It goes without saying that potential replacements are a serious issue.
April 18, 2023 by Sheryl J. Moore
Let’s talk about disintermediation for a moment.
Disintermediation occurs when annuitants/policyholders cash surrender their annuities/life insurance as a result of rising interest rates.
Charlie Gipple, CFP®, CLU®, ChFC® of CG Financial Group, LLC just published an article on the subject in this month’s Broker World magazine titled, New Annuity Caps Better Than Renewal Caps. Do I Replace?
I am seeing alot of agent chatter online about replacing inforce annuities with new contracts, specifically because rates today are so much better than on inforce contracts.
(My memory fails me more often since AJ died, but…)
*****I don’t think rates were even this high in the early 2000’s.*****
Charlie gives a great explanation of new money vs. portfolio rate crediting in this piece. This is a basic tenant of understanding the products one sells.
However, I was keenly aware of another discussion that Charlie broached- how insurance companies determine indexed annuity renewal rates/caps/pars/spreads.
Very few insurance companies have ever trained their field force on how this works!
My theory: they don’t want agents to understand that the rates could possibly go DOWN. Never mind that almost nobody ever increases them; unless they’re “giving back” rate that they previously “took away.”
At the close of this article, Charlie points-out numerous things to take into consideration, if one is considering an annuity replacement. I would add to his list, the following:
– Surrender charges on the existing/new contracts;
– Minimum Guaranteed Surrender Values (MGSVs);
– Penalty-free withdrawal provisions;
– Guaranteed minimum rates/caps/pars/spreads;
– Whether/not old/new riders can be terminated, if unneeded;
– Potential start dates/minimum ages for riders to be initiated;
– Maximum rider charges;
– Charge basis for riders (account values vs. benefit base);
– Renewal rate history of the replacing insurance company; and
– Service history of the replacing insurance company;
It goes without saying that potential replacements are a serious issue. There is SO MUCH to consider!
What are your thoughts on this article? -sjm