AXA GMIB 6.5

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DMAN's picture
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Joined: 2006-12-13

I am trying to compete with an AXA GMIB at 6.5%. The client needs income now. He is 65. Are there any annuities that offer a better solution than this product and rider for someone who wants income now?

snaggletooth's picture
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Joined: 2007-07-13

SPIA.

gvf's picture
gvf
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Joined: 2008-07-01

You might look at the Transamerica products.  I like the PrincipiumII (only 5% for age 59-69, goes up to 6% @ 70.  Might look at the Landmark if you're worried about a death benefit.  

anonymous's picture
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Joined: 2005-09-29

Dman,
I like VAs, but they aren't good for "income now".  A SPIA will give him more guaranteed income. 
Another solution that should give him more income would be to take 5 years of income needs and put it in CD's/money market funds.  Take the rest of the money and put it in a 5 year fixed annuity.  In 5 years, this can be annuitized using the contractually guaranteed rates or SPIA rates that are in existence at that time...whichever is higher.
The expenses involved with the VA make it a very likely scenario that the contract value will plummet which means that all that the client will get is the guarantee. 

gregoron's picture
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Joined: 2008-09-18

If you're really going into VA's take a look here:http://www.annuityfyi.com/ca1e_living_benefit.htmlHartford VA's also offers lower cost so they won't take too much from the contract value.

gvf's picture
gvf
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Joined: 2008-07-01

You know, I keep hearing that Hartford is the low cost provider.  Yet every time I look at it, the M&E is always around 1.65%; fund expenses from 0.47% to 1.83%, and then the living benefit rider is 0.50-0.60% for a SINGLE life.  Am I missing something? 

gvf's picture
gvf
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Joined: 2008-07-01

Anon,What SPIAs are you using / would recommend?  I figured the rates would be terrible right now. 

troll's picture
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Joined: 2004-11-29

gvf wrote:You know, I keep hearing that Hartford is the low cost provider.  Yet every time I look at it, the M&E is always around 1.65%; fund expenses from 0.47% to 1.83%, and then the living benefit rider is 0.50-0.60% for a SINGLE life.  Am I missing something? 
 
Are you looking at a 4-year contract or a 7-year?

gvf's picture
gvf
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Joined: 2008-07-01

Om,I was quoting the Leader's Outlook (4 year) and Leader's Plus (8 year)They have Leader's Access (0 surrender) @ 1.7% M&E.  I see they have a plain Leader (7 year) @ 1.25% M&EStill, 1.25 + fund expenses (using a managed option ~1%) + single incomer rider (.55%) = ~2.80%That's not terrible, but it's certainly not a "low cost" solution.  And yes, I realize you could use some cheap funds and get the fund expenses down under 80 bps, but do you really want to micromanage your VA side of the business? 

gregoron's picture
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Joined: 2008-09-18

High cost is the nature of the VA business.  That's what the client pays for to get two guarantees: income and death benefit.  Hartford may not be the "low cost" VA, but it's cheaper than most.  Ultimately, it's the client who chooses the product if they're really set on VAs.  Give them the benefits and costs among two or three products, and tell them what you think is best for them.

anonymous's picture
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Joined: 2005-09-29

I use whatever SPIA from a strong company pays the highest.  All else being equal, I use the one that pays the most.
 
High cost is the nature of the VA business.
 
Vanguard may disagree with this one.
 
That's what the client pays for to get two guarantees: income and death benefit.
 
I don't know about this one.  The client isn't really paying for the death benefit.  They are paying so that the insurance company can make a nice profit.  I don't have a problem with the insurance company making this profit, but the idea of the M&E makes no sense at all. 
 
Ex. Client has the standard death benefit of the higher of the premium paid or the contract value.  The M&E is 1%.  If $100,000 is invested and the contract value goes down to $80,000, the client is paying $800.  If they die, the beneficiary is getting an extra $20,000.  They got something of value for their $800.  If the $100,000 increases to $500,000, the client is paying $5000 for the M&E.  This has no value unless the contract value drops by more than 80%. 
 
If one is truly paying a mortality expense, why are they being charged when no mortality risk exists?  Shouldn't M&E decrease as the contract value increases?

ChrisVarick's picture
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Joined: 2008-09-04

Too expensive, they have extremely conservative annuitization rates. Their story is the 6.5% income benefit with the 6.5% death benefit, dollar for dollar withdraws.
 
i.e client puts in 100k, they can pull out 6.5% and when they pass away, their beneficiaries will get 100k, guaranteed.
 
However, if the contract value goes to zero, we lose the death benefit. Why would someone put a death benefit and income benefit on the same contract? Beats me. The higher the cost is, the more likely the client will be forced to annuitize with horrible annuitization rates.

gvf's picture
gvf
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Joined: 2008-07-01

I'm really not using VAs for death benefits.  There are contracts out there with policy value death benefits with M&E at .85%.  Throw in Vanguard ETFs at .72% and a living benefit GMWB for life (with an incorporated income-growth rider for deferred draws) at .60%, you're talking:2.17% net to the client.  Underlying assets backed by stocks and bonds, fully invested, and not too much more expensive than a traditional mutual fund account + advisor fee.  For clients who don't care about beneficiares, but are just worried about a pension-like guarantee, it's hard to beat some of the "low cost" living benefit VAs. 

ChrisVarick's picture
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Joined: 2008-09-04

gvf wrote:I'm really not using VAs for death benefits.  There are contracts out there with policy value death benefits with M&E at .85%.  Throw in Vanguard ETFs at .72% and a living benefit GMWB for life (with an incorporated income-growth rider for deferred draws) at .60%, you're talking:2.17% net to the client.  Underlying assets backed by stocks and bonds, fully invested, and not too much more expensive than a traditional mutual fund account + advisor fee.  For clients who don't care about beneficiares, but are just worried about a pension-like guarantee, it's hard to beat some of the "low cost" living benefit VAs. 
 
There we have it, you found something that beats the AXA product!

gregoron's picture
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Joined: 2008-09-18

What VA gives you zero death benefit if contract value goes to zero?  Metlife's GMIB Plus gives you your principal back at annuitization if your CV never goes up higher than your initial investment.  And, you have an option to chose optional death benefits that give you the greater of the highest anniversary value or cash value at payout.GVF, I'm glad you found a lower cost one than AXA's.  Anon, no argument there regarding M&E.  Another thing you should pay attention to with these VA's riders is that some of the step up values reset the accumulation period 10 years each time you reset step-ups.  Metlife does this.  Prudential does not, I think.

gvf's picture
gvf
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Joined: 2008-07-01

gregoron wrote:What VA gives you zero death benefit if contract value goes to zero?  Metlife's GMIB Plus gives you your principal back at annuitization if your CV never goes up higher than your initial investment.  And, you have an option to chose optional death benefits that give you the greater of the highest anniversary value or cash value at payout.
Transamerica PrincipiumII w/ Retirement Income Choice Rider and Policy Value Death Benefit.  Principal is at risk, but guaranteed income for life is not.  If the market goes to hell, and annuitants keep drawing it for years and years, there's the possibility that the beneficiaries won't get anything.  You don't ever have to annuitize.  If the market really goes to hell though, most of the insurers will go down too though.  And if that's the case, why are we spending our last days telling people things are going to be ok?

gregoron's picture
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Joined: 2008-09-18

That is scary.  It's like being in the Titanic.  Guess who's getting on board the lifeboats first. I think insurers will stick to each other though.  They can't let anyone fail cause it's bad for the industry so they bail each other out if the govt. doesn't get there first.  Banks are a different story.  They use to lend to each other, but now it's every bank to itself.Eventually, things will get back to normal.  But it's not going to be the same as before.

ChrisVarick's picture
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Joined: 2008-09-04

gregoron wrote:What VA gives you zero death benefit if contract value goes to zero?  Metlife's GMIB Plus gives you your principal back at annuitization if your CV never goes up higher than your initial investment.  And, you have an option to chose optional death benefits that give you the greater of the highest anniversary value or cash value at payout.GVF, I'm glad you found a lower cost one than AXA's.  Anon, no argument there regarding M&E.  Another thing you should pay attention to with these VA's riders is that some of the step up values reset the accumulation period 10 years each time you reset step-ups.  Metlife does this.  Prudential does not, I think.
 
EVERY VA policy I've seen so far loses it's death benefit once the account value goes to zero. Met's GMIB+ gives you back your original principal without having to annuitize after 10 years, however if the account value goes to 0 before 10 years is up, you're forced to annuitize the contract at their conservative rates.

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