Tell me about "Fraternal Benefit Society" GBU

[JerryinPA]

I have a certain portion of my assets that I would like to keep in a solid, fixed rate instrument.... obviously, typical bank CD's don't do so well nowadays!

A local insurance/investment rep advertises in our local newspaper for a "Fraternal Benefit Society" called "GBU". They offer a fixed term, 8 year annuity that pays 3.5%. (This is better than even Pen Fed's CD's.)

I spoke with the rep for about an hour yesterday and listened to his complete sales pitch, and it sounds good.... but, he's a sales rep of course.

So does anyone here know much about Fraternal Benefit Societies in general terms and GCU in particular?

Here is a cut and paste from GBU's web page":

"GBU Financial Life (GBU) was founded as an ethnic German fraternal organization on April 13, 1892, by German immigrants who settled in Pittsburgh, Pennsylvania. Originally named the Deutscher Unterstuetzungs-Bund or German Beneficial Union, the purpose of the society was to provide financial security, fraternalism and social activities to its members.
Today, GBU has evolved into a fraternal benefit society that accepts members from all ethnic backgrounds, while providing a wide variety of life insurance plans, annuities and fraternal benefits to its members."​

Thanks in advance for whatever you can teach me!​

JerryinPA​

 

[Texas Proud]

Most people will tell you to stay away from an annuity....

Me included....

 

[audreyh1]

How much of your initial investment do you get back after the 8 year period. All of it?

What if you die during that period?

 

[2B]

CDs don't pay as well because they are guaranteed by the FDIC. What guarantee is backing up your GBU? Can you cash it out early? If so, what are the penalties?

Some people buy insurance company "annuities" for the higher interest rates. They are typically backed by the insurance company and possibly by the individual state's guarantee fund but I'm not sure if the guarantee fund covers these. If it's only backed by the insurance company, you are effectively buying a bond from the company.

 

[karluk]

It's common practice for annuities to offer unusually high "teaser" rates for a limited time. It helps sell the product. That appears to be what's happening here. I see that the 3.5% is guaranteed only for the first year. After that, the fine print states:

After the first year, renewal rates are subject to change at any time.

Others may feel differently, but if I were you there is no conceivable way I would tie up my money for eight years without having the slightest idea what my return would be for the last seven of those years. If they really were promising 3.5% interest, they could have worded the contract, "rates subject to change after the first year, but will never be lower than 3.5%", or words to that effect. That would protect you, the buyer. The way it's actually worded, it only protects GBU, the seller, from actually giving you the interest they seem to be promising.

GBU Financial Life - Current Interest Rates

 

[karluk]

Here is a Forbes article that describes some of the pitfalls of this type of annuity. I've read similar articles many times over the years, so to me this GBU annuity sounds like a complete non-starter. I would run away from GBU and the salesperson who is trying to sell this product as fast as I possibly could.

Imagine a CD-like product with lots of fine print “gotchas” and you’ve got a good idea of what a fixed deferred annuity is. When presenting this product to prospective buyers, the insurance sales person will usually talk up all the good features, including a “teaser” interest rate that’s higher than those being offered on bank CDs and sometimes even a “bonus” for buying the product. What they fail to mention, or mention in an oblique way (such as “this is a nine-year product”), is that the higher-than-normal interest rate might only be guaranteed for a short period (perhaps one or two years).

After that guaranteed period, the interest rate may revert to a below-market yield, but you’re locked into that low yield by a high surrender fee that may last for up to 15 years.

Fixed Deferred Annuities: CDs With Gotchas - Forbes

 

[brewer12345]

This just an IOU from some tinpot life insurer that could blow away in the wind leaving you with a mess. Run.

 

[powerplay]

The word annuity is the most troubling part. I am much more in favor of the PenFed 3% CD. It's insured and the terms and conditions are pretty clear if you break the CD early. Oh and there are no sales people pushing the PF CD's either. When there is a sales person involved who spends time trying to convince you how great the product is, well it probably is not. Be careful!

 

[aja8888]

"GBU Financial Life (GBU) was founded as an ethnic German fraternal organization on April 13, 1892, by German immigrants who settled in Pittsburgh, Pennsylvania. Originally named the Deutscher Unterstuetzungs-Bund or German Beneficial Union, the purpose of the society was to provide financial security, fraternalism and social activities to its members.
Today, GBU has evolved into a fraternal benefit society that accepts members from all ethnic backgrounds, while providing a wide variety of life insurance plans, annuities and fraternal benefits to its members."​

Germans came in 1892 and formed an ethnic organization. How nice! (sounds like the Masons, Elks, the Lithuanian Club, etc).

Now, the fraternal club (no longer exists) lets anyone in and sells insurance products.....

Question is: do you get a free dinner on them when they throw the sales pitch?

 

[frayne]

After watching American Greed on CNBC, I don't think I would ever buy a financial product from some firm I was not familiar with or that didn't have a good public track record. Just way to many scams out there and people ready to take your money.

 

[braumeister]

A quick web search indicates that GBU seems to be reputable. They have an A+ rating from Best.

OK, with that out of the way, the thing many don't seem to understand is that buying an annuity is nowhere near as simple as the sales reps make it out to be.

The only (let me repeat that -- the ONLY) way to know what you're actually buying is to get the prospectus (NOT the sales brochure) and read it carefully. This may actually take quite some time; they run to many pages.

Once you've read it through a couple of times, you need to ask yourself whether you really understand it fully. If so, then you can make a good decision. If not, you're better off saying "Thanks, but no thanks."

 

[pb4uski]

To my knowledge a fraternal benefit society is a unique form that is similar to a mutual life insurer. It is regulated by insurance regulators and is probably also subject to guaranty fund protection.

The policy in question sounds like a 8-year SPDA. The historical rates suggest that the 3.5% is not a teaser but would be subject to the discretion of the insurer but they have been pretty good in that their renewal rates have commonly exceeded first year rates recently. See http://www.gbu.org/Forms/GBU_5yrRateHist.pdf

One key question would be what surrender charges would be assessed if you wanted your money back, but the surrender charges are fairly modest for a SPDA - 7% initially grading to 2% in year 8. (whereas the PenFed CD has a surrender charge of one year's interest or 3%). See GBU Financial Life - Annuity Products

You could do a lot worse.

 

[brewer12345]

To my knowledge a fraternal benefit society is a unique form that is similar to a mutual life insurer. It is regulated by insurance regulators and is probably also subject to guaranty fund protection.

I would not make that assumption (i.e. I would want proof that they were part of the frankly iffy guaranty fund scheme). I found out last year that the largest fraternal in existence does not technically have to adhere to insurance company capital requirements if they do not want to bother doing so. Shocking, IMO.

 

[pb4uski]

I would not make that assumption (i.e. I would want proof that they were part of the frankly iffy guaranty fund scheme). I found out last year that the largest fraternal in existence does not technically have to adhere to insurance company capital requirements if they do not want to bother doing so. Shocking, IMO.

I didn't. That is why I said "probably" and it is definitely something the OP should ask about.

Can you elaborate in a PM on the second part? I'm curious.

 

[EllenP]

GBU is a legitimate company. This type of annuity is essentially the same as a CD, but issued by an insurance company rather than a bank. It's true it's not FDIC insured, but is your 401(k)? No. Once I got over that hurdle, I was fine with it. There's a 5-year as well as an 8-year option.

The small print may say the rate is not guaranteed, but in fact, it increases after some amount of time, I think it's a year. I've had my Roth IRA with GBU for almost five years now (rolled over from Discover Bank IRA CDs, which had lower rates); the 5-year started at 3.00%, increased to 3.25% at some point, and is now at 3.5%. The 8-year started at 3.25%, went to 3.75%, and is now at 4.00%. I have an automatic monthly transfer set up from my checking account that equals the annual limit.

Of course the IRA limit is only $6,500 a year, so the bulk of my retirement savings is in my 401(k). I'm extremely risk-averse, so it's all in a mutual fund that's earning practically nothing, but the company match gives me an immediate 103% return, so it's worth it. I'll be investigating rollover options when I retire next year.

I know that a lot of people think "scam!" when they hear the word annuity, but this is not the kind of annuity where you give them a big chunk of money that they will pay back to you in monthly installments, hoping you die before you get it all back, while you hope you live long enough to get back more than you put in (not that there aren't legitimate annuities like that; there certainly are).

GBU is a solid company that is as likely to be around for you to withdraw your money from when the time comes as any other non-FDIC-insured investment vehicle, and no doubt a lot safer than some.

 

[OldShooter]

... The only (let me repeat that -- the ONLY) way to know what you're actually buying is to get the prospectus (NOT the sales brochure) and read it carefully. This may actually take quite some time; they run to many pages. ...

This. Never buy a product you don't understand. I downloaded a Thrivent variable annuity prospectus one time. 208 pages of fine print; far too complicated to understand and you can bet the salespeople have not read it either.

In addition to a paper copy, which is easier to read, get a PDF so you can search for keywords like "fee" and "interest."

Also, run your salesperson's name at brokercheck.com. Many of these people are or have been licensed to sell securities and have left a trail. Here is an example of the kind of stuff you might find: https://brokercheck.finra.org/individual/summary/2883389 Note particularly the "Disclosures."

FWIW in our state, fraternal insurance is more lightly regulated than "real" insurance companies. For example, salespeople do not have to have an insurance license. A call to the state insurance comissioner in GBU's state and/or in your state might be illuminating too.