BONUS VS. INDEX CREDITING POTENTIAL: WHICH IS BETTER? ANNUITY same time advocating shorter surrender periods. Shorter surrender periods will reduce the profitability of the insurer, which of course will lower the caps. So what do we gain? More liquidity for full withdrawals on a product/asset class for which increased liquidity undermines its very purpose — income. I mean, shorter surrender periods will likely just lead to some advisors laddering annuities again, and then every five years or so, writing a new contract and thus new commissions. Who will that help? No one — so this concept of lower comp is really just smoke and mirrors. And caps aren’t guaranteed, so what happens when the cap changes, when it’s reduced? Yeah, it’s clearly all about the caps — something you can’t control or predict. Good luck with that.” Without any facts, he told me I’m wrong and someday when I’ve been doing this long enough, I’ll see. That conversation led me to wonder whether I could prove mathematically that, in the end, an annuity with an upfront bonus and lower crediting potential
wouldn’t be materially different from an annuity with higher crediting rates and no bonus. And if this is true, then this new focus on crediting rates would therefore likely
longer. Why not look at annuities with shorter surrender periods? Because they often eliminate bonuses. As a result, the consumer pays for the shorter surrender period through the reduction of interest crediting potential. Therefore, it’s inappropriate to consider shorter-surrender annuities when making this comparison. I narrowed the search to FIAs that had an income benefit rider available (no preference was made to cost). They also had to have an S&P 500 annual point to point with a cap index crediting strategy available. In doing so, I split each IMO’s FIA offerings in separate piles. Each IMO’s offerings were split into two groups: FIAs with a 4 percent or greater bonus and FIAs without a bonus. For each category, I eliminated all the FIAs below the group median. Although those FIAs may have some unique features, this argument is about crediting
With his hand still on my flipping knee, he said, “I just think it’s all about the caps — don’t you agree?” decrease consumer satisfaction since the promise of materially greater wealth is not likely to be fulfilled. There’s no easy way to compare FIAs with and without bonuses. Here’s what I did. I used the annuity spreadsheet comparison calculator from two large independent marketing organizations (IMOs). I compared indexed annuities that had surrender schedules of 10 years or
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December 2017 » InsuranceNewsNet Magazine
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