A funding agreement is similar to a Period Certain annuity in that it provides a predictable stream of fixed payments. It can be fully customizable at the outset, and payments can be paid at different amounts and times. A funding agreement is a legally enforceable document that may be used for settlements between corporations or B2B disputes.
Applications:
- Policy buyouts
- Future bonuses and/or benefit plans for employees
- Government contracts
- Building contracts
- 501(c)(3) Charity Contracts
- Funding of environmental clean-up site schedules for remediation and stewardship, and other scenarios where a corporation or other entity (i.e. that is "other than a natural person") needs a contract providing for a fixed payout and cannot use an annuity.
- An ERISA employee benefit plan or any similar plan in a foreign country (will require the tax status of plan in that case)
- As an agreement to make periodic payments to satisfy a claim (e.g.: like a structured settlement where payee is a business entity)
- Any program of the United States, any state or other political subdivision, or of any foreign government (including its political subdivisions). Special requirements for foreign governments include indicating the political subdivision, agency, or program of that foreign country and the funding agreement issuer must be provided with a description of the nature, purpose, and tax status of the program);
The differences between a funding agreement and a regular annuity are:
- There is no Measuring Life or annuitant
- There is no premium tax
- The owner (assuming it’s a taxable entity) is taxed on the inside build-up
- Because the funding agreement is not an annuity, IRC Section 72 restrictions do not apply
Benefits:
- Stable Value. More effective future planning due to certainty of recovery
- Diversification through use of insurance company credit as an alternative to other vehicles.
- Flexible design can be tailored to meet the needs of clients.
- Tax-efficiency through timing of payments
- Provide financial assurance to the Payee
- Potentially significant expense reduction
- Insured's ability to meet SEC requirements may be enhanced
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