Are Bonus Products Better?
Yesterday an agent asked me to compare three similar fixed indexed annuity products, each with an annual point-to-point interest crediting method, but with the following differences:
· Surrender Charge durations of 7, 10, and 14 years
· Bonus Rates of 0%, 5%, and 11%
· Current Participation Rates of 8.90%, 7.80% and 7.80%
Often products with a premium bonus show higher values after 15 years, but if your client needs their money in 5 to 10 years, most of these products carry sizable surrender penalties. Since this particular insurance company pays an additional 1.10% interest rate on the non-bonus product, it is difficult to determine if the bonus products actually will deliver the highest values to the customer.
This spreadsheet compares the year-by-year surrender value of the above three products using hypothetical changes in the value of the index. If you sell similar products, I encourage you to customize this spreadsheet to help your clients decide which product, or blend of products, best fits their needs.