I come across this product more than any other and it’s no surprise. The 222 is the highest selling annuity on the market. It carries a serious bonus that has recently been as high as 30%. In addition it gives you an extra 50% of any interest credited annually. Sounds amazing, right?
Well, it is amazing if that’s all you’re told and that is about as much detail as most agents offer. The problem is that bonuses always come with restrictions and that is rarely explained when this contract is presented. Restrictions are fine in exchange for something of value but in this case those restrictions limit the suitability of the product for the majority of people.
I have talked to hundreds of people this year who have been pitched the 222. Of those, one person was suited for its purpose. That means it was inappropriate for everyone else, but it was still being pitched by “fiduciaries” and “CFPs”.
So, what restrictions come with the bonuses?
First of all, you need to understand the difference between the account value and the protected income value.
Account value– Equal to the premium you invest plus any interest earnings over the term of the contract.
Protected Income Value– Equal to the premium you invest plus the premium bonus, plus interest earnings on the contract that are increased by an additional 50% annually. The resulting value is used to calculate the amount of guaranteed lifetime income you will receive.
Easy, right? The account value is your money and the protected income value is nothing but a factor used to calculate retirement income.
Don’t take it from me. Let’s look at how Allianz explains it on their website.
The premium bonus and interest bonus are credited only to the Protected Income Value. To receive the PIV, including the bonus, the contract must be held for at least 10 contract years, and then lifetime income withdrawals must be taken. You will not receive the bonuses if the contract is fully surrendered or if traditional annuitization payments are taken. If it is partially surrendered the PIV will be reduced proportionally, which could result in a partial loss of bonuses…
Allow me to summarize the key points that I would consider to be restrictive.
- All bonuses only increase the potential income and do not affect your account value
- You have to wait 10 years to receive the benefit of these bonuses
- Lifetime income payments are required to benefit from the bonuses
- Partial surrenders prior to 10 years will create a proportionate reduction in the protected income value (for example, 10% free withdrawal will cost you 10% of your future income)
- If you take your money and do something else you will not receive any of the bonuses
It’s pretty clear to see that the bonuses are not just free money and unless you are buying this 10 years before retirement then it is not appropriate. If you need to take RMDs or withdrawals of any kind before 10 years then it is not appropriate.
There is one little positive selling point I have left out so far. The guaranteed income rider that comes with all the bonuses is free. There are no fees on the contract. So, some might say it’s worth doing because your money will still grow and you can walk away without a bonus in 10 years and at least it didn’t cost anything.
Yes, that is possible but let me explain why I think that’s a waste of time. I cut the above quote from Allianz short and saved the last part for right here:
… Because this is a bonus annuity, it may include higher surrender charges, longer surrender charge periods, lower caps, higher spreads, or other restrictions that are not included in similar annuities that don’t offer a bonus feature.
I love that they use the word “restrictions”. This is here to justify low caps and participation rates the contract offers and the result is minimal growth. This is true with all bonus and income annuities. If they give you more of one benefit then they will take it from somewhere else.
It wouldn’t take long to find several available products with no fees that have twice as much growth potential at the 222.
The underlying growth of the contract being low is what disqualifies this from being used for anything else but income after year ten. The growth rates are low because Allianz adds 50% of the interest earnings to the protected income value. This is a performance based guaranteed income contract
People have a hard time understanding this but there is one similarity that everyone can grasp. Social security kind of works the same way. The longer you wait, the more you get. With the Allianz 222 you get more income if you wait ten years.
These critical points are almost never explained to the person buying. It is not the fault of Allianz because we have seen they clearly explain the product right on their website. It’s the fault of opportunistic agents and advisors who are not doing any research.
The Allianz 222 should not be the highest selling annuity in the market. The ten year requirement disqualifies it for more than 90% of the people I meet.
Have you been pitched the Allianz 222? Please reach out if you have received any conflicting information.
Bryan J. Anderson