The Evolution Of The Income Rider

by Troy Johnson, Annuity Sales Consultant

Innovator John Kao once said, “The crucial variable in the process of turning knowledge into value is creativity.” As a producer, you’ve accumulated a great deal of knowledge about the products you sell, their features and benefits, and the insurance companies that create them. But in order to provide your clients with real value, you need to be able to thoroughly evaluate their unique financial situations and develop creative strategies and solutions for achieving their goals. It requires you to offer suitable recommendations that fulfill specific needs. Let’s take a deeper look at one type of benefit in particular: the income rider. The popularity of income riders has skyrocketed since their introduction just a few short years ago. After all, many retirees and those approaching retirement have lost a significant portion of their nest eggs due to the economic volatility we’ve been experiencing. Their primary concern is having enough income to last through retirement; and with longevity increasing, it’s only widening the income gap. Income riders at issue, also known as guaranteed lifetime withdrawal benefits (GLWB), can be added to fixed indexed annuities to help fill this gap. They allow retirees to build a secure retirement income devoid of market risk which can then be guaranteed for life. But as the products have continued to evolve, multiple-use riders might be a better alternative for some clients.

IT’S DECISION TIME

So, you know that you have a number of solid products to choose from and variety of well-rated carriers supplying them. How do you begin to figure out which annuity and income rider combination might be right for a client? Chasing the highest roll-up doesn’t necessarily provide the biggest check for the most years. First, consider how much income the client needs. Does he or she have other income sources contributing to the overall financial picture, such as pension money, Social Security payments or CD money? The client’s age and gender will also impact the amount of income he or she can receive when electing to turn on the rider. Then, determine how long the client wants to defer taking the income. A solution for a retired client looking for income two years from now might look completely different from a pre-retiree who can defer income for a decade. Work with your Annuity Sales Consultant to craft a strategy for maximizing income given all that you know about the client. Income riders today offer impressive roll-up rates, and even potential increases on the income base from the get-go.

Once you’ve pinpointed the client’s income need, don’t stop there. Ask if he or she currently has a plan in place for handling any long-term care expenses that could be incurred in retirement. We’ve all heard the objections consumers have to purchasing long-term care (LTC) benefits. Many are still not enthusiastic about the cost of stand-alone LTC insurance or are unable to qualify medically for such benefits. For this type of client, GLWB riders that increase lifetime income payouts for certain care qualifications could be a creative, favorable alternative. No underwriting is required, and the LTC benefit cost is built into the cost of the rider itself. This year, we saw several carriers issue GLWB riders with confinement, nursing home or other LTC benefit on bonus annuity products, an exciting development. Some riders require confinement and some don’t; remember to rely on your Annuity Sale Consultant’s knowledge to easily decipher the specifics.

What if your client is more concerned with leaving a legacy for loved ones? Some income riders available allow clients to provide a death benefit option paid out over time if withdrawals are never elected. This can provide the client with flexibility for potentially changing life circumstances. There are even rider options currently in existence that target all three needs. In the past, clients have often segmented their money in different buckets to achieve these goals, rather than using one solution to address them all. In the end, selecting the right option goes back to the overall needs you’ve assessed. Your Annuity Sales Consultant can help you take that knowledge and turn it into value. In this low interest rate environment, a client who is confident that income will not be an issue could be better off generating LTC benefits and/or a death benefit through other means without paying rider fees and potential distribution fees.

AN IDEA WORTH CONSIDERING

Two other questions we haven’t addressed that you should consider when assessing whether the benefits of a particular product are right for your client are: Is there a joint payout on qualified funds, and does the client have to be present to win? Consider the potential situation that could arise when a married couple elects to purchase an annuity and rider combination. How will the death of the first spouse affect the survivor’s benefits? Take, for example, Mr. and Mrs. Jones. In this hypothetical situation, he is age 72 and she is 70. He passes away, and Mrs. Jones loses approximately 40% of her Social Security income the couple had been receiving. Additionally, the pension benefits they were enjoying have now been cut in half. In this case, the income rider can be turned on, providing solid replacement income that is guaranteed for the rest of Mrs. Jones’ lifetime.

All in all, the ways in which producers are using income riders to help clients achieve their financial goals continues to grow and evolve, just as do the features and benefits these riders provide. Filling out the paperwork is just the beginning. Be sure that your clients understand the fees associated with these riders, re-start provisions and step-up features, if spousal continuation is available, and all of the finer details that exist at the time of the sale. An annuity and income rider combination can provide a creative solution for repositioning a portion of your clients’ funds to meet changing needs in an ever-changing retirement environment. Call your Annuity Sales Consultant for rider details and additional evolutionary solutions for addressing specific client planning challenges.

FOR AGENT USE ONLY. NOT FOR USE WITH THE GENERAL PUBLIC. 12068 - 2011/11/18 Guarantees provided by annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. Guaranteed lifetime income available through annuitization or the purchase of an optional lifetime income rider, a benefit for which an annual premium is charged.