The forest for the trees


The forest for the trees

Within the fixed indexed annuity (FIA) marketplace, volatility controlled (VC) index options are the talk of the town. Developed to increase the attractiveness of FIA returns in a low-interest-rate environment, these new crediting strategies present something new and interesting to consider. 

However, without a full understanding of the underlying mechanics and, more importantly, the setting of realistic expectation of their potential returns, these new indexes could turn into a new reason for a client to be confused and turned off.

It’s easy to lose sight of the forest for the trees when discussing these indexes. It’s critical to remember the attractiveness of an FIA rests in its simplicity, insulation from market losses, periodic lock in of gains, and its ability to provide lifetime income, even increasing income, all for no to low annual fees. No individual index should overshadow or distract from this package of benefits.

VC crediting strategies were designed to potentially increase the overall return on FIAs. A VC option should be used if a client is looking to increase their accumulation value, increase or extend their residual death benefit, or increase their lifetime income by either outperforming a rollup or providing more punch to an increasing income option.

VC indexes vary significantly in structure and design. Some use spreads, while others use participation rates and/or longer crediting terms. Many are uncapped. It’s important to understand the underlying indexes and to be comfortable with their transparency. You should also understand how the indexes are managed and will respond under various market conditions.    

The Bottom Line: Make sure you understand the latest hot topics and how they could impact your clients before you start making recommendations. Ash Brokerage has access to top carriers in the industry with exposure to a variety of VC indexes, and we’d love to discuss the intricacies and opportunities they may present for your clients.