Josh Ver Hoeve – VP Annuity & Life Distribution
(Asset Marketing Systems)
We could inundate you with story after story about how life insurance has saved thousands of families who experienced unexpected deaths. However, we also understand that when dealing with retirees or pre-retirees it could be too late for life insurance.
One way to help pass the money onto an estate without having to worry about medically qualifying is by using the Athene BCA with the Family Endowment Rider Max (FER MAX) rider. This Fixed Indexed Annuity with rider has primarily been used for qualified funds when a client is not quite sure whether their goals are accumulation, income, or an enhanced death benefit. The good news is the Athene BCA with FER MAX can provide all of those benefits. However, it works best for qualified money as an RMD (Required Minimum Distribution) solution. The way the FER MAX rider works is that it credits the death benefit value by a guaranteed 2% compounded annually, plus 100% of any index credits. For example, if you average 5% annually on your accumulation value, your death benefit value will earn 7%.
Here are two main reasons why this is great for qualified money:
- All RMDs are free withdrawals.
- Any withdrawal up to 5% of the accumulation value will only reduce the death benefit value dollar-for-dollar up to 5%, as opposed to a pro-rata reduction we typically see in the market place
The dollar-for-dollar reduction is an important feature and the numbers prove it! Due to this type of reduction, you will find your client’s qualified account growing at an incredible rate while still delivering a substantial death benefit. Meanwhile, RMDs, or really any type of income from qualified or non-qualified assets, can be taken without significantly jeopardizing the death benefit value.
The BCA FER MAX brochure presents a couple of case studies. There is one, in particular, we want to focus on.
Bill is age 65, and his wife Susan is age 62. The first necessity for Bill is to protect his spouse when he dies by providing life insurance. However, he or his advisor believe one of three things:
- Because he’s 65, life insurance is too expensive, and he fears that paying the premiums will be a concern later in retirement if he needs that money for income.
- Bill cannot qualify medically.
- Bill has $1 million and doesn’t really think he’ll need money other than the RMDs at age 70.5, but he’s unsure and wants flexibility, safety, and a reasonable rate of return.
Bill is like many clients who want their money to be safe while earning a reasonable rate of return but he also wants it available for income if/when necessary. And, of course, if he doesn’t need the income wouldn’t it be nice to pass on an enhanced value in a lump sum to his beneficiaries?
The only assumption we’ll make in this example is that the Athene BCA earns a 3.70% return. Anyone reading this who has sold the BCA will be fine with this conservative assumption since the product has out-performed a 3.70%/year return since it has been on the market. (Note: If you want an even more conservative assumption view the brochure for the guaranteed numbers which assumes no index credits for 30 years.)
Bill takes his $1 million of qualified money and purchases the BCA 10 with the FER MAX rider. Bill’s RMD will be $43,714 at age 70.5. By age 80 Bill’s RMD has increased to $55,526, and by age 85 his RMD has increased to $57,452 per year. He has been taking these RMDs from his BCA contract every single year. Let’s assume Bill lives to age 87 in this example. By age 87 he will have taken out just shy of $900,000 in RMDs. After $900,000 in RMDs, his accumulation value would be $831,000, but better yet his death benefit paid out to his wife or children is sitting at just under $1,400,000. Not a bad deal, right? He started with $1 million, has taken out about $900,000 in RMDs/income and has about $1.4 million to pass on to his beneficiaries. The great part about this product for Bill is that over the 27 years that he owned it, he had the ability to take his RMDs while still maintaining a legacy for his family. If Bill needed more income he could have taken it (up to 10%/year as a free withdrawal) or after the ten-year surrender another product could have been positioned, if available, to suit any changes in his plan. Assuming he simply used this product for accumulation, he really didn’t give up much accumulation potential other than paying a rider fee for the FER MAX.
I’ll leave you with a couple of additional product notes for September. We understand rates have been declining across the board. Let’s not forget the value of FIAs for our clients. We’re planning today and tomorrow for our clients which means comparing current FIA rates from a year or two ago will not help you plan for them today. FIAs still offer reasonable rates of return, safety, and guaranteed income.
I also want to highlight the Nationwide New Heights product. The New Heights is still an incredible accumulation story, but it also has one of the best performance-based income riders, and one of the best guaranteed income riders. Because of the riders available, this is one of those products that can be designed for almost any type of client situation. If you’re not using MyAnnexus.com and the new Nationwide Lifetime Income Analyzer, be sure to contact us to gain access. This is a new client approved income report that can really help to explain the New Heights product to a client.
Would you like to see an illustration for your client? Call the product team at Asset for a customized illustration!