Variable Vs Index Annuities

[AlTheGud1sRtakn]

I've got a fair amount of knowledge about VAs, but I've never used an Index Annuity before. Got a call from a wholesaler the other day that piqued my interest and he sent me some info, but it's more a brief overview. I dug around on here and online and the consensus seems to be you can get higher guaranteed roll-up values with lower fees with IAs than VAs, the few IAs I've looked at seem to back up the first statement but fall FAR short of the second, especially when you look at some of their crappy cap rates. I hear many have crap participation rates as well, but the ones I've looked at seem good.

Is there something out there that I really need to take a look at or am I doing my math right? My googleing makes me think I need to dig deeper. Common sense and what I've seen so far tells me that they have their place but there's no free lunch and that the VAs I've sold were still the best fit for the particular situation.

 

[sman]

I've got a fair amount of knowledge about VAs, but I've never used an Index Annuity before. Got a call from a wholesaler the other day that piqued my interest and he sent me some info, but it's more a brief overview. I dug around on here and online and the consensus seems to be you can get higher guaranteed roll-up values with lower fees with IAs than VAs, the few IAs I've looked at seem to back up the first statement but fall FAR short of the second, especially when you look at some of their crappy cap rates. I hear many have crap participation rates as well, but the ones I've looked at seem good.

Is there something out there that I really need to take a look at or am I doing my math right? My googleing makes me think I need to dig deeper. Common sense and what I've seen so far tells me that they have their place but there's no free lunch and that the VAs I've sold were still the best fit for the particular situation.

I'm sure you've done this, but just in case, check with your B/D to make sure you can even offer IA's. If you can, make sure you know which IA's they allow if they have any limitations. My B/D hasn't cared for years. However, beginning in March, any IA that is sold with funds from liquidated securities (stocks, mutual funds, VA's) will require prior approval. Fortunately any fixed annuity business will still be OBA and won't run through the B/D grid.

I don't know if it's still up to date, but Jack Marion put together a website with tons of info on index annuities.

index annuity jack marrion fia

Personally, the only time I sell a VA is for risk management (i.e. - when the client wants a guaranteed income while still having access to their money). I'll use a 4-year product to keep the surrender period fairly short. I still have mixed emotions on using an IA for a similar situation. While fees are definitely higher on VA's, I've still had some people get step ups in value which means a higher income (this while they are already taking income). While not impossible with an IA, it is less likely because of the restrictions (caps, spreads, etc). For this reason I don't use them often. Usually it's for the risk averse client who wants the opportunity for a better return than they are getting on their CD's and money market and is willing to tie up their money for a little longer. Of course, your mileage may vary.

 

[DHK]

I'm a big fan of lifetime withdrawal or income benefit riders, so this is what I look for as the "selling point" on index annuities. Otherwise, they're not really that 'sexy' when compared to other market-based products. (Of course, they're really not designed to compete with those products, so the comparison really isn't fair.)

Right now, I agree that the caps are very low. But being able to have a 7% income base step-up per year for 10 years (nearly doubling the income base)... or a 4% + index movement (subject to cap) per year for 10 years + index movement ongoing... is very attractive to me in the right situations.

That's what ANICO is offering on their rider:
http://img.anicoweb.com/cs/groups/p...t/documents/webcontent/10613_asiaplus_lir.pdf

Without such a lifetime benefit rider... I think I'd have a hard time even thinking of recommending an annuity.

As far as fees in index annuities... there aren't any. You will typically need to commit the funds to the insurance company LONGER than most VAs and surrender charges may be HIGHER... but the rules are still generally the same.

If you take out more than allowed by your lifetime benefit rider, your future benefits will be recalculated... and probably not in your favor.

If you take out more than 10% in a given year, then the amount above the 10% is subject to a declining surrender charge depending on the contract year.

IMO, any "bonus annuities" typically require even longer surrender charges and they have their own "vesting" schedule on how and when the bonus is credited. There Ain't No Such Thing As A Free Lunch.

 

[AlTheGud1sRtakn]

I have checked and in my state I can sell several different IAs, but thanks for the heads up.

I'm really only looking at annuities anyways for the guaranteed withdraw benefits, which both of you seem to agree with. My clients who are more interested in growth over time I've got in mutual funds.

 

[sman]

I have checked and in my state I can sell several different IAs, but thanks for the heads up.

I'm really only looking at annuities anyways for the guaranteed withdraw benefits, which both of you seem to agree with. My clients who are more interested in growth over time I've got in mutual funds.

I didn't suggest you check with your state. I suggested checking with your B/D (Broker Dealer). Many B/D's have a list of approved IA's. Some don't allow them at all. So it's important that you know which IA's you can offer before you offer any.

 

[scagnt83]

IAs by far have superior Income Riders. Both the rollup rates and the Fees charged are superior to VAs. NWL has an excellent Rider combined with strong participation rates. So does AE. Athene has some nice participation rates and a good Rider too.

Imo the only reason to sell a VA is for the Rider... and with IA Riders beating VA riders... imo there is no reason to sell a VA in today's product market.

 

[DWPCL]

IAs by far have superior Income Riders. Both the rollup rates and the Fees charged are superior to VAs. NWL has an excellent Rider combined with strong participation rates. So does AE. Athene has some nice participation rates and a good Rider too.

Imo the only reason to sell a VA is for the Rider... and with IA Riders beating VA riders... imo there is no reason to sell a VA in today's product market.

What about something like jacksons elite access? All in around 1.8 and some actively managed mutual fund accounts doesnt sound too bad.

I am not securities licensed btw but I always thought it was a good product.

 

[AlTheGud1sRtakn]

I didn't suggest you check with your state. I suggested checking with your B/D (Broker Dealer). Many B/D's have a list of approved IA's. Some don't allow them at all. So it's important that you know which IA's you can offer before you offer any.

Sorry for wording that poorly. I work for a big mutual and our approved vendors vary by state, which is why I said state.

Any other suggestions on where I should look? I'm particularly interested in IAs where guaranteed rollups can continue beyond when the client(s) begin drawing income.

 

[SanDiego619]

Sorry for wording that poorly. I work for a big mutual and our approved vendors vary by state, which is why I said state.

Any other suggestions on where I should look? I'm particularly interested in IAs where guaranteed rollups can continue beyond when the client(s) begin drawing income.

I can't think of anything where you would find a roll-up to continue even after taking income. You could take a free withdrawal and the roll-up would continue but you would get a pro rata deduction from the income account. I.E. withdraw 10% of account value only to also have 10% come out of your larger income account value.

The two closest things I could say to match what you're looking for would be American General's Power Select Plus Income and Allianz products with an increasing income option.

AIG's product has 7.5% simple roll-up for 10 years. If someone triggers income before that time the roll up continues by an amount calculated by using the 7.5 and subtracting their payout percentage. So if they trigger in (lets say) year 5 and their payout factor is 5%. They will continue a 2.5% simple roll up for the next 5 years.

Allianz products have an option to trigger an increasing income by taking a 1% reduction in initial payout percentage but then the client gets a pay raise by the same percentage of whatever their index gain is for that year.

Hope this helps

 

[Golfnut2112]

IAs by far have superior Income Riders. Both the rollup rates and the Fees charged are superior to VAs. NWL has an excellent Rider combined with strong participation rates. So does AE. Athene has some nice participation rates and a good Rider too.

Imo the only reason to sell a VA is for the Rider... and with IA Riders beating VA riders... imo there is no reason to sell a VA in today's product market.

That comment is crazy!! Do you have a security license?