American Equality Investment Life Ins. Co

[Jessica Durphy]

Hey there guys.. My uncle, residing in MD, was questioning me about an annuity that he had been researching.

I'm asking for your professional advice! and Honest information...
American Equality Investment Life ins. has a product called Lifetime Income Benefit rider... He was told that his monies would "grow" at a 6% interest, and if he needed to begin taking a monthly check, his interest would then be at 5%.

https://agent.american-equity.com/documents/1157-SB-03.01.16.pdf

That sounds like a whopper of a plan, and most times I stick to the old Adage.. "If it sounds too good to be true, it probably is!!"

Let me know what your thoughts are .. Thank you in advance!

 

[DHK]

American Equity is one of the big players in the Indexed Annuity marketplace.

However, we've got a few confusing terms in your post. Let me help you to clarify.

A lifetime income benefit rider will grow an "income base" at a specified rate, but this is NOT a "rate of return". Rather it is a calculation for future benefit payments to be based from. That's why it's generally called an "income base".

Using your figure of 6%, the income base of a $100,000 annuity would grow at 6% for 10 years to $179,084.

However, this is NOT a "walk away" benefit. That money only begins to calculate the income benefits.

Now, using your 5% figure, this is an INCOME DISTRIBUTION figure. Based only on the PDF on page 8, at age 69, the distribution rate would be 5% per year of that income base.

So, if that $100,000 grew to $179,084 in 10 years and then began to take income at age 69, the amount would be $8,954 per year FOR LIFE.

That 6% was an "income step-up" figure and the 5% was a distribution factor.

The advantage of these plans is that the income calculations are guaranteed regardless of interest rates and stock market performance.

The disadvantage is that you have to leave the money in the contract to get the promised benefits. Plus, the insurance company will distribute your principal out to you FIRST, before it's the insurance company's money.

Huh? Take that original $100,000. If the income distribution was $8,954 per year (in my hypothetical example here), it would take just over 11 years to recoup your original principal, and then the insurance company is on the hook for lifetime payments.

(Not that that should be a problem. In this example, 10 years to build up the income base + 11 years to distribute the principal, you'd think they'd earn plenty on the general account to help fund the ongoing income + the fact that they won't have to do it for every client as people do die before exhausting their principal.)

I hope this helps.

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https://www.ethics.net/a/misrepresentation-and-ignorance-a-dangerous-blend-for-ethics

“It's easy to misunderstand them, and it's very easy for clients to misunderstand agents as well,” (DHK) said. “Clients think they are earning 7 percent per year as a rate of return [as an example] for up to 10 years, and then they can walk away with that money. That's not the way the rider works. Yet, I know of a couple of agents that have been promoting such riders exactly like that. And that's a problem.”

(DHK) adds that it's bad enough that clients have selective memories, but if agents and advisors are not crystal clear, or even create their own disclosures or explanations of how an annuity rider works, it can come back to haunt them.

 

[pfg1]

American Equity has some good products and yes, they are a major player in the annuity space.

In addition to what DHK said, keep in mind that the actual value of the contract can be walked away 100% with after the surrender period, should they choose to. (or during the surrender period with a charge)
The index annuity contract value growth is linked to a stock market index, so they have a potential to grow at a better pace then a pure fixed product with a stated rate. Growth of 3-6% is not uncommon, and they cannot be credited below zero. Meaning in a down year, the client doesn't lose... they just don't gain.
Also, if they exercise lifetime income and pass away before the contract balance is depleted, the beneficiary will receive the remainder.

Very good products for protection of principal, potential growth with no risk of loss... and for generating lifetime income. If that is what he's looking for, it may be a good fit. There are alot of annuities in this arena and many are similar, figuring out which is the best one to meet the clients needs is the key.

 

[Jessica Durphy]

Thank you guys!!!