It has only been a little over 2 years since guaranteed lifetime withdrawal benefits (GLWBs) burst into the scene in the index annuity market.
Since June 2006, carrier after carrier has hopped into this raging market. In fact, while new product development has never been so low, GLWB rider product development is at an all-time high.
Why are people flocking to have guaranteed lifetime income, without the “handcuffs” of annuitization? Extras.
All of the whipped cream and cherries on top of the index annuity GLWBs are making them ultra-competitive right now.
With 23 of the 59 index annuity carriers offering these benefits, it is about time for a refresher course. For starters, see the chart for 9 key terms found in many of these products, and their definitions.
Advisors who work with these products also need to keep in mind some basic principles about the products and their use.
The single most important principle when dealing with index annuity GLWBs is that they are not comparable to variable annuity GLWBs.
GLWBs on VAs are intended to provide safety of principal on a risk product. These same benefits, when placed on an index product, merely allow the annuitant to take guaranteed payments for life–regardless if the annuity runs out of value.
However, index annuities are fixed products, and inherently provide principal protection. So, GLWB riders are not necessary to provide a hedge against a market downturn on index-linked products.