By Kim O’Brien
Last year proved to be big for rollouts of new guaranteed lifetime withdrawal benefit riders in the indexed annuity (IA) market. Industry sales leaders Allianz and American Equity introduced new riders to address inflation, while Phoenix introduced a new rider that uniquely integrates an enhanced death benefit with the income feature.
From their first introduction in the IA market just a few years ago, income riders have become important sales features. It is notable that some carriers looking to increase their sales are introducing new income riders rather than new annuity products. Across the industry, slightly over half of all IAs sold include an income rider.
The need for an income rider is driven by the baby boomers moving into their retirement years. With Social Security providing only a portion of their income needs and traditional defined benefit plans becoming less common, today’s retirees often desire a way to utilize their retirement savings to provide a steady, reliable, lifetime stream of income, yet they loathe giving up control of their money.
Income riders provide what retiring boomers desire: income that is guaranteed for life, yet with continued access to the remaining annuity cash value in the event of an emergency or simply a desire to reallocate assets to other alternatives.
Allianz is the top-selling carrier in the IA market and its MasterDex X Annuity is the top-selling IA product. The company reports that about half of its sales have included an optional income rider.
“We developed income riders for our fixed annuity products in response to the growing needs of consumers who were looking for flexibility in providing the guarantee of lifetime income,” said Eric Thomes, Senior Vice President of Sales for Allianz Life. “Our annuities have always provided this guarantee with traditional annuitization options and income riders have become yet another choice for the consumer that desires more predictability. We anticipate the demand for these products to increase over the long term as the increasing number of baby boomers who reach retirement search for income solutions that cannot be outlived.”
Allianz has also been at the forefront of making advisors aware of the need to provide the opportunity for increasing income in retirement. In advertising, it has branded itself the Increasing Income Company, and its income rider offers an income option which could increase with possible annual indexed interest credits.
In September, the company introduced its new Simple Income III rider which supplements its previous income options with a new one tied to the Consumer Price Index (CPI-U). Prior to the start of lifetime income, the rider provides for the income benefit base to increase every year at simple interest of 8 percent of the premium paid for the annuity. Once the annuity owner triggers lifetime income, the new payout option provides for payments to increase with the CPI-U annually, subject to an annual maximum increase of 10 percent, for the first 20 years after payments begin.
The annual cost of the benefit is 0.60 percent of the income benefit base, which is deducted from the annuity’s account value.
American Equity is the No.3-selling carrier in the IA market and is perhaps the top seller of income riders. That’s because its Lifetime Income Benefit Rider is included automatically on almost all of its IA policies.
Wendy Waugaman, CEO of American Equity Investment Life Holding Co., said, “We added income riders to most of our annuity products to provide our customers with peace of mind when they are planning their retirement income.”
The company offers two versions of the rider. One, which grows the income benefit base by 5 percent compound interest annually prior to the start of lifetime income, is provided without a rider fee, and a second version, which uses a higher 8 percent compound interest rate, has an annual cost of 0.6 percent of the income benefit base.
In September, American Equity added a new payment option to its rider. Once the annuity owner triggers lifetime income, the new option provides for payments to increase by 3 percent annually. If and when the annuity’s account value becomes depleted, the annual payout is frozen and remains level for the rest of the annuitant’s life.
Phoenix is a relatively new entrant in the IA market but has made a bold statement with its new income rider, which it calls the G.I.F.T. Benefit (Guaranteed Income and Family Wealth Transfer Benefit). It is the first income rider to have an enhanced death benefit integrated with it.
Phoenix’s income rider is unique in three ways. First, it incorporates an enhanced death benefit. Prior to the start of lifetime income, the rider guarantees that the death benefit of the annuity will grow by 6 percent compound interest annually until it has doubled its initial value or through age 85, whichever occurs first. Second, the income benefit base grows at a simple interest rate of 10 percent annually, guaranteed for the life of the contract. And third, the income benefit base grows at various points between years 7 and 12 with persistency bonuses.
The G.I.F.T. Benefit rider is available on the company’s new Secure LifeStyle Annuity series. If the rider is used on the Secure LifeStyle Bonus Annuity, which has a 10 percent premium bonus, and if the start of income is deferred for 12 years, then the owner’s income benefit base is guaranteed to triple over that 12 year period.
The annual cost of the benefit is 0.95 percent of the income benefit base, which is deducted from the annuity’s account value.
The G.I.F.T. Benefit and the Secure LifeStyle Annuity series are available exclusively through Phoenix’s strategic alliance with The AltiSure Group, a membership group of several leading annuity marketing organizations.
In discussing the appeal of the new income rider, The AltiSure Group’s President Niju Vaswani said, “We recognized that consumers have an inherent need for income solutions in retirement as well as a desire to provide for their loved ones in the event of an untimely death. With the G.I.F.T. Benefit, consumers do not have to make a choice at the time of purchase as to which benefit - income or death - they may end up utilizing. The combination design of the G.I.F.T. Benefit, along with its rich level of benefits, provides consumers with peace of mind no matter what the future may hold.”
Income riders have enhanced the appeal of fixed indexed annuities to retiring baby boomers. Now, with available inflation and death benefit features, the appeal of income riders is being enhanced, too.
Kim O’Brien is executive director of the National Association for Fixed Annuities.
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