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
  • Secrets of Guaranteed Lifetime Income Riders

    March 10, 2012 by Michael J. Prestwich

    March 02, 2012

    By Michael J. Prestwich
    AnnuityNews

    The name says it all: the purpose of a Guaranteed Lifetime Income Rider (GLIR) is to provide a guaranteed lifetime income. Period. Improperly sold, a GLIR can do your customers great financial harm. On the other hand, a properly implemented GLIR can be an astute financial move. This article will cover the following subjects:

     

    • · When a GLIR is right for your client, and when it is not.
    • · Avoid promising 7.2 percent when the return is likely to be closer to 0 percent.
    • · Calculate the cost of withdrawals.
    • · How to cut the cost of lifetime income riders in half.
    • · Let income taxes work for you instead of against you.

     

    When is a GLIR is right for your client? The GLIR costs money. Think of the .50 percent, .75 percent or 1.00 percent reduction from the account value as insurance against running out of money if your client lives to a ripe, old age. This insurance premium is a waste of money for a person who will very likely live less than the average life expectancy. People who have high blood pressure, heart disease, cancer, diabetes, obesity, and emphysema generally die sooner than those who do not have these health risks. In my view, most people in these situations should avoid adding a GLIR to their annuity policy.

     

    Avoid promising 7.2 percent when the return is likely to be closer to 0 percent. Here’s an example of when a GLIR is inappropriate. Fred Hefty, age 60, who has a life expectancy of age 81, puts $100,000 into a fixed indexed annuity with a GLIR that charges .75 percent of the value of the income account each year. The income account is guaranteed to grow at the rate of 7.2 percent each year. The first year cost is .75 percent of $100,000, or $750. In year 10, the income account has doubled so the cost is .75 percent of $200,000 or $1,500; in year 20 the income account has doubled again so the cost is $3,000. Assuming a hypothetical 3 percent average interest rate, by including the GLIR the indexed value of the annuity would grow to just over $141,000 in 20 years; without it, the value would be nearly $181,000. If Fred begins the $26,110 guaranteed lifetime income at age 80 and lives until age 85 (four years longer than his current life expectancy), he would receive $130,550 from the policy. This represents a 1.25 percent rate of return. Assuming a 25 percent income tax bracket, the amount Fred would receive is about $98,000, less than a 0 percent return. Using the same assumptions, without the GLIR Fred could withdraw $26,110 from his policy for 8 years, pay minimal taxes, and receive about $180,000 after-tax. On the other hand, if Fred lives until age 95 he would receive nearly $400,000, $300,000 after-tax. The lesson learned here is that your client’s life expectancy is a critical component when determining whether a GLIR is a suitable option for your client. I highly recommend that you walk your client through a Life Expectancy Questionnaire, such as the one on the livingto100.com website, prior to selling a GLIR. Keep a copy of the results in your files in case you ever have to prove the suitability of this recommendation.

     

    Calculate the cost of withdrawals. If you add a GLIR to an annuity policy, tell your client to avoid taking withdrawals except in an extreme emergency. If your customer wants to take a withdrawal, ask the insurance company to calculate the future consequences of this withdrawal on the guaranteed lifetime income. The numbers may surprise you. One client who started a $100,000 policy at age 60 wanted to take a $10,000 one-time withdrawal until he discovered it would reduce his lifetime income by $1,600 per year. Since he planned on living until age 95, this single $10,000 withdrawal would cost him $1,600 times 25 years, or $40,000. He found the $10,000 somewhere else.

     

    How to cut the cost of lifetime income riders in half. So far, you must think I have a negative opinion of Guaranteed Lifetime Income Riders. The opposite is true. My paternal grandfather lived until age 94 and my father still works part-time at age 80. I am fortunate enough to have the “risk” of living to age 100 or beyond. I use the above examples because too many producers add a GLIR on annuity policies without asking their customers about their life expectancy, income tax situation, liquidity needs, or future income needs.

     

    Let income taxes work for you instead of against you. Here is a simple idea that will increase your customers’ indexed account value, give them more flexibility, higher after-tax income, and won’t decrease your commissions: Instead of selling a $100,000 policy with a GLIR, sell two $50,000 policies, one with, and one without a GLIR.

     

    Compare the results for a man age 60, in a 25% tax bracket, earning a constant hypothetical 3 percent interest rate: In ten years the $100,000 policy grows to a $122,000 hypothetical value and will provide just over $11,000 of guaranteed lifetime income. Since all of the income from a GLIR is taxable, the after-tax income from this policy is about $8,250.

     

    In 10 years, the two $50,000 policies have a hypothetical value of $133,000 because the cost of the GLIR is half that of the single $100,000 policy (the first year $50,000 times .75 percent = $375; $100,000 times .75 percent = $750). In year ten, the first annuity will pay out roughly the same after-tax income for ten years as the $100,000 plan. In the 20th year the second annuity will provide a guaranteed lifetime income of just over $14,000 — $3,000 per year more than the $100,000 policy.

     

    In summary, generally you can optimize the benefits of guaranteed lifetime income riders by using the following strategies:

    Sell GLIRs when your customer has a life expectancy of age 90 or longer.

    Don’t put the GLIR on one single policy, but divide the money into two or more policies.

    Base your calculations on the after-tax income.

    As required by the 2010 NAIC Suitability in Annuity Transactions Model Regulations, disclose the cost of the GLIR to make sure your customer sees the value of what she is buying.

    Use withdrawals from annuities that do not have a GLIR for your client’s unexpected cash needs and to provide income until the policy with the GLIR reaches an age that provides the most income.

    Michael J. Prestwich sold his first annuity in 1975. After seven years he started ImagiSOFT, Inc. which develops life insurance and annuity illustration, marketing, and compliance software.

    © Entire contents copyright 2011 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

    Originally Posted at AnnuityNews on March 2, 2012 by Michael J. Prestwich.

    Categories: Industry Articles
    currency