We market insurance products with strong guarantees. Every insurance line will have different premiums required to fund certain policies. Pricing takes into account product features, risk factors and current market conditions among many other considerations. The basic idea of insurance is that the insurer is exposed to more of "the risk" than the insured. Sometimes premiums may be more than they need to be for the same "intended" coverage due to the product selected. A cost of insurance that hides in the product specifications.
When it comes to retirement income, all options should be placed on the table and compared. Leaving out viable options simply because they have fewer components, a perceived negative reputation, or just pay far less commission may have a long lasting financial impact on a retirees lifestyle.
Let's look at cost/premium
associated with "insuring"
a retirement income.
So let's look through all the sizzle and at some real income numbers for an average age retiree who is just looking for guaranteed immediate income.
A Fixed Index Annuity (FIA) With Guaranteed Income Rider Included:
A Single Premium Immediate Annuity (SPIA):
Option # 1 - Use all the premium:
Option #2 - Match the riders income:
What is that extra 10% to 14%insuring? Is it worth it? Could we do better?
For instance, if we look at the client for life insurance, $101,793 would get about $235,000 of coverage assuming a standard rating and a quick glance at rates. How much guaranteed money will actual make it to the client or the beneficiaries no matter how long or short the annuitant lives.
The SPIA With Life Insurance =
This client could potentially save 10% of premium, receive the same guaranteed lifetime income with no risk of premium and in-fact, guarantee a 135.8% return of premium from day 1!
Presenting the immediate annuity option when guaranteed income is desired should be automatic. If this client liked an FIA income payment starting in 1 year he may love the higher income or the lower premium the SPIA can offer! Better they find out before they pull the trigger on this FIA!
For income needs in the future the FIA's with riders offer flexibility and guaranteed income. The option to shop a SPIA with the accumulation value at the end of the surrender period gives an additional chance at higher income. If the client can not find higher income than the rider turn on the income knowing it is very competitive.
The idea is to not outlive your money.
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Last modified: 04/01/15