How income riders provide guarantees and flexibility


How income riders provide guarantees and flexibility

Today’s income riders available with fixed indexed annuities (FIAs) have evolved tremendously over the past several years, based upon what clients want, as well as what they need. Ten years ago, clients had to turn to variable annuities if they wanted a compelling income rider, but insurance companies have heard clients’ demands and have stepped up to deliver. 

Clients want guarantees, flexibility, liquidity and control. Not every income rider or annuity has all four components, but you can customize an annuity plan based on your client’s personal priorities.

Let’s discuss guarantees, flexibility, liquidity and control. FIAs always have a guarantee on the downside, and now a rider may be added to guarantee that a client will never run out of income. These are not annuitized riders, they are guaranteed minimum withdraw benefits. Yes, if the contract value does go to zero, there is no cash value left, but the income continues until death of the client(s). 

This approach also gives the client much more flexibility in how they receive the income and take the withdrawals. The withdrawals may be stopped and started, and in some cases, the deferral will go back into the contract or be held in a separate “bucket” for future use. This may be useful from a tax liability standpoint if a client is close to moving into a higher bracket. 

Because the withdrawals are not annuitized and the client can turn them on or off, this also gives them control. It enables them to maintain contract value for a longer period of time if the value does start to decline and they do not wish to take all of the income available. The degree of control varies between carriers – some allow the income to start immediately while some require at least a year of waiting and also restrict the client as to when they can turn on the rider (anniversary date only or daily rollup). 

All insurance companies reward clients who wait by offering rollups and/or age-based withdrawal factors. Find out when and how the client plans to use the rider, and we will find the best fit. 

Most annuities have more-than-adequate liquidity provisions as well. With FIAs, it is generally 10 percent – this is either 10 percent of the premium or contract value. If it is the contract value, the client usually must wait a year. Some carriers even allow withdrawals without triggering the income rider.

The best recommendation I can make is to ask your client what they feel is most important. When do they want to start taking income? How much flexibility do they want with those withdrawals? 

The Bottom Line: Know your clients and their hot buttons – drill down and find the best match for them. It may even make sense to split your client’s funds between two carriers, based on what they are trying to achieve.