More than a dozen people have asked me about this in the past month which tells me that many multiples of that have also seen it. Allianz has always had the largest distribution system for index annuities and that’s why so many people see the products, not because there is an incredible value for consumers.
In this case it’s no different. Many of you will recall the Allianz 222, which spent a few years as the top-selling annuity, of any type, on the market. My aversion to this product was not the product itself. In the right circumstances it was just fine but I heard from hundreds of people who bought without having been explained the proper use and inherent restrictions in the contract.
For anyone who doesn’t know, the 222 requires a ten year deferral to capitalize on all the juicy bonuses in the contract. Many agents represented otherwise so a lot of people got into it not knowing that their circumstances would require them to use funds in the annuity in a way that works against the purpose of the contract. There are people who are happy with the 222 but there are just as many or more who are disgruntled because it was never meant to do what was falsely promised.
Enter the Allianz Benefit Control (ABC) to solve many of the problems. The ten year deferral requirement of the 222 eliminated it from being suitable for most people I’ve met. The ABC works exactly the same way except you can take income with bonuses included in any year of the contract. Given that, it seems this would make it a suitable product for more people. Plus, neither contract has a fee for the guaranteed income rider so that catches the attention of agents and consumers alike.
Both contracts are considered to be performance-based guaranteed income contracts. A base level of income is guaranteed for life and increases for each year of deferral by a factor of the growth in the account. Rate of payout is based on your age when income starts and the bonus only increases the amount of income you receive. One contract makes you wait ten years to factor in the bonus for income and the other lets you use it at any point in time.
In order for a performance-based income contracts to produce substantial income, the account has to grow so I look at the index options along with caps, participation rates and spreads to see what kind of potential the contract has. This is where anyone can see what type of potential the contract has. Short of giving you a detailed list of each index option I’m going to give you a clear indication that this contract really won’t go anywhere.
All viable index crediting options in the contract charge an allocation fee of .95% annually to use them. Cap rates max out at 2.5% and all other index options with a spread or participation rate have not credited more than 2.5% at any point in the past ten years. Once you factor in the allocation fee then it’s easy to see this contract will not grow any more than one and a half percent in the best of years.
Growth is extremely important for more than just maximum income. Allianz offers a feature that doubles the income for long-term care but you don’t get it if the account value goes to zero before you need it. Income payments decrease the cash value of the contract and if growth does not replenish what was taken then you’ll run out of residual value quicker than you would with more growth. It leaves you with no additional benefit when you need it most.
Yes there are better options if this is something that interests you and there are some instances where the ABC provides the highest payout. I say it over and over again but am not sure it sticks. If you’re going to use an annuity to protect assets or provide income in retirement, go with the product and strategy that gives you the most in return.
I have nothing against Allianz personally but never felt their product line gave me a competitive advantage. If that changes I will be happy to represent the new products. And if someone shows you an Allianz contract that I can’t beat I will happily give you my blessing to do business elsewhere. I’m only trying to give you the whole picture so take it for what it’s worth and make an appointment if you’d like to shop some alternatives.
Merry Christmas and Happy New Year!