No. of Recommendations: 1
Hi AJ,

Additionally, the only way that the insurance company 'guarantees' a miniumum 4% 'return' is a combination of setting a cap on the return that they will give you and returning a portion of your principal as part of the minimum payout.

This isn't true, unless I am misunderstanding your statement (not really in any way I can try to make it true to come close to agreeing.) Fixed rate annuities & cash value life can both credit a straight 4% without requiring you to distribute principal (let alone requiring it as part of the 4% calculation.)

Since you won't actually get a copy of the contract until after you pay your money, just marketing information,

Most insurance companies can provide a sample contract identical to what your chosen product contract will be, known as a "specimen contract," on request in advance of your approval, and certainly before issuance.

it may be hard to discern that part of the 4% guarantee is part of the return, but if you are given a table that shows the principal balance if you make the 4% withdrawals each year, you can usually see that the principal balance goes down each year.

If we are referring to annuities, then for tax purposes each withdrawal or distribution must be accounted for as a pro-rated blend of interest credit and original principal. If a contract is paying a 4% guarantee, then the overall balance (including whatever portion you are distributing) will reflect the full 4% rate of growth. A 4% crediting rate cannot be calculated as including principal in order to reflect a (for example) 4% "distribution rate" rather than an actual 4% growth rate.

If we are referring to cash value life, there is no requirement for distributions to be accounted on a growth/principal blend if accessed on policy loans.

Dave Donhoff
Leverage Planner
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