What on earth is a mortality credit? Lets look at a basic example I learned from Tom Hegna.
Ex: 5 old ladies meet one day and decide to each put $100 in a coffee can and bury it in the back yard. They decide to come back in exactly one year and split the money equally. Over the next twelve months one of the ladies dies. When the anniversary comes each lady gets $120. That's a 20% gain and they never even invested the money! They decide to let the money ride and the next year two ladies pass. Now each is entitled to $250. They have more than doubled their money in two years!!
This is an example of mortality credits and it is part of what makes annuities a valuable tool. Aside from gains, or potential gains (depending on the type of annuity), in the underlying investment, individuals who own annuities also reap the benefits of mortality credits. This is a credit that is applied simply for making it another year. Think of it as your birthday present to yourself!
There are many great reasons to consider an annuity as part of a complete investment portfolio. We will consider these other benefits in a future blog. Please email me to receive more information.