We would love to hear from you. Click on the ‘Contact Us’ link to the right and choose your favorite way to reach-out!

wscdsdc

media/speaking contact

Jamie Johnson

business contact

Victoria Peterson

Contact Us

855.ask.wink

Close [x]
pattern

Industry News

Categories

  • Industry Articles (17,774)
  • Industry Conferences (3)
  • Industry Job Openings (3)
  • Moore on the Market (207)
  • Negative Media (139)
  • Positive Media (73)
  • Sheryl's Articles (656)
  • Wink's Articles (265)
  • Wink's Inside Story (238)
  • Wink's Press Releases (99)
  • Blog Archives

  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • November 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • August 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • November 2008
  • May 2008
  • February 2008
  • August 2006
  • Have you truly considered the effect of rider charges on a fixed or indexed annuity?

    September 22, 2011 by Sheryl J. Moore

    You may be able to sell the sizzle of the roll up on that income or death benefit rider, but can you pass the test when it comes time to explain the ramifications for your client electing it? You need to. Get educated and ensure that you understand the
    products you are selling.

    “Zero is your hero!” The words that captured my heart. As a young saver who had lost more than a year’s salary in my 401(k), the promise of earning no interest sounded pretty darn good. Sure, the ability to outpace the interest on CDs and other fixed interest retirement products was appealing to me, but suffering the losses of the dot com bubble’s burst had soured me.

    I just couldn’t justify taking an additional risk with my retirement dollars by keeping it in my newly-acquired “201(k).” It was then, in my search for a safe money alternative, that I met the love of my life: indexed annuities.

    At the time, the product offered a  strong value proposition. I could purchase an indexed annuity for my retirement and earn interest based on the market’s growth — as much as 12 percent or more in a single year!

    I realized I couldn’t take advantage of the full increase in the market with indexed annuities; I knew the market-linked gains were limited. However, the real clincher for me was the promise that “regardless  of the market’s performance, my retirement fund’s value would never be less than  the previous year.”

    Never less? That’s right — indexed annuities promised zero percent interest as the worst-case scenario. It was a match made in heaven.

    And just as indexed annuities and I were passing the  “seven-year itch,” my heart broke.

    In 2006, the indexed annuity market changed forever. It was at this time that the introduction of optional riders/benefits changed fixed and indexed annuity landscapes.  This pivotal moment marked the occasion when the first guaranteed minimum death benefit was introduced on an indexed annuity, in exchange for an annual fee. Neither the fixed or indexed variety of annuities had previously offered such a feature, yet riders with fees were commonplace in the variable annuity market.

    Then again, with average annual fees on VAs exceeding 4.5 percent, tacking on another benefit for a fee as not that noteworthy on this risk-based type of annuity.

    Take a  product with principal protection, on the other hand, and introduce a VA-like
    feature, now that is a game changer. In fact, GMDBs permanently altered the
    insurance agent’s communication of the indexed annuity product. No longer could
    one assert that in the worst case scenario, your retirement fund’s value will be
    the same that it was last year.

    No. Now, you actually could lose money in an indexed annuity — even if the client did not cash surrender the contract.  And GMDBs were just the beginning. With the introduction of guaranteed lifetime withdrawal benefits shortly thereafter, fees
    for optional benefits become commonplace on both indexed and fixed annuities.
    Consider: Today, nearly 60 percent of all indexed annuity sales have an optional GLWB elected on the contract. The vast majority of these riders charge an annual fee in exchange for the benefit.

    Did you, as an agent selling these benefits, realize that you can no longer say that your client’s annuities will never decline in value, as long as they don’t take withdrawals?

    You should.

    Let me thicken the plot. Did you realize that an indexed annuity with an optional fee-based GLWB or GMDB doesn’t offer a guaranteed return of principal much less a guaranteed return of principal, plus interest?

    That’s right.

    With less than five exceptions, every one of these riders can eat into the principal on the contract. So, if the S&P 500 were to decline every year of the surrender charge period, your clients will still be paying a charge for that rider, and that means that they will get back less than what they paid in, if they decide to cash surrender the contract. Did you know that? I hope so.

    Let’s complicate the issue even further. What if the product that you are selling has rider fees that cannot only invade the principal of the annuity, but can also eat into the guaranteed minimum surrender value on the contract?

    You know, the value that essentially says that in order to be compliant with the National Association of Insurance Commissioner’s standard non-forfeiture laws, the policyholder must never receive less than 1  percent interest on 87.5 percent of the premiums paid?

    How could an insurance company offer such a product, if it isn’t compliant with the SNFL, you ask? You got me. Yet, there is such an indexed annuity that is available for
    sale today. I hope you know it, if you are selling it to your clients today.

    Let me continue to play devil’s advocate here. With the recent ramp-up in GMDB product development, this particular issue comes to the forefront of my mind. We are now able to create a “cafeteria plan” type of retirement product with indexed annuities.

    Need a rider offering higher caps? Here you go. And an enhanced death benefit with
    your order? Sure, we’ve got those too. How about a side of GLWB to go with that?
    You bet. That will be a total of 2.5 percent of your annuity’s account value annually, please. Do you prefer paper or plastic? You get the idea.

    But this is a fixed annuity, folks, not a VA! Now, I’ve always told agents if they are going to sell a GLWB or a GMDB on the contract, they need to allocate at least a little of the policyholder’s premiums to the fixed bucket of the indexed annuity. This helps avoid that uncomfortable conversation about why the annuity’s value is less than the previous year when the S&P 500 has experienced a downturn.

    Considering that fixed rates are normally in the 2 percent range, and rider charges typically didn’t exceed 0.75 percent — this little workaround allowed us to forego that uncomfortable conversation.

    But what if the total fees for all of the annuity’s optional benefits exceed the rate on the fixed bucket? Now there’s something to think about … and you should — because total fees on optional indexed annuity riders today can exceed 2.5 percent annually, yet I have fixed buckets crediting as low as 1 percent.

    Listen, folks, I love GLWBs — I developed the dang things. And I’ve got nothing against providing enhanced death benefits on annuities for those who cannot obtain life insurance.

    However, everyone needs to get more educated on this issue. You may be able to sell the sizzle of the roll up on that income or death benefit rider, but can you pass the test when it comes time to explain the ramifications for your client electing it?

    You need to. Get educated and ensure that you understand the products you are selling.

    Originally Posted on August 3, 2011 by Sheryl J. Moore.

    Categories: Sheryl's Articles
    currency