- 337
Please explain to me how they work? If the s&p makes 11% and the customer, because of the monthly cap makes 0%... does that mean Allianz pocketed the difference?
Index Annuities
- Thread starter KJ in Miami
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- annuity
- 8,707
No!...Allianz does not pocket any difference...This product is NOT invested in the market....Anytime you convince a customer to expect a return equal to the market you will have an upset client...AFIA is just that a Fixed Annuity with all the guarantees of a fixed annuity...ie Guarantee of Premium...Interest once earned is protected in the policy...The policy has a Guaranteed minimum value....What is different is how INTEREST is credited.
Also what you mention is not a sleight of hand it is a client chose a crediting method that didn't work out...Had they chosen Monthly Averaging or Pt2Pt I would assume the client would have had positive growth...But the big thing is the client did NOT lose any money.
- 10,708
I am guessing that its just hypothetical, over the last two years the monthly cap method would have over 0% anyway you go about it...
Bobrobb
Expert
- 73
In one of your previous posts you mentioned you replaced an FIA because you were not a big fan and the S&P gained 11% while the monthly cap was 0%. Now you're asking FIA's work. Maybe I read it wrong but please tell me you're not replacing annuities when you clearly don't understand how they work.
- 10,708
Once again, there is no way in hell that over the past two years any monthly cap method would have returned 0%; the only way for this to be possible is if the cap was set at 0%......
FIAs are priced to perform 1-2% above traditional fixed annuities. Double digit returns, while possible, are not to be expected.
When the Insurance Company (e.g. American Equity) receives the premium from your customers they purchase Options that are linked to a particular index (S&P 500). They do not directly invest premiums into the index. If the index performs well the interest is credited to the policy as the Company redeems the option to participate in the gains. If the index performs poorly the option is simply not redeemed and no interest is credited to the policy.
Most insurance company investment portfolios are made up of investment-grade bonds and yield a very predictable rate of return (American Equity's is around 7-8% over the past several years). Therefore, most products are priced so that the company makes a very small portion of profit on the premiums. In your case, the insurance company did not get rich off of the index, they simply didn't redeem their Option they purchased that links to the Monthly Point-Point crediting method.
For more details, I'd recommend reading some of Jack Marrion's stuff. It's all pretty simple once you become aware of how the products actually work.
When the Insurance Company (e.g. American Equity) receives the premium from your customers they purchase Options that are linked to a particular index (S&P 500). They do not directly invest premiums into the index. If the index performs well the interest is credited to the policy as the Company redeems the option to participate in the gains. If the index performs poorly the option is simply not redeemed and no interest is credited to the policy.
Most insurance company investment portfolios are made up of investment-grade bonds and yield a very predictable rate of return (American Equity's is around 7-8% over the past several years). Therefore, most products are priced so that the company makes a very small portion of profit on the premiums. In your case, the insurance company did not get rich off of the index, they simply didn't redeem their Option they purchased that links to the Monthly Point-Point crediting method.
For more details, I'd recommend reading some of Jack Marrion's stuff. It's all pretty simple once you become aware of how the products actually work.
- 11,471
When you're comparing the S&P, are you comparing it WITH dividends, or withOUT dividends?
The index annuity will NOT incorporate any dividend treatment from the S&P because it is NOT invested in the index.
The index annuity will NOT incorporate any dividend treatment from the S&P because it is NOT invested in the index.
- Thread starter
- #8
- 337
Not hypothetical.
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I am just trying to see the defense to why someone would recommend such a product. I definitely replaced a bad product with a good one... and the one that "clearly don't understand" is the one who looks back at you in the mirror! Why do you misquote me? I never said the monthly cap was 0% - an unsaleable product! But I said it was 2.1% and that is why the cards are stacked against the customer in favor of the FIA company. You must be one of those guys that has no clue why FINRA wants to regulate FIA's too! You think that it is a conspiracy instead of understanding that this product is made to favor the company and not the client.
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Did you actually read the question? I never said over two years. You must be trying to tie in something else I posted or misinform people about the product. In 2009, the GenDex5 returned 1.4%, I did not have the numbers from Allianz to compare the what the index made. In 2010, although the index made 11%, the Client was credited 0% because he had a 2.1% upside cap with NO downside cap. These numbers are based off of what Allianz sent the customer (I did not sell him this product) and not my imagination!
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You do not believe Allianz pocketed the $$$? Maybe because you sell them & have some self-interest in defending this type of product? It must have just disappeared! Someone made 11%... why is FINRA trying to regulate the FIA's? Allianz was paying 12-15% commissions... because they have $$$ money to throw away!! Really??
The client did not lose money! Wow... at least in a "real" fixed annuity they would have made some!! You guys are peddling junk that you do not even know how they work! Mathematically, these products are designed for the "house" to win. No sleight of hand in that huh? At least you cannot say you don't know how this product actually works anymore and how the client is actually losing more times than not when it comes to these types of products!
Why no downside cap?The most the customer gets upside is 2.1%... the company can change the participatation rate at will... no downside cap!! No cards stacked against them you say?? In this case, He gained 2.1% when the market was at over 8%, he lost over 11% when the market lost the same amount.
If you care about your clients you will try to understand what I am saying. If you care about your pocketbook, you will argue against this enlightment.
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How can you say that they are not invested in the s&p? What does Allianz tell you that they are invested into? To me, that arguement does not even hold water. So they mirror the s&p; however, when the s&p makes 11% Allianz does not? How? Is Madoff involved? Too good to be true I would say! It is invested in something... once again - Allianz cannot pay high commission (although they do not anymore) without making $$$. In reality that just does not work.
I never even conseidered the dividends.
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- 10,708
If the bold above is correct then this is your problem.
The GenDex is an Indexed Life Insurance Policy, not an Indexed Annuity.....
And a 1.4% return could be very possible on an IUL contract in its early years....
Unless its the MasterDex annuity and your just getting the names confused....
- 11,471
How an Equity Indexed Annuity Works? - Page 3
Read and learn something... because you're an *** when it comes to these products:
The index annuity does not invest or hold securities. That is why they are not a security or "investment".
Your ignorance is astounding.
DHK said:
BTW, I have no idea about the Allianz products. I'm not defending them or any other company. You simply need to know the general makeup of these policies.
