VJ Says
What's Hot & What's Not!

Guaranteed Income Annuities

The wave of "Guaranteed Income Annuities" is hitting the insurance market by storm. The concept is so simple that is seems almost impossible that it was not introduced before 2007 in its present form. These "Guaranteed Income Annuities" are in reality Indexed Annuities with the unique twist of offering a Guaranteed Income Benefit, so if you wear a "Just say no to indexed annuities" button on your lapel, read no further!

Here is an example of how these annuities work. Take a male 60 years old who makes a one-time deposit of $100,000 into one of these annuities. If the client waits only 5 years before turning on the income benefit, he is guaranteed to receive somewhere around $600 per month for as long as he lives even if the Account Value falls below zero dollars! This is not "annuitization" because most of these annuities allow the client to turn off the income benefit whenever they chose, and the contract reverts back to the original surrender period and associated surrender charges.

Naturally the longer the client waits to turn on the benefit, the greater the guaranteed monthly income becomes. The "safe" rule of thumb is 4.5% a year in added income each year they wait for the income to kick in. Thus if that 60 year in the above example waits until age 70 to "kick in the benefit" he would now receive around $735 per month guaranteed for life instead of the $600 per month he would receive for kicking in the benefit at age 65.

Now I just know there are Anti-Indexed Annuity fanatics out there who are just chomping at the bit to jump in here to tell me how one of their clients got "burned" by XYZ company because the agent didn’t explain the moving parts of an indexed annuity in enough detail. Usually the way these people got "burned" was by comparing the annuity performance to what would have happened if the client put that same money into the stock market, and the market went up 20%. So what if the market went down 35% during that time, how is that $100,000 looking now? Here’s one better. What if that stock they bought with that $100,000 went to zero like MCI, WorldCom, Enron or one of about 5000 companies that did within the past 10 years. Most of these annuities lock-in annual gains and even have the nerve to yield a guaranteed rate every year, albeit they are nominal.

So the critics say in return "that is not what I am talking about, what about the surrender charges that they didn’t understand"? While I understand that there are circumstances where the client needs the money because of an emergency, more likely than not the reason for cashing in the annuity in the first place is because another agent wants to replace it.

Personally, I like Indexed Annuities when the moving parts such as CAPS, Participation Rates, MVRs, Surrender Charges and Surrender Periods are properly explained to the client before the sale. I like Indexed Annuities that waive the surrender charges at death even more, because 84% of Indexed Annuities are still owned by the client at death.

Your opinions are welcomed. If you would like to give me your opinion on Guaranteed Income Annuities or if you would like to voice your opinion on this website, email me: bono@insuranceiq.com

Until then, CIAO and Good Selling!

Vincent J. Bono is the Founder of Insurance IQ. The opinions Vince expresses in this column are strictly his own, and based on the feedback he receives on a daily basis from the 1,300,000 Agents and Securities Reps in the IQ database.

VJ Says Archive