Income riders are one of the most talked about and often controversial subjects in the annuity industry today. Now when we say ?income rider?, you might immediately picture a cowboy riding a dollar bill like a bucking bronco?and that may not be far off! The expense, nuances, and instability of income rider annuities are sometimes under talked about in the insurance world. An income rider is an optional benefit that can be attached to a new contract for an additional annual fee. This income rider may provide your client with an option for a lifetime income stream that can be turned on in the future. Sounds good right? It can be very helpful as long as it is shopped for and used correctly, but many insurance agents do not know enough about them to educate their clients fully. Luckily, SilverSide Insurance Marketing is here to help with a guide to avoid getting yourself (and your clients) tangled up in the income annuity rider web.
Three Key Parts to an Income Rider:
Most income riders offer a guaranteed growth rate or ?rollup? between 4% and 8% on the ?income account? value. Remember that there is usually an annual fee associated with the rider and that the rollup rate is applied to the income account, not on liquid account balances. This means that your client will not be able to take out money in one lump sum; it can only be used for calculating income.
Some contracts guarantee the growth rate for specific periods such as ten years, but in special situations it can be guaranteed for a longer period of time. Often when you turn on the income stream, or take a partial withdrawal, the growth rate is affected. Be sure you know how the specifics on how the rollup works.
The payout is the most important and most overlooked part of the income rider. When your client decides to ?trigger? the income rider, the insurance company will base that amount on their current age. The younger they are, the lower percentage they will receive. Payout schedules differ widely from product to product so keep track of how this critical element affects your client?s benefits.
Important to know:
- Annuity guarantees, which include income riders, are only backed up by the company. ?State guaranteed funds that protect policies to a specific level do not apply to income riders. The coverage only guarantees the investment your clients have made, which is usually reduced by the rider fee.
- Remember that income rider annuities? income account value cannot be taken out as a lump sum. The only way your client can receive money is in the form of annual income.
- Some income riders can be used by the beneficiary in the form of a death benefit. Make sure to discuss with your client every possibility.
- There are many other nuances to keep in mind such as the effect of free withdraws, excess withdrawals, taxability of benefits, and more. Be sure you are aware of these details.
Income rider annuities can become a nightmare if not handled properly. Make sure that your client knows the risks and rewards before adding an income rider onto any annuity. Income riders are not for everyone, but they can add a solid stream of income even into retirement, if handled properly by a savvy insurance agent! Make sure to discuss these options with your clients, or they could soon find themselves stuck in the income rider annuities web. Give SilverSide Insurance Marketing a call for more information and detailed descriptions of the products available to you!?480.400.7171