Renewal Rates Are More Important Than Ever

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Inflation, interest rates, supply-chain disruption, oil & gas prices, the fall of Netflix & Bitcoin. 

Volatility is running rampant, and the future looks questionable at best.  But index annuity crediting rates are the highest they have been in years!  Now is the time to help clients move more money away from market risk, and to the safety (and double-digit growth) of Fixed Index Annuities.

In fact, Index Annuities have been returning steady returns that have surpassed nearly every market for the past several quarters. 

But wait…how is that possible?  For two reasons:

  1. Profits generated by index annuity crediting methods come primarily from purchasing options, which are easier to predict and much more short-term than investing in buy-and-hold securities.  So the profit margins on the options trades are higher and more predictable.
  2. Most Index Annuities now use Volatility Control index crediting methods, which have the ability to move money into—and out of—the market based on volatility thresholds.  This means the money in the annuity gets to share in the upswings, and be sheltered from the market dips. 

BUT WAIT!  We MUST be careful to utilize carriers with proven track records for keeping their renewal rates close to where they were when the annuity contract was issued.  Especially now, because when the markets become extremely volatile, bonds and options become harder to price and predict.  The carriers who do NOT have a proven track record of keeping renewal rates high will most likely be dropping the annual renewal rates on index crediting methods in the policies sold today—probably every year, for many years.  How do we know this will happen?  Because we have seen it multiple times since we opened our business in 1993.  What do we mean by “annual renewal rates”?

Annual renewal rates are the new rates offered at each policy anniversary, and/or at the end of each crediting method’s crediting period (e.g., one-year, two-year, etc.).  Every carrier lets each client know what the upcoming rates will be for each of the crediting methods available to choose from within the existing index annuity contract.

Let’s look at the difference between a carrier that maintains the initial rates, and one that lowers rates throughout the surrender period.

Carrier#1: 102% Participation Rate on 1-year Point-to-Point crediting—with no reduction during the 10 year surrender period.

- Average Annual Return:     8.79%

- Growth on $100,000: $132,215

Carrier#2: Same crediting details, but with a 25% reduction in the participation rate every year for 10years:

- Average Annual Return:     6.79%

- Growth on $100,000: $ 92,888

That’s a difference of $40,000 over 10 years!

We can tell you which carriers have proven track records for high renewals.

~ Greg Skogsberg


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