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Product Review:
CL Tarrant Trail

By , with Annuity FYI

CL Tarrant Trail May Be Best of All for Prospective MYGA Investors

Let’s say you’re a conservative investor attuned to annuities. Most of the time, you want to find the most generous multi-year interest income stream possible. You’re typically not interested in, say, a fixed indexed annuity (FIA), whose performance is often based mostly on what the stock market does.

For you, that’s too risky. You don’t lose money in a FIA in a bad year in the market, but often you don’t earn anything either. So go ahead and shop for the best multi-year guaranteed annuity, right? 

That answer is not necessarily correct. At least one insurance company, CL Life, based in Fort Worth, Texas, is offering a traditional fixed annuity – an annuity distinct from a MYGA – that has a reasonably good chance of faring better than any MYGA in coming years. Unlike the case with a MYGA, you just have to take a bit of risk because the payout rate isn’t guaranteed for the life of the product.

The name of this annuity is CL Tarrant Trail. It’s a six-year product that offers a whopping 6.75% return in its first year – markedly higher than anything else available in the annuity market. The catch is that this payout rate isn’t guaranteed after the first year. This is offset in part by the ability to cancel your investment at any point in time if the annual payout rate ever falls below 5.2%.

It should be noted that Tarrant Trail isn’t for everyone, and not because the minimum investment in the product is $20,000 – higher than many competing products but not that much higher. Rather, at this point, Tarrant Trail is available in only eight states – Arizona, Georgia, Louisiana, Ohio, Oklahoma, Texas, Utah, and Virginia.

For those who meet this test, bear in mind that the payout rate may not fall in coming years, or if so by very little, so this product could be outstanding. “It offers the potential to beat the top MYGA rates in the country, and it offers more flexibility, ” says an annuity broker familiar with the product.

Almost regardless of how the future unfolds, what’s most important to take into account is that the odds are good that investors would still likely fare just fine even if Tarrant Trail’s interest rates are subsequently trimmed. Specifically, it wouldn’t be difficult for them to reap an average annual return of 5.5% — the amount being guaranteed by the most generous five-year MYGA on the market today. 

This projection is based on the premise that Tarrant Trail will eventually cut payouts but not below 5.2%, at which point many investors could and probably would walk away. Should it turn out that investors reap only 5.2% annually after their 6.75% return in the first year, they would receive a 5.5% average annual return over the life of the product.  If payout rates were trimmed less – say to 5.5% along the way, they obviously would fare even better.

This latter scenario may be most likely. CL Life, which has a respectable A.M. Best rating of B++, appears to be on a mission of being highly competitive.

CL Life also offers two-year, three-year, and five-year MYGAs – all the most generous in the market. (These require a minimum investment of only $10,000.) Moreover, this strategy isn’t that new. Going back to last August, the latest data available, CL Life was paying 4.5% annually on a five-year MYGA, compared to 4% or so among most of its competitors. “This is a good omen that Tarrant Trail will keep its payout rates high,” says our annuity broker.

What could be a drawback in this investment?

It’s unlikely but still possible that competitors’ payout rates will rise further in coming years, conceivably making Tarrant Trail less attractive. The odds, however, seem low given that the Federal Reserve has been very aggressive in hiking interest rates to combat inflation. Mostly because of the Fed’s efforts, inflation has already fallen a lot and is widely expected to decline further.

In this scenario, interest rates will fall, not rise, making annuities far less inclined to continue improving payout rates. Far more likely, they will start cutting payout rates.

What kind of investors are best suited for Tarrant Trail? Mostly, they’re the same folks interested in purchasing MYGAs. They simply want to see if they can fare a bit better, which requires the acceptance of a mild risk. Those comfortable with this should take a hard look at the product. Those who are not should shop elsewhere.

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