It finally happened. An insurance company finally added a substantial death benefit (DB) rider to a reputable fixed indexed annuity
(FIA) that has a guaranteed income benefit (GIB) rider.
Most advisers should know how an FIA with a GIB rider
works (a product that is guaranteed to return 7 percent to 8 percent in the accumulation phase, coupled with a lifetime GIB that can never be outlived).
Let me ask you a simple question before you decide to continue reading: Would your clients rather buy a quality FIA with a GIB rider that has a substantial DB that will pay to the heirs or one that doesn’t? Of course the answer is the one that does.
Explaining the death benefit
Assume you have a 59-year-old client who buys an FIA with a GIB rider and the new DB rider where the premium is $300,000. If the client waits to take income until age 69, the GIB every year for life would equal $36,816. That’s great, but what if the client dies at age 69, before activating the GIB rider?
With most products, the heirs would receive only the actual account value of the product (however the product grew with today’s pathetic caps, minus the GIB rider fee). If the GIB rider fee was .75 percent, and the product returned 4 percent on the actual account value from ages 59–68, the account value at age 69 would be $428,344. That’s the amount that would go to the heirs.
With the enhanced DB rider, the heirs can receive a $600,000 death benefit.
This is huge. Now clients can feel comfortable buying an FIA for selfish reasons — to provide buyers with the highest GIB payment for life — and not feel guilty about not passing the maximum amount of wealth to their heirs. This new DB rider is a guilt-free rider that is good for clients; but from a sale’s perspective, it’s huge for advisers looking to sell this product.
The DB rider will also enhance what is passed to the heirs upon the death of a client after the income rider has been activated; but for space reasons, I will not explain how that is calculated.
Why do you need to learn about this product? To avoid lawsuits
! Think about selling your client an FIA with a GIB rider that doesn’t have an enhanced DB rider when one now exists. If they found out that there was an FIA with a GIB that also had a DB, what might they do? They might ask for a return of premium and damages so they can go fund the FIA that has a DB rider.
It’s not about whether the client actually buys the FIA
with a DB rider; it’s whether you are offering it to your clients so they have the choice. There are a few FIAs with DB riders in the market now, but I like the product designs so little that I’ve not made readers aware of them; and I do not think they are products — like the one I’m discussing in this article — that must be offered to clients in order to avoid lawsuits.
Should you learn about this new GIB rider FIA with its new enhanced DB? I think the introduction of this product will be an industry-changing event. You may choose to learn about this product because of greed (because you can sell more FIAs because of the rider) or because you simply want to provide your clients with the best advice which, in turn, will help you avoid lawsuits. I’ll leave that decision up to you.