Lifetime income benefits have been driving fixed income annuity sales recently, which is no surprise in the midst of this baby boomer retirement era. A single product that will provide for predictable growth and eventual lifetime income is a very appealing and convenient insurance product.
But when evaluating income riders, you cannot simply look at the roll-up rate, payout rate and rider fee. These figures can be applied in very different ways, with significant consequence. While keeping in mind a client’s needs and accounting for additional benefits, such as confinement benefits, activities of daily living (ADL) benefits and death settlement options, you must look inside the numbers. Here are a few reasons why.
Bonuses are not all created equal
- Does the income rider use the premium bonus in the income account value? Not all products with a bonus do.
- Does the income rider utilize a rider bonus? This is a bonus that is only credited to the income account value.
Roll-up rates are not all created equal
- Some use simple interest, and some use compound interest.
- Some roll-up rates are “stacked,” meaning they combine contract growth and a lower roll-up rate to calculate the income account value.
- Within some “stacked” growth riders, only the interest earned in dollars (as opposed to percentages) is added to the income account value.
- Some roll-up rates actually vary by contract year, i.e. 5 percent, 4 percent, etc.
Rider fees are not all created equal
- Some fees are calculated on the annuity contract value, while most riders calculate the fee against the income account value and then reduce the contract value.
- Fees also have an order of operation. At least one carrier calculates the rider fee on the income account value before the roll-up rate is applied to the income account value.
Benefit rate (payout) tables are not all created equal
- Some riders give additional credit to the annuitant based on length of deferral. So a 4 percent payout at age 60, displayed in a table, may be correct, but it does not include these additional credits.
- Some payout rate tables are simply too big to fit on a simple spec sheet. One set of riders actually contains over 4,000 values dependent on both issue age and age of income election.
- Did you account for increasing income? An increasing number of riders are designed to grow income payments each year. Some lifetime growing income payments are dictated by index values and/or a fixed rate.
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