Use a Flexible Premium FIA to Turn $100k into $600k over 15 Years
I believe every advisor owes it to their clients to learn about the FIA I’ll be discussing in this newsletter. To sign up for information on this unique FIA product, click on the following link:
Question: Are you using flexible premium FIAs with your clients? Most advisors are not!
What is a flexible premium FIA? It’s one that the client can pay premiums into every year. Is that a big deal? Yes, most FIAs are single premium products (additional premiums are NOT allowed).
By the way, the FIA I’ll be discussing pays a 1% trail commission. So it should be appealing to IARs/RIAs who like to build trails (insurance agents should be using trails as well).
Space is short, so let me get right into my two examples.
1) $100,000 one-time premium into the flex FIA for a 50-year old who will let the money grow for 15 years.
Our OnPointe Risk Analyzer software has an FIA illustrator built into it with a Monte Carlo (MC) simulator. For this example, I put the money into a no-cap/100% participation rate index and ran it through the MC simulator. The MC simulator generates the 25th, 50th, and 75th percentile returns (worst, most likely, and best case).
-Worst account value $203,747 -Worst benefit base value $357,309
-Most likely account value $233,038 -Most likely benefit base value $406,714
-Best account value $246,789 -Best benefit base value $429,875
Let me explain the numbers above. The “account value” numbers are the walk away/surrender value with no income rider. The “benefit base value” numbers are the value used to calculate the guaranteed income for life payment.
So, with just a $100,000 premium, if the client chose to add the income rider he/she can expect a “benefit base” for a guaranteed income for life payment of between $357,309 and $429,875. That is incredible considering there is NO RISK OF LOSS in an FIA. FYI, the guaranteed income payment for this example client with the most likely benefit base balance would be $20,335.
How does this “benefit base” accumulate in this product? It is a 4% annual guarantee roll up every year PLUS whatever the measuring index returns. So, if the measuring index returns 4%, the benefit base rolls up at 8%. If the index returns 8%, the benefit base rolls up at 12% (much more upside than the level roll up products (which are somewhere around 7% annually)).
Turning $100,000 into $600,000
2) Here’s “the” example…50-year old client has $100,000 in an IRA, (rolled over from a previous employer) who also plans to contribute $7,000 a year to the IRA every year for 15 years. Because this powerful FIA is a flexible premium product, the outcome for this very average client is really life changing.
For this example I used the average ROR generated for the mostly likely benefit base value ($406,714) from my earlier example and added $7,000 a year as a contribution to the IRA every year from years 2-15.
The “benefit base” for income purpose is calculated to be…drum roll…$633,933 at age 65.
At age 65, the guaranteed income for life payment would be $31,696 (a 5% income payment).
If you are not sitting there thinking to yourself, that is incredible, you should be.
By the way, the rider fee on this product is calculated off the actual account value, NOT the benefit base amount like most products (meaning the fee is much less).
But I do not like guaranteed income riders! Far too many advisors have this attitude. I get that there is cost to the income rider, but where else can you show your client a “realistic” scenario where you can take their $100,000 + $7,000 a year for 15 years and turn it into a guaranteed income payment of $31,696?
PLEASE put your preconceived notions away when it comes to guaranteed income riders and do the due diligence so you can make an “informed decision” about using this product.
Total Commissions? If you can’t motivate yourself to learn about this product even though it’s your duty to do so for your clients, then how about learning about it because the commissions are significant?
Total commission for this example client is $56,429 over the life of the annuity (assuming the client doesn’t die before age 79).
What would an agent normally make on an FIA sale? 6%-7% up front as a one-time commission.
You would be out of your mind to sell an up-front 6%-7% commission product to a client like this when you could take the trail fee option and have the client continue to fund the FIA every year.
-If at the start of this newsletter you were one of “those” advisors who doesn’t like or use FIAs…
-If you are one of “those” advisors who never uses income riders….
-If you are still negative on FIAs and FIAs with income riders after reading this newsletter, please email me or call me and tell me why. I want to know (seriously, I want to know).
Roccy DeFrancesco, JD