Prudential HD6 Variable Annuity...professional opinions?

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Oct 4, 2010 1:06 am

Thanks N.D.  Yes, interested in the answer to your question from Mad.

Dec 1, 2010 2:02 am

I'm not an "annuity guy" really, but the few clients that I've used VAs with, I've used the HD6 product.  Personally, I think all VAs are "expensive," but isn't that what you're paying for in return for the protection?  No such thing as a free lunch.

Wth Pru's product, I think we need to clarify that the GMIB is a best ball of the following conditions:

- 6% annual compound on the income base, or

- the return you realize on the separate account investments, or

- a guaranteed increase in the income base of: 200% if held for 10 years, 400% if held for 20 years and 600% if held for 25 years.  For clients in their 50s/60s who want to protect a portion of their retirement assets, it makes great sense. 

Personally, my focus is not on the 6%, it's on the market return or the percentage increase.  Everyone I've used this with have all been in a situation where they plan on holding it for 10 years or more before annuitizing the contract. 

I know MetLife has a similar product and I believe Jackson's offering is getting a lot of feedback these days, but I am not versed on that contract. 

Just my 2 cents.

Dec 1, 2010 12:01 pm

Thanks Nova02.  This stream has been very useful, and I have done a bunch of research on the various offerings and VA arguments one way and another.

I agree that the Prud HD6 is th ebest offering and my fundamental conclusion is that the expense/fees are in fact a form of insurance payment to provide the protection against potential market losses I need at my stage fo life.

I also decide to diversify so am putting 75% into HD6 and 25% into Allianz Master Dex X to give me some international investment, with similar, though more restricted, benefits as the HD6.

Dec 3, 2010 2:11 pm

[quote=loneMADman]

Wise, excellent question.  Fees are a big part of the complaint, but not the only one.  As for fees, you need to consider the front end sales load you will be paying in addition to the monthly expenses.  Also, variable annuities come with lots of different fees.  Make sure that 2% isn't just the funds management fee, but includes all of the administrative and insurance fees (the latter depending on your policy type).  Another issue I have is the surrender penalties.  People almost always underestimate the value of flexibility.  What happens if your circumstances change in 5 years and you need that money?  You will have been set back significantly for load, expenses and surrender charges.  Another issue is the lack of investment options.  We already discussed how these are usually very expensive options, but you will also likely suffer limited choice, which could impact investment performance diversification or both.  Also, check whether and how your future payouts can be changed by the insurance company.  Lastly (I think) is that your insurance is only as good as the insurance company's guarantee.  And we know from the financial meltdown that seemingly great, bulletproof companies can indeed go down.

Given all that, and the fact that a good financial advisor can essentially replicate the benefits of the annuity with varying combinations of munis, government bonds, equities and term insurance, I don't see why you'd want to take on all of the annuity baggage.

[/quote]

My God, I'm usually not so argumentative, but since you are holier than thou, I must request you leave this discussion to the adults.  Front end load???  Really? What the hell are you talking about?  There are no front-end loads in VAs.  I get it, you have taken a stance to not use VAs in your practice for whatever reason.  But it is plainly obvious that you don't fully understand them.  You have Suze Orman's Cliff's Notes, we are all very impressed. 

Dec 3, 2010 2:16 pm

[quote=WiseWant]I also decide to diversify so am putting 75% into HD6 and 25% into Allianz Master Dex X to give me some international investment, with similar, though more restricted, benefits as the HD6.

[/quote]

  Oh no....  If I were forced to choose "the worst insurance product ever", I'd have to pick this one.

Dec 3, 2010 2:29 pm

[quote=Nova02]

I'm not an "annuity guy" really, but the few clients that I've used VAs with, I've used the HD6 product.  Personally, I think all VAs are "expensive," but isn't that what you're paying for in return for the protection?  No such thing as a free lunch.

Wth Pru's product, I think we need to clarify that the GMIB is a best ball of the following conditions:

- 6% annual compound on the income base, or

- the return you realize on the separate account investments, or

- a guaranteed increase in the income base of: 200% if held for 10 years, 400% if held for 20 years and 600% if held for 25 years.  For clients in their 50s/60s who want to protect a portion of their retirement assets, it makes great sense. 

Personally, my focus is not on the 6%, it's on the market return or the percentage increase.  Everyone I've used this with have all been in a situation where they plan on holding it for 10 years or more before annuitizing the contract. 

I know MetLife has a similar product and I believe Jackson's offering is getting a lot of feedback these days, but I am not versed on that contract. 

Just my 2 cents.[/quote]

A couple of things.  The GMWB is actually not a best ball, you can possibly have your cake and eat it too, with the 6% growing off the high water mark of the account.  A true best ball would have two discrete numbers, premium growing at 6%, or account value.  This product combines to the two.  That could be very powerful if you had a 20% first year, then grew 6% of the benefit base off of that high-water mark. 

When I sell these living benefit VAs (which is extremely rare for me), it is almost ENTIRELY based on the 6%, or other contractual items, and not the market/porftolio return.  The fact is, at a max stock mix of 80/20 and internal costs creating about a 3.5% drag (and increasing as the benefit base rises relative to contract value), it is quite hard for the portolio to drastically beat a 6% compounding hurdle.   And with a double  in the contract if held for 10 years, you are looking at 7.2% compound return, making your 80/20 hurdle 10.7% or higher.  Possible, but I wouldn't count on it.  And that is IF you stay 80/20, which may not be the case. 

Dec 3, 2010 5:08 pm

Fly wrote: Front end load???  Really? What the hell are you talking about?  There are no front-end loads in VAs. 

Actually there are A-share VA's out there.  In fact, on the rare occasion I find a VA to be appropriate, A-shares are the only ones I use.  Might be a good idea to know what the hell you're talking about before you rail on people.

Dec 3, 2010 8:06 pm

[quote=Kaner]

Fly wrote: Front end load???  Really? What the hell are you talking about?  There are no front-end loads in VAs. 

Actually there are A-share VA's out there.  In fact, on the rare occasion I find a VA to be appropriate, A-shares are the only ones I use.  Might be a good idea to know what the hell you're talking about before you rail on people.

[/quote] You are right, they exist, just rarely sold/purchased.  I was wrong to say there is no such thing, as I forgot about the Edward Jones contingent.

And you sure got me, I am entirely uninformed about this product. 

I take back none of the "railing" I did on that guy. 

Mar 31, 2011 1:30 pm

Does anyone know the payout and trail for this product?

Mar 31, 2011 6:54 pm

With all the discussion above can I consider that these variable annuities could be profitable option for my credit solutions in future.