Guaranteed Lifetime Income Rider: Hot-Seller on the Annuity Block

May 2, 2008

SOURCE: InsuranceNewsNet, Inc.

The magic of annuities is all in the riders. In fact, guaranteed living benefit (GLB) riders have been the driving force behind the record-setting variable annuity (VA) sales in 2007. It shouldn’t come as a surprise then that annuity providers have been rolling out one GLB rider after another including:

• Guaranteed Minimum Income Benefits (GMIB)
• Guaranteed Minimum Withdrawal Benefits (GMWB)
• Guaranteed Minimum Accumulation Benefits (GMAB)
• Guaranteed Payout Annuity Floors (GPAF)

The latest rider that is currently stirring up sales is the Guaranteed Lifetime Income Rider (GLIR) which guarantees that the annuity owner will receive an annual payment (a guaranteed withdrawal payment) for life – even if there is a drop in the policy’s accumulation value.

The GLIR was first made available to VAs, and it has become the must-have add-on for other index annuity products. Proof that the GLIR is red hot and getting hotter is the number of applications Life Insurance Company of the Southwest (LSW) has received regarding the rider for its single premium deferred indexed annuity. In February 2008, the company reported receiving about 271 GLIR applications in a single day. The average number of applications it receives per day is anywhere from 100 to 150. 

How does the GLIR work?  One marketing advantage of this add-on is that producers can present a dollar amount for the projected guaranteed payout for life.

To determine the guaranteed withdrawal payment, many providers multiply the income account by a guaranteed withdrawal percentage. The income account has a guaranteed interest rate for a specific time period. One example is a 7% roll-up rate guaranteed for 20 years.

The guaranteed withdrawal percentage is based on the age at which the client expects to start to receive payments. For example, if the guaranteed withdrawal percentage on a single life is 5% at age 60 and increases by 0.10% each year, the Guaranteed Withdrawal Percentage at age 90 is 8%.

According to LSW’s consumer information material, a married couple could purchase a single premium deferred indexed annuity with a Joint Life GLIR for $406,679 at age 55.

At age 65 they would be entitled to an income of $40,000 annually guaranteed for life even if the contract’s accumulation value eventually becomes zero because of the payments. If they decide to receive payout starting at age 70, their annual guaranteed lifetime income would be $61,712.

In March 2008, Old Mutual Financial Network (OMFN) introduced OM Income Advantage – its version of the GLIR. The rider offers up to two 10-year accumulation periods offering a basic 4% or enhanced 6% roll-up. The contract also allows the client to re-start a roll-up period as well as gives them the option to stop and start income payments whenever they choose throughout the withdrawal period.

OM Income Advantage enables producers to provide their clients with the ability to control their assets, determine the length of their accumulation period and stop or renew income payments. By extending the accumulation period, the growth of the account’s income base amount and the lifetime income amount can grow significantly through compounding. 

By offering these riders, insurance companies offer peace of mind to retirees and pre-retirees through the guarantee that they will not outlive their income.

© Entire contents copyright 2008 by InsuranceNewsNet.com, Inc.  All rights reserved.  No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.