A variable annuity policyholder typically collects guaranteed lifetime withdrawal benefits from an insurer when the account value drains to zero, but a new annuity rider allows insurers to start those payments even if there’s money still left in the account.
This is an industry first, according to Sammons Retirement Solutions.
Sammons began distributing the LiveWell Freedom VA with the new GLWB rider through banks, independent broker-dealers and full-service broker-dealers.
The rider isn’t optional and only comes with the purchase of LiveWell Freedom VA, which is issued by Midland National Life.
The feature is an example of product innovation in an industry that has suffered from slow sales due in part to a lack of new ideas, according to William Lowe, president of Sammons Institutional Group, in a news release.
VA sales fell 9 percent last year to $96 billion compared to 2016.
Policyholders under the age of 60 who buy a LiveWell Freedom VA have access to 100 percent of the account value once the policy reaches the 25th contract anniversary.
A 55-year-old at the time of purchase who reaches age 80 would have access to whatever is left in the account and have Midland begin paying the lifetime benefits.
Policyholders 60 or older at issue have access to the entire account values once the policy reaches the 20th contract anniversary.
A 65-year-old at the time of purchase who reaches 85 would have access to the account and have the insurance company begin paying the lifetime benefits.
“Freedom dates” are future contract anniversaries which represent the point at which contract holders have access to the full account value with no impact on the lifetime payment amount.
Freedom dates are assigned by the company upon contract issue and the cost of the rider – 1.45 percent of the lifetime withdrawal benefit base – disappears once the freedom date is reached, according to Sammons.
The unique aspect of the rider is that it is possible that the insurance company begins making payments before the account has been completely depleted, said Michael Manetta, lead quantitative analyst with Morningstar.
“That does seem fairly unique to me,” Manetta said.
The rider includes a 2 percent roll up and 75 percent share in any index gains experienced with the S&P 500 Index, Sammons said.
When the market falls, the lifetime withdrawal benefit value will still experience 2 percent growth every year, according to Sammons.
When the market performs well, 75 percent of the gains associated with the corresponding index as well as 2 percent are added to the lifetime withdrawal benefit value, the company said.
The gains in the GLWB value will continue until the value has doubled, the client makes a withdrawal or the freedom date has been reached.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected]