How an Equity Indexed Annuity Works?

[baggins415]

Clients ask me what fees they can expect to pay for their FIA. I tell them that just like most insurance products there are no fees. The fees, expenses and any commissions are calculated into the contract along with the guarantees the insurance company is making.

All of this is heavily disclosed. Which brings me to the comment above about the insurance company's incomprehensible literature. I agree totally. However, most of the nonsense is required by regulators who have made so many demands on the insurance industry as to full disclosure that -just like everything else the government gets involved with- it no longer makes sense. If a company has to give "best market" "worst market" and "average market" hypotheticals, then the confusion just begins to start.

I will avoid giving out any insurance industry brochure since they will kill a sale every time. I blame the government principally for this, not the industry.

As for variables, my big complaint is that people get in for what they think is 7 years, or whatever, when in fact they probably bought into a lifetime commitment. Think about it. Despite all the claims of death and income benefits, you just can never get out if your balance is down -and they almost all are. So, if a variable is sold it on the basis of "Yes this is a very good product and has all these good features, but you can never get out and buy something else..." -guess where your sales would be. Now THAT would be an interesting disclosure to require in all sales brochures: "Warning. You may have to die before anyone sees the full value of this product."

Great points.
Though I think Midland has some decent brochures though. When you are talking about bonuses and such that sound too good to be true - I find yanking out the brochure to show it in writing really helps.

 

[STIBROKER]

are they in PDF......kinda hard to whip one out when you do meet your clients face to face anymore........

Though I think Midland has some decent brochures though.

 

[j20a00g]

my wholessalers now send pdf's 99% of the time. the only time i receive hard literature is at the sponsored lunches when they feel the need to hand us something while they are talking eventhough they know that we are just there for the free chicken parm

 

[KJ in Miami]

I replaced an index annuity as he had gotten a 1.4% return in 2009 and a 0% return in 2010. The s&p, according to Allianz's numbers, made 11% overall that year. Who got the 11% when this guy recieved 0%? Is that why these types of annuities are in HOT water? Are they mathematicall designed for the guy not to beat the house 9 out of 10 times? Is this why FINRA is after these products, seemingly rightly so?

 

[njh_lfg]

I replaced an index annuity as he had gotten a 1.4% return in 2009 and a 0% return in 2010. The s&p, according to Allianz's numbers, made 11% overall that year. Who got the 11% when this guy recieved 0%? Is that why these types of annuities are in HOT water? Are they mathematicall designed for the guy not to beat the house 9 out of 10 times? Is this why FINRA is after these products, seemingly rightly so?

Learn the products before you bash them. Bad allocation is the reason the reason why this happened to your client. How long has that contract been in force before you replaced it?

 

[0b1kanobee]

I replaced an index annuity as he had gotten a 1.4% return in 2009 and a 0% return in 2010. The s&p, according to Allianz's numbers, made 11% overall that year. Who got the 11% when this guy recieved 0%? Is that why these types of annuities are in HOT water? Are they mathematicall designed for the guy not to beat the house 9 out of 10 times? Is this why FINRA is after these products, seemingly rightly so?

If he was in an indexed point to point, then maybe that didn't play in his favor. Maybe he was in the monthly average and that didn't pan out either.

Sounds like in 2009 like the client was soley in the fixed bucket. In 2010 they could of been in the ending index and never waited the whole year for the crediting. Either way, you should learn how these products work before forming an opinion. It is folks selling them and replacing them that don't understand them which are getting agents placed under more scrutiny. The products can also get a bad name, just like anything else.

 

[arnguy]

There are no fees in the EIA's I sell and it is noted right there on the paperwork that goes to the third party administrator.

NO FEES! Right where it says fees I put ZERO because there isn't any.....................

All that paperwork gets sent to my office and the insurance company and if there were fees which there are not it would be a rejected app.

Sorry, but you're busted. It should read "because there aren't any....
Damn plurals!

 

[KJ in Miami]

In the Dateline show on EIAs, the MVA provision in an EIA was what the Minnesota Attorney General said was the worst. Dateline NBC Investigates Equity-Indexed Annuities | AllFinancialMatters

This IMO has a stake in explaining that FIA's work the way he says they work. What he fails to mention is that they are mathematically engineered for the the "house" (the insurance company) to win 70% of the time. They put in caps on upside and none on the downside.

Someone came to me with an FIA, and had made an average of 0.7%... 2009 he made 1.4% and 2010 he made 0%! Mind you, the s&p made 11% in 2010 based on Allianz's numbers. In 2010, when the index made 8%, he made 2.1%. When the index lost 11%, so did he for that month. At the end of the year, his monthly calculations gave him a negative number. So he got 0%... but someone made 11% on his money!! The FIA hacks say it was not Allianz, then who was it?? They pay him a bonus which over the surrender charge period of 12 to 14 years is peanuts. This product is BAD - I do not believe in regualtion most of the time but this is an exception!! FINRA, where are you now?
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If he was in an indexed point to point, then maybe that didn't play in his favor. Maybe he was in the monthly average and that didn't pan out either.

Sounds like in 2009 like the client was soley in the fixed bucket. In 2010 they could of been in the ending index and never waited the whole year for the crediting. Either way, you should learn how these products work before forming an opinion. It is folks selling them and replacing them that don't understand them which are getting agents placed under more scrutiny. The products can also get a bad name, just like anything else.

I can understand what you are trying to say here - but do you know anyone making money in these products? The probability that the index is going to overcome some of the obstacles that the company has engineered in them is very unlikely. Allianz paid some statisticians to design it so they win 7 out of 10 times! I would actually say that you do not understand these products or how statistical models work!! Allianz can afford to lose 3 out of 10 times - not a hard concept to comprehend.

Scrutiny, understanding how these products are designed, they deserve WAY more scrutiny then they are actually getting. With that said, please get an understanding as you are putting people into products which they favor the insurance companies - and undersxtand why these products need to be regulated. If you don't care... that's sad!
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Learn the products before you bash them. Bad allocation is the reason the reason why this happened to your client. How long has that contract been in force before you replaced it?

Are you serious? Allocation! It is an index annuity... what do they have a 0% fixed account and a index account? It is not a market vehicle otherwise FINRA would be all over it! There is NO allocation really in it. It happened to him before I got to him unfortunately!

Learn a product - before you SELL IT! And understand why they have such scrutiny - people not wanting to understand a product is mind boggling!

Telling a client that they can make 0% on the s&p while someone makes 11% on their money is just not a good selling point is it? But I know, that 11% is not really 11%... somehow, as Madoff told many clients, don't understand what I am doing just give me your money! You can never lose money... but you can never make it either... the cards mathematically are stacked against you!! I believe AARP said that inflation is why only 2% of people with retirement in fixed accounts can keep up their standard of living over time!

Allocation on a index annuity... what a joke!

 

[scagnt83]

Allocation on a index annuity... what a joke!

If there is no way to allocate funds in an IA, why is their a Allocation Page on every single application???

Its very obvious you have no clue what you are talking about.

Do yourself a favor and just stop now. If you arent willing to learn, then just stop, because you are making a fool of yourself.


Yes, IAs are able to be allocated different ways, the allocation is the type of Crediting Method; there are usually at least three different options if not four or five.

And yes, the allocation you choose determines your performance for the year.
Some crediting methods are riskier than others.
Some IAs just have better contract language than others (Allianz is terrible imo)


I sell VAs, IAs, and FAs. One thing thats for sure is that you are extremely uneducated on this subject; and as an agent you are extremely dangerous to clients.
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- but do you know anyone making money in these products?
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Yes, everyone of my clients who has one.


I just reviewed my fathers IAs with him today; last year he had a 6% return in one, and a 7% return in the other.... his IUL had a 9% crediting rate....

His VAs did well, but after fees I dont know that the return was worth the risk when compared to his IAs.
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Telling a client that they can make 0% on the s&p while someone makes 11% on their money is just not a good selling point is it?

The premium for an IA is never directly invested in the market; that goes for the client and the company.

The premium goes into the companies General Account, just like FA premiums do.

So no, the company did not make 11% while the client made 0%.

The client chose an interest crediting option that was more risky than the others (his allocation).

But if the client made 0% in 2010 then they had a very poor allocation of crediting options; because they easily could have had 5%+ last year with a proper allocation.


The case you encountered was most likely a green agent (like you) who was clueless about the product (and probably most others) and just did what a sales manager or IMO told him to do, or even worse.... just guessed.
It also sounds like he only had them in one crediting option instead of spreading the funds out over two or three. (same principle as diversification in a stock portfolio... spread the risk)

But with a decent product and adequate knowledge it is a safe and reliable product.


(I recently saw an allianz IA that was 10 years old and had averaged 7% over the past 10 years.... pretty strong if the client could only lump sum out..... lol)

 

[DHK]

It's not "asset allocation" but variations of "interest crediting segments". One segment credits according to annual 1-year point-to-point, one does monthly averaging, one does 2-year and one does a fixed interest - like 2%.