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

[indexedannuity_girl]

Then tell us who! We arent shy on this forum, we call companies out around here... !

Sorry- I've been MIA for a week or so.

The product in question is the Midland National Life Select 10-year. sjm
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Midland National's Select Series (5%) 10 has a 6.05% cap on the 1 year Dow Jones Eurostoxx 50 pt. to pt. The cap rate is only available on the high band which starts at $250K.

SJM...is this the product and crediting method to which you were referring?

I attached the latest spec sheet from our site.

You bet it is, Hollywood! sjm
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Your forgetting the fact that the carrier can change the caps by different amounts on each index to keep things relatively even.
I'm rethinking my stance on long term product like ANICOs Valuelock because everything is set in stone once the policy is issued.

You forget that EVERY indexed annuity is priced to return the same amount over a long period of time. This is regardless of index or crediting method.

Although the Euro Stoxx 50 generally has higher caps than the S&P 500 strategies (all other things being equal), this is a relatively new index with far less history than the S&P.

In addition, you don't have to change the caps and pars on a rolling monthly averaging crediting method, in order to limit the indexed interest. This is the only reason why the product features are guaranteed not to change. sjm
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You sir are in luck, my scrounging talents haven't been lost- It's North American and it shows the rankings back to 1995. Post an email addy or email me here, as poor ol me, I don't have 20 posts yet to enable me to email you internally. I have scanned a copy in color so you can easier navigate the chart.

It is called the "Periodic Chart of Indices," and it is a piece that is offered by both Midland National Life and North American. sjm
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Here is what I don't get FIAs guarantees are derived by the long term bonds held in the general account and I get that the carriers can not renegotiate the bonds which is why caps going up on an issued policy is almost nil. I also get that FIAs pay higher commissions having said all that why do the caps drop after issue if nothing is changing in the bonds, commission is paid etc.

That, my friend, is a result of the independent agent distribution. This is not a feature that is required on indexed annuities; it merely has become common practice by many insurance companies that need a "shiny bright object" to attract their agents' attention, and thereby capture market share from their competitors.

There are a few insurance companies that publish their renewal rates. My personal opinion is that if the carrier does not publish their renewal rates, and will not provide their renewal rate history, perhaps there is a reason why...sjm
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From my professional experience, looking at history, and speaking to many wholesalers it seems that is the story for more than just IAs.

Think about FAs after the Guaranteed period is up; have you ever seen rates raised after the Guarantee is up?
Sure they might stay the same, but what incentive does the IC have to raise them?

UL is very much the same. MY LFG wholesaler says straight up, "not to expect a higher rate than what was issued".


But seriously. The IC has little incentive to raise rates on existing products. Especially in a world of bonuses for new money and extended contract terms....

Absolutely! This is a business practice that has slowly taken-over since the transition from mutual to stock-held insurers and from the move from career distribution to independent. sjm
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So much so that LSW now won't even accept a FIA without an income rider far as I'm aware. They never want that money to leave.

The flip side is there caps tend to remain constant from what I hear. I need to dig one up I wrote almost 4 years ago and see where the cap is now.

LSW is one of the few insurance companies that publish their renewal rate histories and they are pretty good. sjm
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No question it makes sense. But when you have been told that once a policy is issued rates will not go up based on X (being long term bond obligations) then falling caps don't make sense, its not like the carrier says okay we buy these bonds and are expecting a RISING interest rate environment to keep the caps stable.

This is no different than buying fixed annuities or CDs in a rising interest rate environment. sjm

 

[iceco1d]

No question it makes sense. But when you have been told that once a policy is issued rates will not go up based on X (being long term bond obligations) then falling caps don't make sense, its not like the carrier says okay we buy these bonds and are expecting a RISING interest rate environment to keep the caps stable.

Yeah I hear what you're saying. If it's good for the goose, why not for the gander?

 

[0b1kanobee]

No question it makes sense. But when you have been told that once a policy is issued rates will not go up based on X (being long term bond obligations) then falling caps don't make sense, its not like the carrier says okay we buy these bonds and are expecting a RISING interest rate environment to keep the caps stable.

I completely agree as well. If there is a good reason for it or one I can stomach I would like to know myself. I'm going to do some digging on this.

I simply inquired on it briefly and was told "interest rate risk" had to do with it but there was more to the story just not enough time for my source to elaborate.

 

[bluemarlin08]

I remember a few weeks ago I brought up my experience of never seeing a company increase caps and someone commented they had personal experience of some companies that had increased caps from initial amounts. Can't remember who made the comment perhaps they will re post their experience and what companies.

 

[indexedannuity_girl]

I remember a few weeks ago I brought up my experience of never seeing a company increase caps and someone commented they had personal experience of some companies that had increased caps from initial amounts. Can't remember who made the comment perhaps they will re post their experience and what companies.

I have received feedback from agents in the field about Midland National and North American increasing rates on their renewal business in the past. sjm

 

[GaInsProf]

The real test will come when and if inflation finally arrives- thus far, most of the indicators have steadily dropped since FIA's were created. If the competition (not just annuities, but Treasuries, CD's, etc) starts offering more attractive opportunities, obviously the exodus of FIA holders will trigger the caps rising.

And really, that's one area this discussion hasn't really touched much on- what other options out there are performing better? Not many from what I can see, that carry no risk. This is a great string, lots of great information for those confused by how FIA's work.

The thing to keep in mind, again, these products aren't for everyone, but for the ones that it is right for- the ultra-conservative, they work great and the clients I have that chose them are quite satisfied when we have our annual meetings. Good product to have in my arsenal, but thank goodness there are other options available.

And you are right on Annuitygirl- NA is a great company to have in the bag because of their raising caps and their product lines.