Hybrid Annuity is a common term for equity indexed annuities which are combined with a guaranteed lifetime withdrawal benefit (GLWB) rider. Since hybrid annuities in effect serve two master, it is important to examine hybrid annuities pros cons.
The base indexed annuity offers limited participation in stock market returns, which over the long term can accumulate a sizeable retirement nest egg at competitive returns. The cash value in the equity indexed annuity portion is an unrestricted asset of the annuity owner. This cash value can be used for any purpose and any amounts not withdrawn during life, pass to the designated beneficiary at death. The cash value accounts of equity indexed annuities provide total access and flexibility. (see Equity Indexed Annuities Explained).
On the other hand, the GLWB rider has no cash value and its only function is to provide lifetime retirement income. These retirement income options are specific and are fully delineated in the wording of the rider. If a rider income option is not elected, then any amounts credited to the income rider account are forfeited at death. For a complete discussion of this important benefit (see ‘What is a Guaranteed Lifetime Withdrawal Benefit Rider? (GLWB)’)
Note: From time to time we see a few policies that provide limited death benefit access to some or all of the rider account. However, these provisions are far from common. On the rare occasions when a death benefit is included in a GLWB rider, there is usually a reduction in return on the total GLWB account. This is because the death benefit has an actuarial cost and these expenses reduce the total return available for accumulation. If a GWLB death benefit is important to your retirement planning, ask your Annuity Coach to search the annuity market for you for this type of benefit.
One of the downsides of a hybrid annuity is the annual charge that is levied against the cash value. GLWB accounts offer higher accumulations than available in the cash value accounts. One way to support these higher returns is to subsidize them with an annual fee that is charged against the cash value of the equity indexed annuity portion of the policy. Since the GLWB account is only a bookkeeping entry; has no cash value; and is an exclusive asset of the insurance carrier, this is essentially a transfer of wealth from you to the carrier. Over the lifetime of the policy, this annual fee can accumulate to a significant loss of cash value.
As a consumer, be sure that this reduction is worth the additional guarantees that the GWLB provides. Your Annuity Coach has software that can project the total cost of this rider for comparison and analysis purposes.
Your local Annuity Coach has extensive experience in retirement planning. He or she is available to answer any questions or to help you find the best hybrid annuities products or best equity indexed annuities for your individual retirement income needs.
Please work with an expert at matching your individual financial and retirement planning needs to the most appropriate annuity.
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