I’ve been working with Lester for about three years now. When he found me in 2018 it was after more than a half dozen dinner seminars and several more meetings to see specific proposals from each advisor. He was tired because the insurance guys wanted him to have nothing but annuities and the investment guys told him to forget annuities and just use stocks and bonds. None of it perfectly resonated with him and he was exhausted.
Like a lot of people he wanted a different approach and found it here. That didn’t stop a few of the salespeople from throwing a lot of interference at him while the transactions were processing. Fortunately he gave me the opportunity to address each so with patience and consistency he learned a lot and was able to enjoy his plan with plenty of confidence.
His third contract anniversary is coming at the end of the summer and if markets hold he is looking at a very nice double digit gain. But one of those advisors came out of the woodwork to throw another pitch at him, this time suggesting he surrender his annuity and take advantage of a bonus offered by another company. This would totally wreck his plan so clearly the agent had no concern for Lester’s well being. It was nothing but a sales tactic meant to create a sense of urgency. Not only would he be out his potential interest earnings for this year but he’d also pay a surrender fee.
Just like before he sent me the email and asked what I thought. I’m going to share it with you because it is dripping with misleading information. It’s a sales tactic of the worst kind and I’m probably going to report it to the California State Insurance Commissioner. The other agent’s comments are in block quote with my response below each.
The preferred annuity carrier I work with has made a fixed-indexed annuity with the remarkable features below available to my clients and me.
25% initial bonus on your premium – $100,000 becomes $125,000 on day 1
250% interest rate bonus each year you delay taking income – if you earn 3% the previous year, you are actually credited 7.5%
150% interest rate bonus each year after you start taking income
No waiting period before you can start taking lifetime income – lifetime income is guaranteed for you and your spouse as long as one of you are still alive
Each year, on the policy anniversary date, the guaranteed income is adjusted up by the amount of the rate of return the previous year. If income is $1000 per month and it earned 5% last year, your new guaranteed income becomes $1050 per month.
If you should prematurely pass away, your beneficiary or estate inherits the remaining balance in the policy, including all the bonuses.
It’s full of half truths, misleading claims and even contradictory information. Bonuses only enhance income and do not create more cash value. It’s not free money but this agent sure makes it seem so. There is the potential for income increases throughout the contract but the likelihood of this annuity growing at 5% in any year is extremely unlikely. I’ll explain more below because it also relates to the death benefit that is only enhanced if beneficiaries take the benefit over a five year period.
In order to get income increases or an enhanced death benefit then the contract has to grow. This one will not in any meaningful way. Cap rates are a maximum of 3% and participation rates are as high as 60% on an index that has never really performed much more than 5% in a year. So the maximum growth is only 3% but the catch is that there is a mandatory allocation fee of .95%. Once that is subtracted you would be looking at an account value that is credited with 2.05%. It’s not very good.
Here’s the real catch: if you take the 250% annual income bonus then the company gives you only half of the interest earnings on the accumulation side. Now we’re down to just over 1% growth in the best-case scenario. Once income payments start the account value is going to drop like a lead balloon. This company is notorious for creating illustrations that look magical and I’ve seen many for this specific contract. In the fantastic growth scenario in the illustration it shows the cash value going to zero around year 18. So much for that giant windfall for your beneficiaries.
The final pitch at the end of the email is my favorite…
Now, you may be asking yourself, “How can they do this?” The short answer is that as interest rates have increased, this carrier has excess cash. The best way to put that cash to work is to create an incentive to differentiate them from their competitors and attract new business.
While I run the risk of sounding like a salesperson, this truly is a limited-time offer and will no longer be available after June 21st.
Boy that sounds just like the opinion of a Certified Financial Analyst. Interest rates are up so the company is throwing around cash! I’m sorry but that’s not how this works. The company certainly is trying to buy market share and they sold a bunch of it so they are pulling it back a little because the current offer is too expensive. Sure you can’t get it after Monday but all that’s really going to happen is the company will probably trim the initial bonus down to 20% or something like that. It will make a minimal difference with the income payments and that’s all.
This is an income contract and nothing more. Don’t expect much growth. Don’t expect giant income increases for any extended period of time. And don’t expect to have a whole bunch of money left for the next generation. If the income at a base level works for you then go for it. I could sell this one but I think it’s a piece of junk. In reality the guaranteed income payments run neck and neck with lots of other contracts that don’t have all the fine print.
I’d bet a fair bit of money that this contract will be the number one selling annuity in the country. Why? It’s nothing more than heavy sales tactics, a big distribution system and mass marketing. It may work for you but there’s likely a better option. Just be sure to evaluate all the details, not just the flashy stuff the agent wants to show you.
Have a great weekend!