What are Income Riders?
Are They Worth The Annual Fee?
Understanding the “Phantom Account” of an Income Rider
Our lawyers recommend you avoid annuities and life insurance, especially if you are a senior. Also, be particularly wary when an agent tries to sell you policies with “enhanced” features like income riders. Income riders, often sold as “Guaranteed Lifetime Withdrawal Benefit” or “Guaranteed Minimum Income Benefit,” are attachments to annuities that offer annual income payouts for the rest of your life after a holding period has expired. Fees and withdrawals significantly diminish the benefit of these riders and, in certain cases, wipe the promised benefit out entirely. If you die before your actuarially expected lifespan, your annual fees for this benefit have only reduced your children’s inheritance. If you are over age 60 and reside in California, the California annuity and life insurance attorneys at Evans Law Firm can review your annuity or life insurance contract, including income riders, other riders (like enhanced death benefits) and the policy’s surrender provisions, for free. Call us today at (415)441-8669 or toll free at 1-888-50EVANS (888.503-8267).
The Costs and Risks of Income Riders
Cost: there’s usually a 1-1.25% annual fee for an income rider. With a rider on a 2% contract return your return may be more than cut in half, from day one. Risks:
- Income riders create a “phantom account,” within your annuity on which the future income payouts will be based. You can never withdraw the balance in this account. In that sense, many analysts refer to this as “Monopoly money:” it isn’t real money you’ll ever see. Rather it just creates the pot from which your future income payouts will be paid, if ever. If you die before the policy annuitizes or you terminate the policy, you will not receive a nickel from this income rider account.
- Similarly, you cannot peel off interest from an income rider like you can a CD or bond (leaving the principal there). In an annuity, no interest will be paid to you until the policy is annuitized and once you begin your income draw downs, the income will always be paid to you in scheduled amounts, determined by the carrier’s actuarial tables not your current income needs. Payments are scheduled at inception and do not change as you get older or your circumstances change.
- Any complete surrender will never include the phantom amount of the income rider “fund.” Instead, you will pay a surrender charge, and any accruals in the separate rider account are forfeited entirely. Any partial surrender of accumulated value will reduce the base on which the income rider “growth” is calculated. You will also pay a surrender charge on any partial surrender. Consequently, partial surrenders have a built-in cost beyond the immediate surrender charge.
- You cannot access the income rider calculation as a lump sum … ever! It will always be paid to you in the form of scheduled payments. Income percentage payouts are actuarially determined based on your age at the time you begin receiving the income. If you die before exhausting the rider fund, any remaining balance in that fund does not pass to your heirs.
- You cannot transfer the income rider total to another annuity. If you surrender your contract, any accumulated growth in the income benefit account is lost.
- Once you start taking income, the annual growth percentage stops.
- The scheduled income amounts will be taxable to you as ordinary income.
Annuities are complex and not for everybody. Endorsements and riders are even more complex. Fees and commissions destroy returns. Always consult your tax advisor before purchasing an annuity or making any change or surrender of an existing policy. If you are over age 60 and reside in California, we are able to review your annuity at no cost if you believe that you or a loved one were victims of annuity fraud or suffered a financial loss as a result of an income rider or other rider fees, and/or surrender penalties on an unsuitable annuity.
Leading providers and distributors of life insurance and fixed, variable and fixed indexed deferred annuities in California are listed below. We are not in any way suggesting that any of these carriers or distributors has done anything wrong. Rather, the list is provided solely as a reference for our readers.
AIG/American General Life Insurance Company
Allianz Life Insurance Company of North America
American Equity Investment Life Insurance Company
American General Life Insurance Company/AIG
American International Group, Inc. (AIG)
American National Life Insurance Company
Athene Annuity & Life Assurance Company
Athene Annuity and Life Company
Aviva Life Insurance Company
AXA Equitable Financial Services, LLC
AXA Equitable Life Insurance Company/AXA US
AXA Advisors, LLC
Brighthouse Financial, Inc./MetLife
EquiTrust Life Insurance Company
Fidelity & Guaranty Life Insurance Company
Genworth Financial, Inc.
Genworth Life and Annuity Insurance Company
Genworth Life Insurance Company
Guggenheim Partners, LLC
Guggenheim Partners/Security Benefit Life Insurance Company
ING USA Annuity and Life Insurance Company
Jackson National Life Insurance Company
John Hancock Life Insurance Company
Lincoln Benefit Life Company
Lincoln Financial Group
Massachusetts Mutual Life Insurance Company
Metlife/Metropolitan Life Insurance Company/Brighthouse Financial, Inc.
Minnesota Life Insurance Company
Nationwide Investor Services Corporation (NISC)
Nationwide Life and Annuity Insurance Company
Nationwide Life Insurance Company
New York Life Insurance Company
Northwestern Mutual Investment Services, LLC
Northwestern Mutual Life Insurance Company
Northwestern Mutual Wealth Management Company
Pacific Life & Annuity Company
Pacific Life Insurance Company
Security Benefit Corporation
Security Benefit Group, Inc.
Security Benefit Life Insurance Company/Guggenheim Partners
Security Investors, LLC
Security of Denver Life Insurance Company/Voya
Transamerica Life Insurance Company
Voya Financial Advisors
Voya/Reliastar Life Insurance Company
World Financial Group Insurance Agency, Inc.
If you or a loved one has suffered a loss on an income rider, policy surrender, or from other high fees and charges in California, contact Ingrid M. Evans and the other Evans Law Firm financial elder abuse and annuity attorneys at (415) 441-8669, toll free at 1-888-50EVANS (888.503-8267), or by email at <a href=”mailto:firstname.lastname@example.org”>email@example.com</a>. Our attorneys have experience with complex financial contracts and large insurance companies. We can help guide your case through a FINRA arbitration, jury trial or toward an equitable settlement. We handle cases involving physical and financial elder abuse, qui tam and whistleblower law, nursing home abuse, whole life insurance and universal life insurance, and indexed, variable, and fixed annuities.