| First off, with these guaranteed lifetime withdrawal benefits, I highly recommend you keep the original illustration in the client’s file. Otherwise years down the road how do you know what the client’s guaranteed payout will be when they want to elect it??? Where do you go to get this info??? I will say that looking at the “rider” section in the policy will be a mathematical exercise that you my not desire! Or, you can call the carrier, but we know how those calls can go depending on the quality of service on the other side of the phone! Keep the illustrations… Anyway, lets discuss a couple of details to keep in mind when it comes to the timing of the client electing to activate the GLWB rider. To simplify, we know that the guaranteed income is “generally” derived from two components on the rider, the rollup rate and the payout factor. For example, lets assume we have a 65 year old client who wants income one year from now. Lets use rates from an actual GLWB rider that exists. This rider has an 9% “rollup rate” and a 7.7% payout factor when the client is 66 – one year from now. That “rollup rate” of 9% means the client’s $100,000 premium is going to grow to $109,000 over the next year when it comes to the “income value”. At that point in time when the client exercises the rider, that value of $109,000 is multiplied by the payout factor of 7.7%. Hence, in this case, the guaranteed lifetime income will be $8,393 (109,000 x 7.7%). What if the client comes to you in month 11 and says they want to activate the income? Do you just blindly oblige? Or do you look into when the anniversary date is of the policy? Why is the anniversary date important? Because almost all of these riders credit the income value with the “rollup rate” on the anniversary. In short, if that client activated income in month 11, the “income value” will only be $100,000, versus the $109,000 they would get if they waited just one month. This “mistake” is a difference between getting the client a lifetime income of $7,700 ($100,000 x 7.7%) a year, versus waiting a month and getting $8,393 a year. Note: As mentioned above, Corebridge just introduced DAILY crediting of the rollup rate, which squashes this concern! So, pay attention to anniversary dates! Another date to pay attention to is the birthday of the annuitant. Note: If it is joint payouts, then pay attention to the birthday of the youngest payee. Why pay attention to the birthday? Because payout factors generally increase as the payee gets older. Sometimes it is in one-year increments, and sometimes it is something like five-year increments. For instance, in our example above, let’s assume that you told the client to wait until the anniversary to get his $8,393 a year. What if his 67th birthday was the following month? And, at age 67 the payout factor is no longer 7.7%, but now it is 7.9%, just as an example. Well, in that case the client may want to wait one month in order to get the 7.9% factor. Now, 7.9% x 109,000 is $8,611, versus the $8,393. Whether it is worth it or not is obviously up to the client. To sum it up. Pay attention to the anniversary dates and also the birthdays. Although the numbers above may not seem significantly different, in some scenarios the differences are far more extreme. |
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