How an Equity Indexed Annuity Works?

[Norwayguy]

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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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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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)

I second your experiences with VAs, FIAs and FAs and was recently reviewing a VA that a client invested 70K in 10 years ago that is now back to 67K and some change was the product mathematically designed to fail him, no his aggressive asset allocation and the market failed him...

You have harped on the monthly pt2pt creidting option how would the client have felt had he chosen an annual pt2pt or monthly averaging crediting option that would have paid him some of that interest.

You are categorically wrong that Allianz made 11% off of his money because the index performed that way....The person who made the 11% was the person that owned the funds and sold the option to the carrier....

 

[pcwest]

I think we could manage our clients expectations better.

Fixed Indexed annuities are not designed to make huge profits. They are designed to give the client the opportunity to make more than a CD/Fixed Annuity without the risks and costs of variable products.

It is a savings vehicle not an investment.

It is not the the rate of return that matters it is a return of your money should the crap hit the fan.

I'm sure there are people on here that will hate these products even if they crapped gold coins.

 

[0b1kanobee]

It is a savings vehicle not an investment.

So you don't look to them for income?

Eight out of ten people we work with already have an annuity and almost all have a pension. When the annuity turns on, it is income for them. Therefore we tend to look at it as income and a V/A as a growth account, eventually to give income.
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It is not the the rate of return that matters it is a return of your money should the crap hit the fan.

I disagree. Seems to me with that kind of thinking, one might just as well put their money in a safe at the bank if ROR doesn't matter. There are many aspects of an annuity which are attractive for the right person providing the advisor puts them into the right products.
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I'm sure there are people on here that will hate these products even if they crapped gold coins.

I agree and my uncle is one of them. He is only cozy with his money in the bank. He thinks it is the only place who can't lose it. Yet, he is really scared he is going to run out of money and he will.

 

[KJ in Miami]

My problem with the IA is that I had a client make 1.4% when the S&P returned 11.7% that year because this product had a cap on the upside yet no cap on the downside. To me, that is not better than what a CD was offering. In fact, they lost money because of inflation! But they do pay big commissions.

I think we could manage our clients expectations better.

Fixed Indexed annuities are not designed to make huge profits. They are designed to give the client the opportunity to make more than a CD/Fixed Annuity without the risks and costs of variable products.

It is a savings vehicle not an investment.

It is not the the rate of return that matters it is a return of your money should the crap hit the fan.

I'm sure there are people on here that will hate these products even if they crapped gold coins.

 

[iceco1d]

Equity Indexed Annuities are not intended to compete with the S&P 500. They are conservative products for conservative people.

Some of the commissions are high. Some are not. Commissions are a function of the insurer, not the product itself.

 

[Norwayguy]

My problem with the IA is that I had a client make 1.4% when the S&P returned 11.7% that year because this product had a cap on the upside yet no cap on the downside. To me, that is not better than what a CD was offering. In fact, they lost money because of inflation! But they do pay big commissions.

Sounds like you chose to use a Monthly Point 2 Point...That is a feature of Mnthlypt2pt....Had you used an annual pt2pt or monthly average your client would have done better...Could it be you multiplied the monthly cap by 12 and compared it to the annual caps and said lets put the money here?

 

[nathan.lee]

My problem with the IA is that I had a client make 1.4% when the S&P returned 11.7% that year because this product had a cap on the upside yet no cap on the downside. To me, that is not better than what a CD was offering. In fact, they lost money because of inflation! But they do pay big commissions.

I agree with Norway. Sounds like the Monthly Point to Point which often times appears nice but can bite you in the a** in volatile years. The Ap2p or maybe the Monthly Avg. (if cap/spread is significantly higher/lower than the Ap2p) have historically performed better than the Mp2p. Given the market volatility of the last several quarters, the Mp2p would be a difficult recommendation.

 

[KJ in Miami]

I did not write it. Just what I saw!

Sounds like you chose to use a Monthly Point 2 Point...That is a feature of Mnthlypt2pt....Had you used an annual pt2pt or monthly average your client would have done better...Could it be you multiplied the monthly cap by 12 and compared it to the annual caps and said lets put the money here?

 

[0b1kanobee]

I did not write it. Just what I saw!

Well when you "saw" it the client was probably there or you probably at some point discussed it with the client. All you know is what you saw was terrible and I'm sure if that is what you thought now the client thinks the same.

No offense but you shouldn't even be looking at annuity statements with clients until you know more about what you should be looking for (you lack product knowledge) or have a mentor (someone that knows about annuities) look at it with you.

Also if you would like to assist a client with an existing annuity, you should get a copy of the statement and work with you marketer to find out in this case, why the return was 1.4%

 

[sman]

My problem with the IA is that I had a client make 1.4% when the S&P returned 11.7% that year because this product had a cap on the upside yet no cap on the downside. To me, that is not better than what a CD was offering. In fact, they lost money because of inflation! But they do pay big commissions.

Well that's proof they are no good. Because you saw one with a small return. Tell us, what do you think that particular IA did when the S&P was down 20%?

As someone has already pointed out, you shouldn't compare an IA to the S&P 500. they are different animals.

Personally, I'm an equity guy. I think over the long haul the equities market is the place to invest. But that doesn't mean IA's don't have a place in some portfolios. You owe it to yourself to get educated on IA's if you are going to be offering advice for or against the product.