A new way to sell lifetime income riders
By Luke Britt
The Insurance Group
I want to introduce you to a new way to sell lifetime income riders.
Most lifetime income riders provide a “level” payout, which means that the guaranteed minimum withdrawal benefit will remain the same whether the client lives 10 years or 50 years. If the payment is $1,000 per month, that’s what it will always be.
A few carriers will offer the option to provide increasing income payments. These payments start lower, but will usually eclipse the level payment in five to eight years, depending on the product and the index performance.
So, why in the world would your client want to choose the increasing income option if it means less income right now?
Three reasons: health care expenses, inflation and taxes.
Ask your client or prospect these questions during your next appointment:
- Do you think health care costs will increase in the future?
- Do you think we will experience a period of heavy inflation in the next 10 to 20 years?
- Do you think tax rates will increase or decrease in the future?
Let’s take an example. This is purely hypothetical and is not intended to give tax advice:
Bob’s current tax rate is 20 percent and his current income is level, with the exception of Social Security. This level income is $5,000 per month. Bob’s after-tax income is $4,000. In 2024, our government passes legislation that we must increase tax rates, making Bob’s new tax rate 30 percent. This reduces his monthly income by $500, with no way to increase his guaranteed payout.
Now flip the page. In 2014, Bob elects to begin guaranteed withdrawals on a product with an increasing income benefit. This income begins at $4,000. In 2024, after the government has raised taxes, his new payment, net of taxes, is $4,298, nearly $300 more income with no way to go but up.
It gets even better. In 2034, assuming the 30 percent rate is still in effect, his payment will be $6,598, over $2,500 more income.
This is just an example using taxes. Just think if health care, taxes and inflation hit all at the same time! This is where it all comes to a head. Position it this way with your clients: “Most people I show this to do not like that the increasing income option starts with a smaller payment. The good news is that it doesn’t have to — we can put more money in the policy to make your first payment equal to the level payment that I just showed you. Would like to see that option?”
This simple conversation can lead to 25 percent or more premium on each case like this, creating more commission per client.
This idea is simple and will resonate with your clients. It may not be suitable for everyone, but it can help you and your clients achieve your goals in 2014.
So, the question you need to ask yourself and your clients is “How would you feel if you never received a pay-raise at your job?” And then, “Well, why would you expect to never get a raise in retirement?”