Equity Indexed Annuities: Are they the real deal or junk products?

[KJ in Miami]

What do you think of Prudential saying the Cons of EIAs or IAs as:
1. Account value growth potential is limited.
2. Guaranteed account values may not be as high as a traditional fixed annuity.
3. Caps & participation rates may vary annually.
4. Complexity in calculating exces interest.
5. Potential surrender charges that may be higher than VAs.

 

[Norwayguy]

What do you think of Prudential saying the Cons of EIAs or IAs as:
1. Account value growth potential is limited.
2. Guaranteed account values may not be as high as a traditional fixed annuity.
3. Caps & participation rates may vary annually.
4. Complexity in calculating exces interest.
5. Potential surrender charges that may be higher than VAs.

Copy and pasting my response to this question in another thread.

Everything listed there is true. But a FIA shouldn't be compared to a VA.

1. Yes Account Value Growth Potential is limited but having said that I've got clients who on National Westerns Global Lookback where credited with 36-42 percent back in 2010. Though something that high always scares me that the client will expect that type of return.

2. Guaranteed account values may not be as high because most carriers guarantee 87 percent or so compounding with interest but the policy will always give the higher of the Guaranteed minimum value or the account value. So that statement while 100 percent true is misleading.

3. Caps and Participation rates can and will change annually just like current interest in a Fixed Annuity will change...But the client always knows his worst case participation rate or cap on day one...

5. I've seen higher and lower surrender charges in FIAs than VAs but once again why compare a Fixed Annuity to a VA when it should be compared to another FIxed Annuity.

I see Pru conveniantly leaves out that VAs have much higher annual expenses that can lower the account value. That move in a seperate account is not guaranteed.

FIAs, VAs, Fixed Annuities, Mutual Funds, individuall stocks and bonds all have their place...I've sold VAs and Mutual funds...But since giving up my FINRA registration its just very different I don't focus on hypothetical returns but instead focus on guarantees.

 

[Bobrobb]

What do you think of Prudential saying the Cons of EIAs or IAs as:
1. Account value growth potential is limited.
2. Guaranteed account values may not be as high as a traditional fixed annuity.
3. Caps & participation rates may vary annually.
4. Complexity in calculating exces interest.
5. Potential surrender charges that may be higher than VAs.

index annuity book

Please read this otherwise this thread will ping pong into oblivion.

 

[nathan.lee]

Nathan,
The Hartford IA "sample" contract has no guarantees.

I guess you missed page 11 and the Guaranteed Contract Value definition.

The Guaranteed Contract Value is used in the determination of Your Cash Surrender Value, the amount applied at Annuitization, and the Death Benefit payable upon death prior to the Annuity Commencement Date. The Guaranteed Contract Value is equal to the sum of the single Premium Payment, plus daily accumulated interest at an annual rate of 1% and adjusted for Partial Surrenders.

Or maybe you missed the section on page 4 outlining the Interest Crediting Strategy Minimums and Maximums.

Fixed Rate Minimum Rate 1.00%
Point to Point Minimum Index Cap 2.00%
Performance Trigger Minimum Trigger Rate 1.00%
Monthly Sum Minimum Monthly Cap .50%
etc....

What type of "guarantees" were you looking for or expecting from the contract?

 

[sman]

I guess you missed page 11 and the Guaranteed Contract Value definition.

The Guaranteed Contract Value is used in the determination of Your Cash Surrender Value, the amount applied at Annuitization, and the Death Benefit payable upon death prior to the Annuity Commencement Date. The Guaranteed Contract Value is equal to the sum of the single Premium Payment, plus daily accumulated interest at an annual rate of 1% and adjusted for Partial Surrenders.

Or maybe you missed the section on page 4 outlining the Interest Crediting Strategy Minimums and Maximums.

Fixed Rate Minimum Rate 1.00%
Point to Point Minimum Index Cap 2.00%
Performance Trigger Minimum Trigger Rate 1.00%
Monthly Sum Minimum Monthly Cap .50%
etc....

What type of "guarantees" were you looking for or expecting from the contract?

Nathan,

Why are you wasting your time on this? Kevin is approaching this with a predetermined mindset and seeking information that will confirm that mindset. He isn't interested in learning any FACTUAL information. It has been provided over and over and he continues to dismiss it. Let him go on thinking he is smarter than everyone here. You've done your community service work for the year.

 

[nathan.lee]

Nathan,

Why are you wasting your time on this? Kevin is approaching this with a predetermined mindset and seeking information that will confirm that mindset. He isn't interested in learning any FACTUAL information. It has been provided over and over and he continues to dismiss it. Let him go on thinking he is smarter than everyone here. You've done your community service work for the year.

You are right. I am beating a dead horse. For a minute I thought Kevin might actually be interested in learning about the product. Alas, that does not seem to be the case. Thank you for bringing me back to my senses.

 

[sman]

Glad I could be of service Nathan.

 

[DHK]

"A person convinced against his will..."

 

[iceco1d]

What do you think of Prudential saying the Cons of EIAs or IAs as:
1. Account value growth potential is limited.

True for the most part, and true for all other FIXED products, which is exactly what a FIA/EIA is. HOWEVER, growth potential is not technically limited in a participation rate only product, only in a point-to-point product.

2. Guaranteed account values may not be as high as a traditional fixed annuity.

No kidding? You buy a FIA for the CHANCE to earn more interest than a fixed annuity or CD, in exchange for the RISK that you earn less (but never negative).

3. Caps & participation rates may vary annually.

How about that. Did they mention they can go both UP and DOWN? By the way, did anyone ask Prudential if the rider fees can change on their VA contracts? Oh, that's right, I'm pretty sure they can (double, or more).

4. Complexity in calculating exces interest.

Subjective. If you went past 8th grade, you can probably figure it out. Maybe that's why you can't? Speaking of Pru...why not look at the formula they use to determine how much, and when, to move the subaccounts to their bond account? Now THAT'S a complicated formula.

5. Potential surrender charges that may be higher than VAs.

Right. And potential surrender charges that may be LOWER than VAs. Not to mention, commissions that may be (usually are) LOWER than VAs.

I'm looking for the Downs Syndrome emoticon, but I can't find it.

 

[KJ in Miami]

I listen to facts -- None of which anyone has proven. Nathan sent me a sample contract for a Hartford IA. It guarantees 87.5% of your money back but not 100%. The guy using Prudential to prove a fact about a VA forgets that he once told me all IAs are different. But hey, trying to prove a point without posting any evidence does not settle an discussion.

Sman -- where is your FACTUAL evidence? If you post a clients account of yours, blacken out the name and personal information, that would be factual. Otherwise it is just conjecture.

Casinos in Las Vegas do not make money because the luck of the draw MOST of the time. The cards are stacked in favor of the house. Same with IA companies. If you do not understand that, I cannot help you. Caps & spread are part of the product for a reason, it is a fail-safe for the company and is FAR more expensive than the charges involved in a VA.

I am ALWAYS looking for information and to learn -- Your problem is that you, like Obama, want me to take your word for it without showing proof. Your words are not FACTUAL proof to me.

Nathan,

Why are you wasting your time on this? Kevin is approaching this with a predetermined mindset and seeking information that will confirm that mindset. He isn't interested in learning any FACTUAL information. It has been provided over and over and he continues to dismiss it. Let him go on thinking he is smarter than everyone here. You've done your community service work for the year.

- - - - - - - - - - - - - - - - - -
Iceco1d -- you are classless!! Not quoting you this time so that you cannot delete my comment as you did last time. I hope that you explain to your clients how the markets works over the long run and the concept of inflation. If after doing that, you can show them a sample contract of the product and they buy -- it is what it is.

A lot of what you said in your response is incorrect. Show where it says PRU can raise the fees on the rider or just stop with your non-sense. Do you really think that the fees in a VA cost more than the spreads and caps in an IA?