Today’s review is on the Allianz Index Advantage Income Variable Annuity. The purpose of this review is to show you the strengths and weaknesses of this Annuity. In order to make an informed decision, it is important to consider all available facts.
- Product type
- Investment options that are available and their realistic long-term investment return expectations
- How it can best help your financial plan
- How it’s most poorly used as part of your financial plan
Allianz Index Advantage Income Variable Annuity Quick Facts
|Product Name||Allianz Index Advantage Income|
|Type of Product||Variable Annuity (Structured Annuity)|
|Standard & Poor’s Rating||“AA” (Very Strong)|
Before we go into detail, here is an important legal disclosure.
This review of Allianz Index Advantage Income Variable Annuity is an independent review at the request of readers. Intended to explain my perspective when breaking down the positives and negatives of this particular model annuity. This is an independent product review, not a recommendation to buy or sell an annuity. Equitable has not endorsed this review in any way, nor do I receive any compensation for this review. Before purchasing any investment product be sure to do your own due diligence and consult a properly licensed professional, should you have specific questions related to your circumstances. This review is not intended to give specific advice and your adviser may know more about your circumstances to make an appropriate recommendation. All names, marks, and materials used for this review are property of their respective owners.
Before we go into the review, some information on Allianz
Allianz Life Insurance Company of North America (Allianz) is a leading provider of retirement solutions. And including fixed and variable annuities and life insurance for individuals. But variable annuity and variable life insurance guarantees do not apply to the performance of the variable subaccounts. And that will fluctuate with market conditions.
There are a few ways that Agents might pitch Allianz Index Advantage Income
- Lock in market gains?
- Possibility to Obtain uncapped market growth?
- Principal protection?
Fees for Allianz Index Advantage Income:
|Type||Allianz Index Advantage Income|
|Product Fee||1.25% + $50|
|Operating Expenses on Variable Options||0.64% – 0.72%|
|Income Benefit Rider||0.70%|
|Enhanced Death Benefit||0.20%|
|Aprox. Max Fees with Riders||4.87% Max Fees|
|Aprox.Minimum Fees With Riders||3.00% – 3.79%|
As you can see the fees for this annuity are pretty high, even though its returns are linked to an index, which really does not give you any added value, plus will probably are not going to receive all the market returns due to the cap on this annuity.
This is a big aspect that you have to check out before buying an annuity, are the fees really worth to pay? Well decide for yourself after reading this review, if you are going to be okay after paying a minimum of 3% in fees per year.
How does A Structured Based Variable Annuity Work?
This type of hybrid Variable Annuity has similar characteristics to a Fixed Index Annuity. One of the reasons is that the investments are linked to one or more indexes, and the returns are commonly limited by a cap or participation rate designated at the beginning of the contract. Also, they protect your principal up to a certain degree, which is called the “Buffer”. Basically what the buffer means is that if the market (index) goes down your principal will be protected to a specified percentage drop. Later on in this review, I’m going to show you what are the buffer rates for this annuity.
The Allianz Index Advantage Income gives you an optional death benefit or one for an additional fee and an income rider option for the contract owners who want lifetime income.
Investment Options and Strategies for the Allianz Index Advantage Income:
For this strategy, as the name says, the gains or losses will be reflected on a 3-year basis. The cap for this strategy is 80% which means if in a period of over 3 years the index gives more than 80% in returns you will only get the cap. The cap basically means the maximum return that you will get for the investment.
The strategy also has a 20% buffer for the 3 year period, so basically, you have protection from any market downturn up to that amount. In case the market does less than that, the negative credit will be accredited to your account.
- S&P 500
- Russell 2000
- NASDAQ 100 (1-year-contract only)
- EURO STOXX 50®
- iShares® MSCI Emerging Markets ETF
1-YEAR TERM STRATEGIES:
For this strategy, if the index return is positive you will receive gains up the cap which is only 12%. The buffer for this strategy will help absorb the firs 10% of the losses when the index goes down, anything below that will be accredited as negative credit to your account.
This annuity a 10% buffer on the loss and in case the index return is zero or performs positively but under the cap, which is 7.5%, then the precision rate (7.5%) will be applied to your account.
It is important to mention that is this strategy is reset every year, so the gains or losses on the investment will be only on a year-to-year basis, and it will not accumulate over the years.
This strategy gives you a buffer of 10% which means that if the index performs negatively you will not be accredited with a loss up to 10%, if the index goes lower than the buffer, you will be accredited with the loss. Example, if the index gives you a negative -7% return your annuity will not be affected, but if the index does -13% your annuity will get a -3% loss.
The cap for this annuity is 10% so in case that the index does better than the cap you will get only the 10% no more than that.
Index Protection Strategy with cap and Index Protection Strategy with Declared Protection Strategy Credit (DPSC)
This option is the closest thing to a fixed index annuity since it provides you with principal protection and a declared fixed return, which is 3.5%, in the case the annuity has a zero return or less than the cap rate which is 4%.
The 4% cap for this annuity means that in the case that the annuity performs over 4% you will only get the cap and no more than that.
This strategy is the most passive one of the three and it gives you principal protection, however, it limits your growth potential with such a low cap. After deducting all the fees your annuity will probably not grow at all.
What are the Riders for The Allianz Index Advantage Income?
Income Rider Benefit
This rider provides you with lifetime income, and it is based on a percentage of the accumulated money that you have in your annuity. Benefits can start as early as 50 years old and they can be removed after 3 years.
One of the limitations if you select this income rider is that you will only access to invest in ethier the Index Protection Strategy with cap or Index Protection Strategy with Declared Protection Strategy Credit. In case, you have your investments in another strategy, you will have to reallocate your assets in order to receive the income benefits.
It is worth discussing that there are two ways of receiving income when selecting the income rider, you have level income and increasing income. The percentages for each option will vary on your account value, extra purchases, and withdrawals. Remember that it is possible that the percentage increase each year.
For further explanation on guaranteed rates and income payments, please refer to the prospectus (page 62).
Maximum Anniversary Value Death
The Allianz Index Advantage Income Variable Annuity gives you a standard death benefit but it is only available in the accumulation phase not in the income phase. By purchasing this rider you will receive the higher value that the annuity had over years minus any withdrawals and income payments. So it means that the beneficiary will receive a death benefit even in the income phase but you will have to subtract all the income payments and withdrawals made.
Where does it work best:
- The opportunity for more index-linked growth
- More flexibility than a Fixed Indexed Annuity
- Provides you with partial or full principal protection depending on what strategy you choose.
- For those looking for low lifetime income
Where does it least work:
- For those looking for low fees and better returns.
- People who need liquidy
- For Individuals looking for a high legacy for their heirs.
Summary of the Allianz Index Advantage Income Variable Annuity
In conclusion this annuity offers some good investment strategies is you are a very conservative investor, however, when you take a look at the high fees, you can realize that they are not worth it at all. Paying a 3-4% fee with all the riders will considerably decrease your returns if any. Taking into account that all your returns most likely are going to be capped minus the fee, it will be very hard for you to even maintain a positive year. You will need at least 7% to cover all the fees and increase your account.
The income rider is just a subtle way for the insurance company to tell you, let me take your money today and give you pennies for the rest of your life that most likely are not going to keep up with inflation. The enhanced death benefit rider, it seems to me that is not worth the fees, because not only they are going to reduce it by the number of withdrawals that you take, but also any income that you take in the distribution face.
I believe you’d be better off even buying a fixed index annuity with principal protection a lower cap rate, but with a low fee, that can help you increase your principal while protecting it at the same time. The Allianz Index Advantage Income is designed to make you purchase the income rider so you can deplete your money and false sense of security with the lifetime income that they offer.
But not everything is lost, if you currently have this annuity or a similar one please don’t hesitate to contact us, we’ve worked with hundreds of similar cases with our clients and successfully helped them achieved their desire goals.