Does Anyone Sell Annuities with Bonuses?

GT350 · 09-01-2009, 07:39 PM

Just curious if you guys like to sell Annuities with the Bonus or do you stay away from them? What are the drawbacks that you have seen with the bonuses?

pomfin · 09-01-2009, 07:57 PM

There is no difference for the client. You pay for the bonuses. The only good things about the bonus is that the client can get out the the contract sooner without feeling rip off by using the bonus money to offset the surrender charge.

insuranceexec · 09-01-2009, 09:14 PM

Originally Posted by pomfin

There is no difference for the client. You pay for the bonuses. The only good things about the bonus is that the client can get out the the contract sooner without feeling rip off by using the bonus money to offset the surrender charge.

"You" being a generic pronoun representing the client.

There is no "one size fits all" annuity; every situation requires due diligence. A bonus annuity has its place, but you have to make sure that the bonus matches the clients expectations.

For example: You would not want to sell an annuity that had a bonus geared towards income to an individual that was looking for accumulation. Just a thought.

pomfin · 09-01-2009, 10:38 PM

Originally Posted by insuranceexec

"You" being a generic pronoun representing the client.

There is no "one size fits all" annuity; every situation requires due diligence. A bonus annuity has its place, but you have to make sure that the bonus matches the clients expectations.

For example: You would not want to sell an annuity that had a bonus geared towards income to an individual that was looking for accumulation. Just a thought.

Thanks for the clarification.
All bonus or riders for annuity are neutral in the long run. That was the goal when designing the annuity. Just like other insurance policy, there are wins and there are losses. But the big number rule makes insurance company the winner.

insuranceexec · 09-01-2009, 10:53 PM

Originally Posted by pomfin

Thanks for the clarification.
All bonus or riders for annuity are neutral in the long run. That was the goal when designing the annuity. Just like other insurance policy, there are wins and there are losses. But the big number rule makes insurance company the winner.

I partly agree. I personally think that if you take a bonus in the beginning that you will lose in the end. Riders, for the most part, are just side bets.

I have looked at numerous annuity contracts; those with bonuses and those without. Any time a company is willing to "give" you something on the front end, they will take away on the back end; but this is not necessarily a bad thing.

Providing that you can time the product correctly with respect to taking an income and making sure that the bonus is fully vested, etc..........

If depends on what the client is trying to accomplish, and when they plan on accomplishing it. I love bonus annuities and when used correctly, are tough to beat!

I thank you for the dialogue.

Charpress · 09-02-2009, 11:06 AM

I ran across an annuity not too long ago that didn't call it a bonus. It called it an "advance interest payment" which I thought was a more accurate description of what a bonus actually is.

Some companies play games with the bonus. At least one I know of does (or did) not credit the bonus until the end of the contract. Nice little way to avoid crediting people with indexing and/or interest on their "bonus" during the contract. When you run the numbers on having the bonus count towards how much gets compounded over 10 or however many years, the amount can be really significant.

I always tell people there are two hands. If one is offering something, keep an eye on the other hand because it is almost certainly taking something away. If what is being taken away is not important to the particular client, then it is OK. It is all about balancing.

Someone brought me an annuity brochure last week that made a big deal of guaranteeing a minimum 3% interest on the contract. BUT, it was 3% on 90% of the premium. Many of you will know what company I am talking about. Their own illustration then shows that 3% of 90% works out to an actual 2% minimum guarantee over the contract --exactly what virtually all companies guarantee. When I pointed this out to the guy I then asked if he really wanted to deal with a company that does this kind of weaseling.

padthaiforlunch · 09-02-2009, 05:55 PM

Nice wedge Charpress.

The only reason American Equity offers a bonus is to keep the money in house as long as possible. Even though they credit the bonus from day one, the bonus vests over time, and can create a sever penalty for early surrender.