After a stellar 2016, American International Group (AIG) has just introduced a new seven-year fixed annuity with a lifetime income rider. According to a recent Retirement Income Journal article, Assured Edge Income Builder is issued by American General Life Insurance Company and is currently available in over 20 banks and broker-dealers, with more distribution coming in the near future.
This new product, as with other fixed-rate annuities, does not require sellers to satisfy the Best Interest Contract requirement under the new DOL fiduciary rule. The conflict-of-interest rule, which is set to go into effect in April, will apply to sellers of variable or indexed annuities.
In the first three quarters of 2016, AIG sold $6.1 billion worth of variable annuities, $2.8 billion worth of indexed annuities, and $4.7 billion in fixed-rate annuities, according to the LIMRA Secure Retirement Index. No other issuer has shown as much diversification across all three types of annuities.
While Assured Edge Income Builder offers a low guaranteed annual return, at 1.50%, for the first seven years, a 7.5% simple-interest annual deferral bonus on the benefit base of the living benefit is added.
“The initial crediting rate for Assured Edge is currently set at 1.50% per year for a 7-year guarantee term. After that initial 7-year period we will declare renewal crediting rates annually,” said Brian Pinsky, senior vice president, individual retirement products at AIG, in a release.
There is a market-value adjustment, according to product literature, which may penalize surrenders when interest rates have risen. Additionally, there’s a surrender charge during the seven-year contract period. The initial minimum premium is $25,000.
At age 65, the payout rate is 5.6% for single life contracts. The rate ranges from 4.1% at age 50 to 6.35% at age 80, with a .5% drop in each for joint life. The payout rate is based on the owner’s age at the time of purchase, not at the time when income begins.
While a fixed annuity product like Assured Edge would produce less guaranteed annual income than a deferred income annuity, it does offer liquidity during the income period. For example, if purchased at age 65 with a $100,000 premium, annual income produced would be $9,800 after a 10-year deferral for a single person. On the other hand, DIA would produce significantly more monthly income. According to immediateannuities.com, a single-male-life-with-cash-refund DIA with a $100,000 premium would pay out approximately $12,000 a year after a 10-year deferral period. And Death of the contract owner, before or after the income start date, would result in the return of unpaid premium.
Written by Rachel Summit
