VA annuity (based on the benefit base) annuity payout. 

Should read " VA annuity (based on benefit base ) annuity payout. "

baylorjoyce1, Great post!

Let me clarify one point.

"They say that 90% of all VA's are never annuitized"

I don't know the source of this common stat, but it is very misleading.  It's more correct to say, "90% of VA's are never annuitized with the company that had the VA."

Example: Client has a VA that has grown to $1,000,000 with ABC Insurance Company.  ABC's SPIA pays $97,000.  The agent would receive a very nominal commission (if any) for turning it into a SPIA.  The agent shops the market and finds some SPIAs paying less and some paying more.  He does a 1035 exchange into DEF's SPIA paying $99,000.  The client gets more money.  The agent gets a new commisson and the VA falls into the 90% stat.  Everyone wins except the statistician.

Thanks. 

""""Let me clarify one point.

"They say that 90% of all VA's are never annuitized"

I don't know the source of this common stat, but it is very misleading.  It's more correct to say, "90% of VA's are never annuitized with the company that had the VA.""""

I think thats splitting hairs, but you added more context to the statement, which never hurts. 

That is a statement that the Accumulator (the AXA EQ contract we are referring to) wholesaler will make himself, I've heard him say it on many occasions.  Weve had a pretty good last 20+ yrs in the market, so there wasnt need for much annuitization.  The whole point is to have the protection if the client wants it. 

When I tried to make a case for VA's possibly being appropriate to protect assets from lawsuits even that fell flat when I did my own research.

This debate could go on for ever.

There's room for all products in this world including EIA's but I won't touch those either because they seem a bit shady to me also.

scrim

Scrim, this isn't a debate.  You haven't read a  contract, thus you are not capable of taking a side.  Your decision to remain ignorant on the subject is to the detriment of your clients and eventually to your practice.

ok, I'll read a contract.

Then we can resume our debates.

scrim

Actually, that 90% rule applied to all deferred annuities, not just VA’s.  Although I’m interested to see if that changes should we get new tax laws RE: annutization…

FreedomLvr, I believe that you are correct.  My point is that many more get annuitized than the 10%, but they usually don’t get annuitized with the original company, thus they get counted in the 90% figure.

Ok,

I have a copy of the contract of a very popular VA.

As I go thru it I may post a few random thoughts and questions.

First observation:

The contract expenses with all the bells and whistles are 4% and that doesn't even include the mutual fund operating expenses which max out at 2.7%.  

That's 6.7% in expenses...can this be right?

I imagine in a "real life case scenario" this never happens.

I would imagine real life maxes out closer to 2.5%?    Is that a fair guess?

Thanks in advance 

You may be adding a lot of riders that can't (or shouldn't) be purchased together.  You may be looking at the maximum that the expenses can be instead of what they actually are.

2.5% sounds pretty good for real life.

[quote=scrim67]

Ok,

I have a copy of the contract of a very popular VA.

As I go thru it I may post a few random thoughts and questions.

First observation:

The contract expenses with all the bells and whistles are 4% and that doesn't even include the mutual fund operating expenses which max out at 2.7%.  

That's 6.7% in expenses...can this be right?

I imagine in a "real life case scenario" this never happens.

I would imagine real life maxes out closer to 2.5%?    Is that a fair guess?

Thanks in advance 

[/quote]

The two VAs that I use cost anywhere between 2.60% and 3.15% a year.

Observation 2:

In this contract it says that if you do choose some type of guarantee of principal rider the insurance company at their discretion will put some of the assets in a fixed rate account.

In "real life" how does this work?  

If the client wants to be "aggressive" and put 100% in stock mutual funds AND have the guarantee of principal rider is this combination impossible?    That's the way it reads to me.

Thanks in advance for any feedback.

scrim

Most of those riders require a percentage, say 20% in bonds, so yes, you are correct as far as my carriers go.

Indy,

In your example my follow up question is the following:

If a client chooses a "balanced" allocation within a VA at a 70/30 model AND chooses the principal guarantee is 30% going to fixed income or 44% going to fixed income in total?

scrim 

The 20% in my example is just a company minimum.  Your 70/30 would work just fine as it satisfies the minimum.  They would not adjust it to 44%.

The one that I use, allows the money to be 100% equity, but the money must be in one of 5 model portfolios.   The client can switch portfolios at any time.

I did read much of the contract today and while I did learn a few things my mindset is much the same.

The most simplified analogy regarding VA's is the same feeling I get when I buy an appliance or car and I decline the extended warranties, rustproofing, etc.

Of course in our world we are dealing with someone's assets and life's dreams so it's a very weak analogy but you get my point.

scrim

Scrim...yes these can be very expensive. When you think about the guarantee withdrawal benefit (ex...5% for life )it comes down to this.Some customers( especially conservative c.d. customers)need to hear the word guarantee.

(in my opinion)  a waste of time and expense.With that being said some people.. now matter how much you try to educate about asset allocation ...want to hear that word guarantee.At the end of the day present options and give them what they want

My reasoning for calling the guarantee a waste is this.Assume you have a mutual fund portfolio and were to start withdrawals of 5 % at age 60( annuity w/d age). If the customer were to start withdrawing money at age 60 and had zero growth the w/d would last 20 years till age 80. Now ask ourselves this ARE WE EVER GOING TO SEE A 20 YEAR BEAR MKT?... I am not bashing annuities ,I sell them ,for the other features .1) guarantee death benefit 2) stepped up death benefit 3)tax def. and the all important 4)CUSTOMERS LOVE HEARING GUARANTEES. Always a good idea to know the pros and cons and use it to your advantage ..Happy selling

what is the good part about the death benefit?   wouldn't a joint account with rights of survivorship accomplish something similiar?

yes, maybe with the annuity you get the highest value but why is that so great?

couldnt' the survivor simply continue the account in a non annuity scenario?

[quote=waterboy]Now ask ourselves this ARE WE EVER GOING TO SEE A 20 YEAR BEAR MKT?... [/quote]

Of course not, but what if a client purchased a VA and wanted to take 5% income right away.....and you talked them out of the the 5% guarantee withdrawal rider.

You deliver the contract and right after the free look period is up we have a 2-3yr bear market right off the bat (ie. like 2001-2003) and their $100k VA now has a value of $50k...  They still need the $5k/yr withdrawal that they started back from the beginning, but with only $50k to work with they're taking out 10% of the VA's value to keep the same income from day one.  Good luck trying to keep that client and good luck trying to even get back to the original $100k while they continue to take out $5k/yr.

If they had taken the riders, no worries about that $5k/yr drying up and no worries about their $100k being gone should they die.