FIA looks like just what I need.

[dgoldenz]

I know the company very well (past insider status). I would not do business with them.

Alrighty, I'll leave it at that then...

 

[clifp]

I’m seeing some misinformation, or at least incomplete information, regarding the details of this particular annuity. There is a rider, called the Lifetime Income Benefit Rider that alters the American Equity contract significantly. The link above does not contain the details of this rider where the 8% compounded growth on the income account is guaranteed. You guys are correct about the very low minimum guarantee on the Base Contract Value. But you need to read the fine print on the rider, not just on the base contract, before concluding that it’s a bad deal.

I’m not saying that I’m thrilled with the financial stability of American Equity, they just happen to be the ones offering the best deal. There are several highly rated, well established companies offering similar products, with slightly lower growth and payout percentages, that I am considering. As far as whether or not FIA’s in general are “too good to be true”, I was hoping to get some knowledgeable feedback and real life experience from people who have used this product. I’ll keep looking.

Well that rider is pretty confusing. {Deleted incorrect info}

As dgoldenz has pointed out EIA/FIA haven't been around very long mid 2000 before they starting taking off. Even the study that you linked to discusses accumulated contract values, not the important information which what are what actually monthly payments. Right now the vast majority of these policies are in the accumulation stage. I suspect the real howls we will here will be in 5 or 10 year. This iswhen people think they can withdraw 15K a year for the rest of their life and find out they can actually only take out 6-8K.

 

[dgoldenz]

Well that rider is pretty confusing. I hope you noticed the * in their case study where their growth rate is a hypothetical one. My interpretation is that riders don't actually increase the amount of money available in your contract, only the amount of money you can withdraw each year.

When the money you have withdrawn from your policy via you lifetime income benefits exceeds the contract value of your policy your LIB stops even if you and/or your wife are still living. The term lifetime is deliberately deceptive in my opinion.

The only way to get a true lifetime benefit is to annuitize your policy when you turn 70.5. It seems in the worse case you are looking at the 1% minimum growth rate of the policy. So in 11 years you are looking at $111,600 (perhaps less fees and expenses not sure about that). At that time you can withdraw your $15K a year like you want the catch is after 7 or 8 years the money runs out and you have $0. Even if you assume that policy value increases at more reasonable rate of say 5% you'll still run of money in a dozen or so year at 15K/year

As dgoldenz has pointed out EIA/FIA haven't been around very long mid 2000 before they starting taking off. Even the study that you linked to discusses accumulated contract values, not the important information which what are what actually monthly payments. Right now the vast majority of these policies are in the accumulation stage. I suspect the real howls we will here will be in 5 or 10 year. This iswhen people think they can withdraw 15K a year for the rest of their life and find out they can actually only take out 6-8K.

I think you are misunderstanding how the lifetime income rider works. Even when the cash accumulation account is drawn down to $0, the company will continue paying the lifetime income benefit for life at the same amount that it was before the accumulation account value was $0.

Think of the policy as two buckets - one with the accumulated value and one with the income account value. The income account is guaranteed the 8% increase, the accumulation account increases are determined by the crediting method (usually tied to the S&P 500, subject to a cap). The accumulated value is what you can walk away with after the surrender period. The income value is how the lifetime payment is determined as it is based on a percentage of that value. When you start taking annual distributions from the lifetime income rider, the accumulation account is reduced annually by the amount distributed via the income rider.

When the accumulation account is reduced to $0, distributions continue at the same rate as before, but when you (or you + spouse if joint annuity) die, there is nothing left. If you die while there is still an accumulation value available, the accumulated value passes to the beneficiary. That is how an income rider is different from annuitization. You could also choose to annuitize instead if interest rates were to increase in the future and that presented a better option at the time.

It's easier to explain on paper, hopefully that makes sense.

 

[clifp]

I think you are misunderstanding how the lifetime income rider works. Even when the cash accumulation account is drawn down to $0, the company will continue paying the lifetime income benefit for life at the same amount that it was before the accumulation account value was $0.

Think of the policy as two buckets - one with the accumulated value and one with the income account value. The income account is guaranteed the 8% increase, the accumulation account increases are determined by the crediting method (usually tied to the S&P 500, subject to a cap). The accumulated value is what you can walk away with after the surrender period. The income value is how the lifetime payment is determined as it is based on a percentage of that value. When you start taking annual distributions from the lifetime income rider, the accumulation account is reduced annually by the amount distributed via the income rider.

When the accumulation account is reduced to $0, distributions continue at the same rate as before, but when you (or you + spouse if joint annuity) die, there is nothing left. If you die while there is still an accumulation value available, the accumulated value passes to the beneficiary. That is how an income rider is different from annuitization. You could also choose to annuitize instead if interest rates were to increase in the future and that presented a better option at the time.

It's easier to explain on paper, hopefully that makes sense.

No that makes sense, and that is consistent with the example. I was confused when it said that payments stop when IAV becomes zero due to excess withdrawals. They do say the LIB don't count as excess withdrawals but....

I still remain skeptical that there isn't a catch in the 8% income rider especially given the short time of these products.

 

[dgoldenz]

No that makes sense, and that is consistent with the example. I was confused when it said that payments stop when IAV becomes zero due to excess withdrawals. They do say the LIB don't count as excess withdrawals but....

I still remain skeptical that there isn't a catch in the 8% income rider especially given the short time of these products.

Keep in mind that the "8%" number really could be anything. They could make it 9% and have a 5% withdrawal rate instead of 5.5%, or make it 10% and make the withdrawal rate 4.5%, or make it 5% and have an 8% withdrawal rate, as long as the payment comes out the same way. If they made it 15% and the withdrawal rate was 1%, the 15% would look great in a marketing piece, but wouldn't change the payout a dime. They probably use 8% because it sounds like a realistic number. In reality, they can play games with the payout rate any way they want.

 

[brewer12345]

I think there are two catches:

- the unnecessary complexity that relatively few of the buyers of these things can see through

- carrier risk

Simple as that.

 

[chinaco]

National Underwriter' Annuity Handbook lists:

The following advantage of an EIA.

1. Potential partial participation in an index with a minimum guaranteed interest rate.

Disadvantages of an EIA.

1. Complexity - complicated design, not easy to understand
2. Can't compare them... each companies' products are different (easier to compare something like a SPIA)
3. Costly Surrender fees
4. The money is not in a separate account... it is an obligation of the general account.

The focus of the book was on the product.... there could be company risk.

 

[haha]

The main thing I get form this thread is that for the right man or woman, selling insurance might be a pretty good gig.

Always best to sell something that only 1/100 of customers can understand, where the documents are written in absolute "terms of art", and where alternate sources of the product may be even worse than you are.

And generally, the buyer is going to be in trouble, but likely he won't figure it out until you are way down the road.

Ha

 

[REWahoo]

And remember to jazz up the slick brochure with nice graphics of bald eagles and the American flag to project the image of strength and security...

 

[brewer12345]

The main thing I get form this thread is that for the right man or woman, selling insurance might be a pretty good gig.

Always best to sell something that only 1/100 of customers can understand, where the documents are written in absolute "terms of art", and where alternate sources of the product may be even worse than you are.

And generally, the buyer is going to be in trouble, but likely he won't figure it out until you are way down the road.

Ha

If you are going to sell your soul, make sure you get a good price. I think I would rather work for the dodgier end of Wall St. Or maybe as a life settlements broker.

Sometimes I wish individuals had to carry these contracts with a CVA. What is a CVA you ask? If you are a big bank or broker and you bought an in the money guarantee from someone, you have to discount the value of the guarantee based on the creditworthiness (or lack thereof) of the guarantor. So a guarantee from, say, a AAA rated mutual would have very little discount while one from American Equity would have a large discount. Removes some of the temptation to take the fat terms from a shaky counterparty.

 

[chinaco]

The main thing I get form this thread is that for the right man or woman, selling insurance might be a pretty good gig.

...

Ha

A big life insurance industry problem is the way the job/compensation is structured:

• Sell and get a large commission
• Don't make your numbers... you make no money and are fired.

That is a disaster that has been going since the industry began.

Plus the products are complex because they involve mitigating risk and complex financial situations... often they are sold as tax shelters which further complicates the issues.

The two common pitfalls that happen too often:

1. The agent willfully sells a product that is a poor fit for the person's needs (not suitable) or does it because they do not understand it themselves.
2. The buyer misunderstands the product... often by not spending the time and effort to understand it.

The insurance industry has long abused the tax shelter status of their products. It is often the lure dangled in front of someone that entices someone to buy.

 

[sheehs1]

Tjay...you said....I’m not saying that I’m thrilled with the financial stability of American Equity, they just happen to be the ones offering the best deal.

And as as dgoldenz said there is a reason for this. They need the money which speaks to their financial stability. There have been many annuity companies that have gone belly up. O.K. - not anything you haven't heard here.

There is one application which I believe a Variable or Fixed Income annuity ban be used with great success. It doesn't involve payouts.

I came to believe the right annuity can be "a great transfer of wealth vehicle" for certain circumstances....particularly when purchased during volatile market conditions....which is what I did inside my mothers trust. Th situation was this: I needed to grow the cash in her trust to help pay the trusts proportionate share of estate taxes when my Dad passed. I knew any increase in the annuity was catagorized as "growth"...and not "income" which meant I didn't have to pay it out to my Dad (annuitant) on a yearly basis from the marital trust. (he had other financial resources so not a problem). I also had other beneficiaries I had to protect. When my Dad passed away, the account was up 21% over less than a 2 to 3 year period of time. In this type of situation, an annuity can be a good vehicle with a death benefit guarantee....when one knows they will not be taking payouts.
But this is about the only application I can think of where an annuity is useful. It is an important one.

One question I always asked the agent is: "Why can't I just annuitize myself?" given my resources. Gets them every time. Their answer usually is "you can".

I honestly can not think of any reason anyone with some resources would buy an annuity...other than to not have to think about that portion of their money.

Best of luck to you....