American Equity Guaranteed Income, is It Safe?

[sjbutton]

A single female client, born 1964 bought the American Equity "Bonus Gold" Index Annuity with $400,000 non-qualified money in early 2009. I have recently checked their ratings as a company and am concerned. Of course there are heavy surrender costs, but I wonder if one could rely on the income decades into the future, given their ratings. I'm looking for any and all thoughts about how to advise her.

 

[SWM]

Unless that is a "C" or "L" share, I would assume there will be significant surrender charges. The rating of the current company is one of the questions at the bottom of the list I need answered. There are more suitability questions that need answered which should determine risk tolerance, liquidity needs, etc.. If that's a B share and you are a RR, I seriously doubt any compliance department would allow an exchange. If you are not a RR, you should stay away from anything that could be considered advisory on a registered product.

 

[SWM]

Not familiar with that contract. What does the CO guarantee account state concerning limits? Some states are 500k some less. Would the contract owner be on the hook for anything above the maximum afforded by the state. Does the contract have a positive MVA. Is it a Qual or Non-Qual? If it's a Qual, you might suggest based upon your thorough investigation of the contract that she start transferring free amounts each year if the client feels like she needs to add quality to her portfolio. Just some ideas. I know you are trying to make a sale and I respect that. Just make sure she does not eat surrender for the sake of commission and I am not assuming you intended to do that.

 

[sjbutton]

Interesting thought, this idea of limits on state guaranteed accounts. The contract was written in Florida but the client now lives in California. Which state would rule/ should I research?
It is non-qualified money.
I am a fee only advisor, so sales are immaterial.

 

[cloisbarton]

The Bonus Gold Contract is a 16 year contract
10% upfront bonus
In the 3rd year the surrender charge is 19%, so basically they are taking back the initial 10% that they gave the client and then charging them 9% surrender charges.

If the client is worried about the ratings and the sustainability of the carrier there is a solution that you could consider with this contract besides just surrendering the whole contract. There is a story behind this and would need to fit what the client is trying to accomplish.

I would need to know more about the client and what they are trying to accomplish with these funds. Then would need to know what program you are looking to move the money to, and then would could determine if this could be an option.

Let me know the details and we can see how it looks

Thanks

Jason

 

[nathan.lee]

Interesting thought, this idea of limits on state guaranteed accounts. The contract was written in Florida but the client now lives in California. Which state would rule/ should I research?
It is non-qualified money.
I am a fee only advisor, so sales are immaterial.

"C", "L", and "B" share annuities refer, in most cases, to variable annuities.

The American Equity Bonus Gold product is a fixed indexed annuity with a 16 year surrender period and SIGNIFICANT surrender charges in the first several years.

As far as state guaranty associations are concerned, they cover only the contact value and do not cover any income or death benefit rider values. Also the guaranty association of the state in which the policy owner lives at the time the company becomes insolvent provides the protection.

http://www.califega.org/faq.cfm?id=758

American Equity's rating from which rating agency gave you the most concern? I attached the latest ratings from all agencys for most insurance carriers below.

I hope this is helpful.

 

[Tahoe Ray]

Interesting thought, this idea of limits on state guaranteed accounts. The contract was written in Florida but the client now lives in California. Which state would rule/ should I research?
It is non-qualified money.
I am a fee only advisor, so sales are immaterial.

Florida Life & Health Insurance Guaranty Association- Frequently Asked Questions

-Sorry, posted this before I saw Nathan's reply but at least it confirms the premise
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"C", "L", and "B" share annuities refer, in most cases, to variable annuities.

The American Equity Bonus Gold product is a fixed indexed annuity with a 16 year surrender period and SIGNIFICANT surrender charges in the first several years.

As far as state guaranty associations are concerned, they cover only the contact value and do not cover any income or death benefit rider values. Also the guaranty association of the state in which the policy owner lives at the time the company becomes insolvent provides the protection.

http://www.califega.org/faq.cfm?id=758

American Equity's rating from which rating agency gave you the most concern? I attached the latest ratings from all agencys for most insurance carriers below.

I hope this is helpful.

Because of a fully vested bonus...
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American Equity's rating from which rating agency gave you the most concern?

I was trying to figure that out myself....

 

[jacobtn]

Let's see.. a contract that has zero risk to principal, and guarantees by the state association (even if less than the amount put into the contract, still she has some guarantee), and you think she should do what, pay a huge penalty to put her funds into securities? with 100% risk, fees with no guarantees of return OR that she will even retain her original invested amount?

You sir or what give brokers a bad name, in my opinion.

 

[SWM]

Jacobtn, to be fair, I do not see where he mentioned rolling it into a security or variable. The subject of his thread wanted to know if it was a safe contract. My concern would be liquidity of the contract . That agent put a 45yr old at the time into a 16 yr contract. We don't know her networth and we don't know her cash available issues. Hard to say either way whether it was a good move to begin with.
- - - - - - - - - - - - - - - - - -

"C", "L", and "B" share annuities refer, in most cases, to variable annuities.

The American Equity Bonus Gold product is a fixed indexed annuity with a 16 year surrender period and SIGNIFICANT surrender charges in the first several years.

As far as state guaranty associations are concerned, they cover only the contact value and do not cover any income or death benefit rider values. Also the guaranty association of the state in which the policy owner lives at the time the company becomes insolvent provides the protection.

http://www.califega.org/faq.cfm?id=758

American Equity's rating from which rating agency gave you the most concern? I attached the latest ratings from all agencys for most insurance carriers below.

I hope this is helpful.

The thread was edited, origionally stated it was a variable.

 

[scagnt83]

A single female client, born 1964 bought the American Equity "Bonus Gold" Index Annuity with $400,000 non-qualified money in early 2009. I have recently checked their ratings as a company and am concerned. Of course there are heavy surrender costs, but I wonder if one could rely on the income decades into the future, given their ratings. I'm looking for any and all thoughts about how to advise her.

I am guessing there is an Income Rider on this contract??

AEs ratings have been steadily improving. And they have been growing steadily as a company. They also have an excellent asset/liability ratio, one which rivals many AA rated companies.

They also have a strong position in the insurance market, they are very well positioned to bring in more and more business with the baby boomer boom.

Go back over the last 50 years and look at how many insurance companies actually had to use SGA funds or did not make good on their contracts. Its a very small handful. Most fledgling insurers just get sucked up by a well off insurer.

Long story short, I wouldnt be worried.

Look at the Income Rider that is most likely on there.
Im not sure what the rates and specs were back in 09', but she either has 5% guaranteed growth, or 7%-8% guaranteed growth, followed by a 5%-7% lifetime income payout.

She also has 10% per year in liquidity (10% surrender charge free withdrawals)

The 10% bonus followed by the high income payouts will be hard to beat, even with good returns in the market. For a a retirement saver who likes the idea of guarantees combined with a competitive lifetime income, it is a good contract. Although I am not a fan of the long surrender period. I prefer the advantage gold 10 year contract, but it doesnt have the high bonus like the other.