How an Equity Indexed Annuity Works?
- Thread starter insuranceexec
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- annuity indexed annuities
- 924
Allianz made the decision two years ago to just do away the damn things (MVAs).
Aviva has a 4 page "disclosure" on MVAs you have to go over with a client. It is a scary little piece of work. Glad I won't have to put up with it anymore. Here is one paragraph from the thing. this is followed by a signature for the client to say they "fully understand" the four pages of this sort of stuff:
The beginning 10-Year Constant Maturity Treasury
Series rate assigned to the premium and/or interest
deducted from the Contract: A = 6.5%
The closing 10-Year Constant Maturity Treasury Series
rate on the day before the surrender or withdrawal is
processed by American Investors Life, plus .25%: B = 7.50% + .25% = 7.75%
Complete Contract months before withdrawal charge period expires: N = 144 – 84 = 60
Free Withdrawal amount: 10% x $50,000 = $5,000
Amount subject to MVA: $50,000 - $5,000 = $45,000
MVA Factor: 0.50 x (6.5% - 7.75%) x 60/12 = -.03125
Maximum Negative MVA (refer to MVA Endorsement for
details of calculation): $12,500
Actual MVA: $45,000 x -.03125 = -$1,406.25
Withdrawal Charge: $45,000 x .06 = $2,700
Cash Surrender Value: $50,000 - $2,700 - $1,406.25 = $45,893.75
Aviva has a 4 page "disclosure" on MVAs you have to go over with a client. It is a scary little piece of work. Glad I won't have to put up with it anymore. Here is one paragraph from the thing. this is followed by a signature for the client to say they "fully understand" the four pages of this sort of stuff:
The beginning 10-Year Constant Maturity Treasury
Series rate assigned to the premium and/or interest
deducted from the Contract: A = 6.5%
The closing 10-Year Constant Maturity Treasury Series
rate on the day before the surrender or withdrawal is
processed by American Investors Life, plus .25%: B = 7.50% + .25% = 7.75%
Complete Contract months before withdrawal charge period expires: N = 144 – 84 = 60
Free Withdrawal amount: 10% x $50,000 = $5,000
Amount subject to MVA: $50,000 - $5,000 = $45,000
MVA Factor: 0.50 x (6.5% - 7.75%) x 60/12 = -.03125
Maximum Negative MVA (refer to MVA Endorsement for
details of calculation): $12,500
Actual MVA: $45,000 x -.03125 = -$1,406.25
Withdrawal Charge: $45,000 x .06 = $2,700
Cash Surrender Value: $50,000 - $2,700 - $1,406.25 = $45,893.75
SaveURRetirement.com
New Member
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Thanks for that intro, insuranceexec! The danger with annuities, including equity indexed annuities, is that it isn't a one-size-fits-all, risk-free investment vehicle. Consumers looking to purchase one must do their homework and get expert advice. It isn't for everyone, however if it is a fit it can be a very powerful tool.
Rico
********
SaveURRetirement.com
Rico
********
SaveURRetirement.com
- Thread starter
- #14
- 1,802
Waterfront Financial
Expert
- 202
u r right. Its gotta fit each persons needs. If it fits, then Ill sell it to them. if not, then the right thing to do is walk away.
- 403
Assume 151a is law (2 yrs from now). What will the suitable EIA market be? Will sales soften or switch?
- Thread starter
- #18
- 1,802
Great Question! I guess it depends on if they change or keep in place the current suitability requirements.
- 313
Based on the market performance over the past decade, consumers (especially those who are retired) should really give these more consideration. What irks me is how much negative press and half truths surround these products. Of course, it is mainly perpetrated by those who sell the market.
- 924
If you look at the S&P 500 over the last ten years, Feb. 1999 to Feb. 2009, it averaged -5% per year for that period.
Someone investing $100,000 in Feb. 1999 would have about $61,000 left in Feb. 2009.
On the other hand, if they had just put their money into something that even got a lousy 4% compounded for that same period of time, they would have over $155,000 now.
When you put that on a graph, the first thing you notice is that THERE WAS NOT A SINGLE DAY THE MARKET DID BETTER THAN A STEADY 4% COMPOUNDED. Very powerful stuff to show folks why they might want to avoid being in the market.
Someone investing $100,000 in Feb. 1999 would have about $61,000 left in Feb. 2009.
On the other hand, if they had just put their money into something that even got a lousy 4% compounded for that same period of time, they would have over $155,000 now.
When you put that on a graph, the first thing you notice is that THERE WAS NOT A SINGLE DAY THE MARKET DID BETTER THAN A STEADY 4% COMPOUNDED. Very powerful stuff to show folks why they might want to avoid being in the market.
