John Hanc*** will discontinue
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totally agree with footsoldier. Also, most VA’s that are 3 years or older have some time before they even get close to getting back over the death benefit amount so it’ll be hard to move even contracts that right now are 10+ years old because of this.
Slim- yes, i think it will eliminate alot of the needs for VA’s. They still make sense for that non qualified tax deferral but I think alot of reps have been using the VA’s for qualified money and that will likely slow if 4% is the max.
But, some of the smaller players that weren’t first in this GMIB game still may be able to support 6% riders b/c they weren’t offering these riders 7 years ago.
[quote=anonymous]Why is it hard to believe? They’ve taken a bath on some of their riders. There are so many annuities out there where a client has invested $100,000 and the value is now $50,000, but the client can still take an income of $5,000 a year for the rest of their life.
Assume that the company charges .75% for this rider. Keep in mind that the cost of the rider is a % of the rider value and not the contract value. This means that the fact that the contract value has dropped in half while the rider value has remained constant means that the rider now costs 1.5% of the contract value. If they raise the cost of the rider to 1.5% from .75%, it means that the client would now be withdrawing 10% of their contract value from an investment with expenses of close to 5%. In short, this will make it very likely that the contract value will go to zero. When this happens, the insurance company will be paying $5,000 a year, but they never had the $100,000 in the beginning because it was in separate accounts. In short, increasing the cost of the rider increases the chance of the contract value going to zero. This is terrible for the insurance company. [/quote] Not necessarily. Part of the whole equation is that the insurance company banks on lots of the policy holders NOT drawing any income from the policies. So if they spread the rider increase over ALL the policies, it will pay for the people that are under-water and taking income.If we're talking about GMIB riders, it doesn't really matter if it's 4% or 7% because it's mostly smoke and mirrors anyway. I would say the Annuity Factors are more importants that the roll up %.
I think there could be worse things than limiting clients to a 4% draw throughout retirement. This will increase the liklihood that the 4% figure will be applied to larger balances in the future and decrease the possibility of clients running out of money and leaning entirely on the guarantees. I still think there is a place for VAs, especially when considering that the last two bears probably ruined a large part of a generation when considering stock allocations in their portfolios. Many people will be loathe to consider stocks without some kind of a safety net and annuities serve that purpose. I’m not exactly Mr. Annuity…it’s less than 20% of my book. At the same time, I don’t think the principals of asset allocation have been repealed. People…even retired people, can benefit from an allocation to stocks, and for many in that generation, you’re not going to get them to bite without some assurances that they won’t lose their shirts the next time the bear comes for an extended visit.
Like Footsoldier, my easiest reviews have been on VA clients. 5-6-7% for life looks pretty good today.Henceforth, we should refer to the company as John Hancaaahk...[quote=OS]You’d think they wouldn’t bleep out Hanc*** on a financial planning message board. [/quote]
That is really funny
[quote=B24][quote=anonymous]Why is it hard to believe? They’ve taken a bath on some of their riders. There are so many annuities out there where a client has invested $100,000 and the value is now $50,000, but the client can still take an income of $5,000 a year for the rest of their life.
Assume that the company charges .75% for this rider. Keep in mind that the cost of the rider is a % of the rider value and not the contract value. This means that the fact that the contract value has dropped in half while the rider value has remained constant means that the rider now costs 1.5% of the contract value. If they raise the cost of the rider to 1.5% from .75%, it means that the client would now be withdrawing 10% of their contract value from an investment with expenses of close to 5%. In short, this will make it very likely that the contract value will go to zero. When this happens, the insurance company will be paying $5,000 a year, but they never had the $100,000 in the beginning because it was in separate accounts. In short, increasing the cost of the rider increases the chance of the contract value going to zero. This is terrible for the insurance company. [/quote] Not necessarily. Part of the whole equation is that the insurance company banks on lots of the policy holders NOT drawing any income from the policies. So if they spread the rider increase over ALL the policies, it will pay for the people that are under-water and taking income. [/quote] B24, you are correct. What you are saying does play a part in this. However, the people not drawing money are the ones who are more likely to have a GMAB rider instead. The fact that some of the GMIB/GMWB riders are so far under-water, encourages people who don't need income to take money. If I was a 60 year old and had an investment that was originally $100,000 and is now $50,000, but I could take $5000 out for the rest of my life, you better believe that I would be doing so. This is true even if I didn't need the money. The fees of the VA become outrageous as the contract value decreases.[quote=Mike Damone]
If we're talking about GMIB riders, it doesn't really matter if it's 4% or 7% because it's mostly smoke and mirrors anyway. I would say the Annuity Factors are more importants that the roll up %.
[/quote] You are partially correct. It depends on how the GMIB works. Once the product gets annuitized, it is the annuity factors that matter. In general, a 7% GMIB won't be any better than a 4% GMIB. However, some of them would allow people to take out a certain % before the money was annuitized. For instance if someone had a 6% GMIB and invested $100,000, they could take out $6000 every year and then be guaranteed that their GMIB value would still be a minimum of $100,000. The higher the GMIB, the worse the annuity factors. I've always liked the GMAB better because of no smoke and mirrors.