Originally Posted by misanman
Okay, here are some details. I'd rather do this than pack my suitcase.
There are two parts, the Equity Indexed Annuity and the Income Rider. I assume they took this approach because I told them I was considering a SPIA.
- from North American Company for Life and Health Insurance
-14 year term (includes immediate 10% bonus, so $100K becomes $110K)
-Client can select amoung 4 buckets each year: fixed, 1 yr Pt to Pt (6% cap), Monthly Pt to Pt (2% cap), or Monthly average (2% cap)
- can be renewed at end of term or cashed out
- can be assumed by spouse at death
- no fees other than surrender fees (start at 18% and decline to 2% in last year)
- An initial fee that starts at .35% ($350 on $100K) - a little unclear what it could go up to
- Customer determines when to start drawing income. The longer you wait the more you can draw. If I started immediately I would get 5.6%. If I waited 5 years I'd get 8.5%
- The income stream reduces the EIA balance but if the balance goes to zero the income stream continues uninterrupted.
- There's a fair amount of "***** pocus" around all these calculations so more study is needed.
They claim this achieves the income stream of a SPIA without giving up control of your capital. Of course, if you want to continue the income stream you have to keep the money in the EIA so this seems a bit bogus.
Okay, have at it. Tell me why this is a bad idea.
Well, first and foremost would be carrier risk. I won't dwell on it, but lets not forget that you would become a creditor of an insurance company with only a state guarantee fund to look to if things went sour. This is nothing like as strong as FDIC backing.
The EIA part is something you can replicate on your own at a fraction of the cost and with no surrender charges. There is a fairly detailed explanation of how to do so here: Life, Investments & Everything: Rolling Your Own
An 18% surrender penalty! That tells us a lot about how huge the commission must be.
Finaly the annuity part is just a SPIA in sheep's clothing. Go price a SPIA for your age and you can see how close the payout is from other companies. If you won't consider a SPIA at all, why would you want teh option of getting a SPIA on top of a massively overpriced collection of bonds and call options that also exposes you to the credit risk of the insurer?