Does Your Income Rider Annuity Have an Exit Strategy?
To learn about the annuity that was designed with an income rider exit strategy, click on the following link:
Oh, and if you care, the company that offers the exit strategy discussed below just increased their commissions including a 2% up front and 1% trail option (which is the option I would choose).
After doing the “Should We Hate Ken Fisher?” newsletter last week, I wanted to follow up this week with a newsletter having something to do with annuities. If you didn’t read my Ken Fisher newsletter and want to, click on the following link:
Over the last year I’ve done several newsletters on FIAs (click on each to read them):
–The Best FIAs IMOs Won’t Tell You About
–Has Hell Frozen Over? Mass Mutual Rolls out an FIA
–New FIA Hits the Market with Highest Guaranteed Income Rider
–FIAs with Volatility Controls-How’d They Do During the Recent Market Downturn?
–Volatility Control Index White Paper – A Must Read if You Sell (or are thinking of selling) FIAs
I wrote the newsletter below earlier this year and, I hate to say it, but I got so busy with other topics that I forgot to send it out.
Contrary to Ken Fisher, anyone who’s read my newsletters or books knows that I am a fan of FIAs and FIAs with income riders.
With FIA caps still being low, many people buy FIAs because of the guaranteed income for life rider that comes on many FIAs today. The riders on FIAs are better than those on VAs and for the right client FIAs with an income rider can really be part of a financial plan to help the client reach their retirement income needs.
Income Rider Contingency Plan-if you’ve ever sold an annuity or cash value life policy, you know that many times circumstances come up and the product purchased doesn’t fit the need it was originally purchased for.
How many FIAs with income riders will be surrendered (take the cash value) instead of having the income rider turned on? Quite a few.
9% Bonus to Leave the FIA?
So, let’s say the client has had the FIA with an income rider for 10 years and decides that he/she doesn’t want the income rider and really would rather just cash in the annuity.
Would the client like a 9% bonus on their actual “account value” to surrender the product?
Wouldn’t the client like to have their income rider fees back?
Let’s look at an example. Say the client is 55-years old and paid a $500,000 premium into an FIA with a guaranteed income rider. Assume the annual income rider fee is 1%.
When the client turns 65, assume the client paid internally in the FIA $70,000 in income rider fees over ten years and had an actual account value of $811,000 (4.5% average ROR).
If the client decided he/she didn’t want the rider and really didn’t need the annuity anymore, the FIA I’m alluding to in this newsletter by design would credit back to the client the $70,000 rider fee charged over the life of the annuity.
So, the walk away value of the annuity isn’t $811,000 but instead is $881,000.
The return of fees paid turned out to be about a 9% bonus to leave the product.
All things being equal….
There is no perfect FIA that fits all clients. But if your clients had the option of purchasing an annuity that has one of the top guaranteed income payment schedules (with some of the best caps) (which drive a high actual account value over time)) and it also came with a refund of rider fee option, wouldn’t you want to know about that product so you could offer it to clients?
Avoiding Lawsuits and Suitability-while the product I’m discussing in this newsletter may not be the one your clients go with 100% of the time, the fact that you discussed it with them as a potential option will go a long way toward protecting yourself from lawsuits and questions about suitability.
Roccy DeFrancesco, JD