:44 – 00:47:58]
Yeah, well look, I was gonna say like yeah, where can we find you, Mark? Not that they don’t know. They need to because they need to come to us. And we will, we will funnel. But yeah, you’re on LinkedIn, website, email, all good stuff. All right, so thanks once again, Mark.

Mark Maurer:
[00:47:58 – 00:47:59]
Appreciate it. Absolutely.