Selling VA's with LB+DB

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Sep 14, 2009 1:35 pm

Has anyone had any success selling the VA's with the LB and DB?  I realize only the right case will work for it and it's very expensive, but here's the deal:

 
There is one company that gives you an annual ratchet on both the LB and DB, and a 5% annual roll up on both values. 
 
So let's say client puts in $1MM, market goes sideways, waits 3 years to take income, both the living benefit and death benefit would be at $1,157,625.  Client takes 5% withdrawal for rest of life and dies with account value at $300,000.  Beneficiaries get the $1,157,625.
 
It costs 4%.
 
Any thoughts? 
Sep 14, 2009 1:56 pm

Snags, I usually sell the Living Benefit but have maybe 3 times sold a contract with both the LB and DB.  Yeah, it's expensive but it's for the individual who can't decide whether they need income for life or will pass it on.

Sep 14, 2009 2:55 pm
snaggletooth:

Has anyone had any success selling the VA's with the LB and DB?  I realize only the right case will work for it and it's very expensive, but here's the deal:

 
There is one company that gives you an annual ratchet on both the LB and DB, and a 5% annual roll up on both values. 
 
So let's say client puts in $1MM, market goes sideways, waits 3 years to take income, both the living benefit and death benefit would be at $1,157,625.  Client takes 5% withdrawal for rest of life and dies with account value at $300,000.  Beneficiaries get the $1,157,625.
 
It costs 4%.
 
Any thoughts? 
 
 
Is this a Metlife contract?  If it is there is one catch.  If the account balance ever goes to zero, the contract is annuitized and the death benefit is zero.  Keep in mind that the LB and DB expenses are based on $1.157mm, not the account value.  As soon as the contract hits a bad stretch, the account  has very little chance of recovery due to fees.  Using your example, client starts taking income ($57,881) with fees of $46,305.  In the Metlife contract (if memory serves) the expenses of the LB and DB are 2.7%.  We hit a bad year, say -20%.  Account value drops to $868,218 including the 5% withdrawal.  The fees would now be $42,541 (1.3% on account value, 2.7% on LB and DB value) which is an expense of 4.9% and a withdrawal of 6.67% of account value.  That is a withdrawal of 11.57% and I didn't even include subaccount expenses.  Now imagine is we were to get a really bad year, or multiple small down years in a row. 
Sep 14, 2009 3:04 pm
Jebediah:
Is this a Metlife contract?  If it is there is one catch.  If the account balance ever goes to zero, the contract is annuitized and the death benefit is zero.  Keep in mind that the LB and DB expenses are based on $1.157mm, not the account value.  As soon as the contract hits a bad stretch, the account  has very little chance of recovery due to fees.  Using your example, client starts taking income ($57,881) with fees of $46,305.  In the Metlife contract (if memory serves) the expenses of the LB and DB are 2.7%.  We hit a bad year, say -20%.  Account value drops to $868,218 including the 5% withdrawal.  The fees would now be $42,541 (1.3% on account value, 2.7% on LB and DB value) which is an expense of 4.9% and a withdrawal of 6.67% of account value.  That is a withdrawal of 11.57% and I didn't even include subaccount expenses.  Now imagine is we were to get a really bad year, or multiple small down years in a row. 
 
Yes, that would be bad.
Sep 14, 2009 3:46 pm

Does the DB work the way you described?  Typically the DB will be reduced either dollar for dollar or proportionately by the amount of withdrawals.  In your example, the DB stays the same, despite the withdrawals. 

 
If it works the way you describe, I'm going to move all of my clients assets to that annuity, starting tomorrow morning. 
Sep 14, 2009 3:57 pm
Spaceman Spiff:

Does the DB work the way you described?  Typically the DB will be reduced either dollar for dollar or proportionately by the amount of withdrawals.  In your example, the DB stays the same, despite the withdrawals. 

 
If it works the way you describe, I'm going to move all of my clients assets to that annuity, starting tomorrow morning. 
 
Yes, it's the MetLife GMIB+Enhanced DB.  Jeb was right in all he said, especially that contract value can not go to zero.
 
I was wondering how to create a campaign for this.  I think people 65-74 who would like some income, and guarantee a larger DB would like it and (hopefully) not balk at the fees. 
Sep 14, 2009 5:01 pm
Jebediah:
snaggletooth:
Spaceman Spiff:

Does the DB work the way you described?  Typically the DB will be reduced either dollar for dollar or proportionately by the amount of withdrawals.  In your example, the DB stays the same, despite the withdrawals. 

 
If it works the way you describe, I'm going to move all of my clients assets to that annuity, starting tomorrow morning. 
 
Yes, it's the MetLife GMIB+Enhanced DB.  Jeb was right in all he said, especially that contract value can not go to zero.
 
I was wondering how to create a campaign for this.  I think people 65-74 who would like some income, and guarantee a larger DB would like it and (hopefully) not balk at the fees. 

 
How can you say the contract value cannot go to zero? 
 
You can not let it go to zero.  Or else you will be forced to annuitize and lose the DB.
Sep 14, 2009 5:05 pm
snaggletooth:
Jebediah:
snaggletooth:
Spaceman Spiff:

Does the DB work the way you described?  Typically the DB will be reduced either dollar for dollar or proportionately by the amount of withdrawals.  In your example, the DB stays the same, despite the withdrawals. 

 
If it works the way you describe, I'm going to move all of my clients assets to that annuity, starting tomorrow morning. 
 
Yes, it's the MetLife GMIB+Enhanced DB.  Jeb was right in all he said, especially that contract value can not go to zero.
 
I was wondering how to create a campaign for this.  I think people 65-74 who would like some income, and guarantee a larger DB would like it and (hopefully) not balk at the fees. 

 
How can you say the contract value cannot go to zero? 
 
You can not let it go to zero.  Or else you will be forced to annuitize and lose the DB.


 
 
Sorry read it too fast.  This brings another issue to light.  How are you going to explain this to an 80 year old?  Sorry granny, you must now choose to give up your income or your legacy gift.  Not a conversation I would want to have.  A client could very well outlive this DB, and I guarantee you they will not remember this disclosure 15 years down the road, or worse the children will come after you for the DB.
Sep 14, 2009 5:15 pm
snaggletooth:
Spaceman Spiff:

Does the DB work the way you described?  Typically the DB will be reduced either dollar for dollar or proportionately by the amount of withdrawals.  In your example, the DB stays the same, despite the withdrawals. 

 
If it works the way you describe, I'm going to move all of my clients assets to that annuity, starting tomorrow morning. 
 
Yes, it's the MetLife GMIB+Enhanced DB.  Jeb was right in all he said, especially that contract value can not go to zero.
 
I was wondering how to create a campaign for this.  I think people 65-74 who would like some income, and guarantee a larger DB would like it and (hopefully) not balk at the fees. 


 
 
I think you missed my point.  The DB rider is likely to do one of two things.  If the client lives a short period of time (<10 yrs) it's an expensive life insurance policy.  If the client lives a longer period of time (barring a market like 82-99) you are likely to have to annuitize the contract or stop the income.  Even stopping the income may not help.  Let's say you stop the income when the account value hits $100m.  You fees will still be over $30m a year.  Where do you stop taking income?  How do you explain this to the client?  How do you remember all this 10 years from now?
Sep 14, 2009 11:58 pm

I was an annuity product consultant before I went into production for an insurance company. Personally, I would never add a living benefit along with a death benefit on the same annuity contract. The fees are astronomical, but the product is easy to sell as it's very pitchy. "Give us a million dollars and I guarantee you can take $50k a year and still leave $1 million in place for your children."

 
I like the income rider in some situations (by itself) in some situations and I like the death benefit rider in some situations (for someone who does not qualify for life insurance). But mixing the two together is like mixing oil and water. Your client should be informed that it is VERY VERY likely there is not going to be an upside with all these riders on the contract. On top of that, what the above posters mentioned is very true, the fee anchor gets heavier and heaviers as the account value gets smaller and smaller.
Sep 15, 2009 11:35 am

Because there's only the POTENTIAL to leave $1million left to the family. If a person is withdrawing 5% a year from an account, traditional monte carlo simulations tell us that we would deplete an entire account. Inside a variable annuity with 4%+ fees, we would deplete that account at a much faster rate.


Inside a variable annuity, only the M&E fees and subaccount fees are based off the actual value. The rider fees (approximately 2%) are based off the actual income base/death benefit base. For example, 100k account...after 5% withdraws over time, account is only 50k now. Your variable annuity fees would be around 6% now (2% for M&E, subaccounts and 4% for rider fees). Please tell me how we would NOT be forced to annuitize? Client has two options, add in more money or to stop taking withdraws if he wants to keep the death benefit.
Sep 15, 2009 12:50 pm

Yes, it's a dollar for dollar withdraw versus a pro-rata withdraw so the death benefit is "locked in."

 
However, what happens when the account value goes to zero? You LOSE the death benefit. The insurance company invented these fancy riders to make more money off consumers by tacking on fees that eat up the account value. Think about it, living benefit is good for income, death benefit is good for someone who does not qualify for life insurance. However, adding both will just tack on more fees for the client because guess what, the living benefit and death benefit will NEVER be used together. It's one or the other and by not using BOTH, you would of jeopardized the contract annuitizing earlier/paying fees for nothing.
Sep 15, 2009 2:48 pm
ChrisVarick:

Yes, it's a dollar for dollar withdraw versus a pro-rata withdraw so the death benefit is "locked in."

 
However, what happens when the account value goes to zero? You LOSE the death benefit. The insurance company invented these fancy riders to make more money off consumers by tacking on fees that eat up the account value. Think about it, living benefit is good for income, death benefit is good for someone who does not qualify for life insurance. However, adding both will just tack on more fees for the client because guess what, the living benefit and death benefit will NEVER be used together. It's one or the other and by not using BOTH, you would of jeopardized the contract annuitizing earlier/paying fees for nothing.
 
If you have a client that wants to start immediate income I believe they are better served with an immediate annuity however that changes if they want income later......