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Income Riders Attached to Fixed Indexed Annuities

Stan Haithcock
January 25, 2024
Income Riders Attached to Fixed Indexed Annuities

Hi, I'm Stan The Annuity Man, America's annuity agent, licensed in all 50 states. This is part of the Fixed Indexed Annuity blogs I've done on the product, which will help the consumer understand what's being pitched out there. Before you do anything, you need to get my book, the Indexed Annuity Owner's Manual, which you can download for free and under no obligation. Also, visit my The Annuity Man and schedule a one-on-one call to see if an Indexed Annuity fits. They’re commodity products. I represent pretty much every single carrier out there, so we can talk about whatever you've been pitched, or we can take a look at what might make sense for you. Also, I have a weekly podcast called Fun With Annuities. You should check it out. Today, we're going to talk about Income Riders attached to Indexed Annuities. Why? When? How? What? And does it make sense?

‌What Is an Income Rider

‌What is an Income Rider? First of all, that's one of the books you can download for free by clicking on this link. But an Income Rider is an attached benefit that you can attach to the vast majority of Indexed Annuities at the time of application. What does it do? It provides a future lifetime income stream on which you can decide when to turn it on. So, visually, if you draw a line down a blank sheet of paper, the right side is the Indexed Annuity, two separate calculations. That is the Index Option side, which by the way, I did a great video on that, going over the caps and the spreads and how that works. I'd encourage you to take a look at that. Now, the Income Riders, this other calculation is on the left side. Two separate calculations. The Income Rider is for the lifetime income benefit.

‌It's monopoly money, a phantom account that you cannot use for anything but that. Or, in some cases, you can also use Income Riders; some of them offer confinement care benefits and death benefits. We're going to talk about that in a couple of seconds. But let's talk about the income part of it. The Income Rider, typically with an Indexed Annuity, grows by a specific percentage. Sounds like Jimmy Carter's in office. It's like 5 or 6 or 7 to 8%. And you're going, "Wait a minute, Stan, that sounds fantastic. Something growing at 7, 8%."

‌The Income Side

‌Remember, that side is monopoly money in a phantom account that can only be used to calculate your first-lifetime income payment. That doesn't make it a bad thing. It's good if you're looking for future lifetime guarantees. If you're going to defer for 5 years, 7 years, or 10 years, we'll quote all carriers to see who has the highest contractual guaranteed Income Rider. You can set it up joint with a spouse or partner so that if you pass away, the income continues uninterrupted and unchanged for the rest of their life. The good part about Income Riders attached to Indexed Annuities is, if you die, if your Learjet hits the mountain, whatever's left in that accumulation value, that cap spreads, that option side over there, call option side, that goes 100% to the listed beneficiaries on the policy. So, that's the income side of the Income Rider. But Income Riders can do more than that. Some of them can. And if you say, Stan, "I want it to offer a death benefit. Or I want it to provide some confinement care type benefits." We can shop for those. Not all Income Riders provide that. But let's go through how they work.

‌For instance, if you said, "Stan, I want an Income Rider, that also is a death benefit." Once again, draw a line down the blank sheet of paper: accumulation value on the right, Income Rider on the left; some of the products will grow by a certain percentage, and you can use that as a death benefit.

‌Long-Term Care

‌Side note: life insurance is still the best death benefit on the planet. Yes, these are life insurance policies, but the death benefit from an Income Rider on an Index Annuity is going to be taxable to your beneficiaries. But, for people who can't qualify for the underwriting of life insurance, it makes sense to maybe look at a death benefit rider in conjunction with that income benefit so that you can leave money to your heirs. The other thing you need to know about Income Riders, and part of the bad chicken dinner sales pitch, is that you get this Income Rider and free long-term care. Number one, that's not true. Long-term care is a health insurance product. What they're trying to pitch you is what's called confinement care or enhanced benefit. And what that really means is when you get sick, or you're in a home, and there are specific rules for qualifications for this, it's guaranteed issue underwriting, but the rules involve when that enhanced payment's going to come.

‌But what you need to know is this. When you can't do two of the six daily functions of life on the enhanced benefit type riders, they're going to increase that income stream. On the confinement care, if you're in a facility for a specific period of time, and each one of these riders has different types of rules, they're going to increase that income stream. Why are they doing that? What you're doing with a confinement care enhanced benefit rider attached to that Income Rider, part of that Income Rider is proving to the insurance company that your life expectancy is less because you're not well. And they're going to pay you back more money. But understand this: you're just getting your money back quicker when you get sicker. That doesn't mean it's a bad benefit. That just means they're going to enhance and increase that payment because you need the money because you're not feeling well.

‌They're Customizable

‌You're in a confinement care facility or getting some home care, etc. At the time of this blog, there are probably less than 20 companies out there that offer an Income Rider with confinement care or enhanced benefit type payouts. And we'll look at all of them for you. I'll explain them to you. We'll quote them all for the highest contractual guarantee. But understand that that is a benefit. It's not too good to be true, but it's good if you understand the limitations and the benefits. So, let's look at the broad picture once again with Income Riders. Income Riders can provide a lifetime income stream at a future date, and it is customizable. And we need to quote all carriers to find the highest contractual guarantees for your specific situation. There's not one that's better than the other, in my opinion, and I am the top agent out here. Licensed in all 50 states, including yours.

‌You can also buy them that have a death benefit, and you can also buy them that have a confinement care type benefit as well. In conclusion, Income Riders attached to Index Annuities make sense if you're looking to contractually solve and transfer the risk for those specific items. But you don't have to attach an Income Rider. That's your decision at the time of application.

‌The Acronym

‌I've come up with an acronym, PILL. What does that stand for? Let's look at it. P stands for principal protection. In an index annuity world, the principal is protected; it's a Fixed Annuity. I stands for income for life. Income Riders? It provides income for life. L stands for legacy. Some of these Income Riders can provide a legacy from a death benefit standpoint. Again, life insurance is still the best death benefit out there because it passes, tax-free, to your beneficiaries. But if you can't qualify for that, and if you can't go through the underwriting. That L for legacy, you can buy an Index Annuity, guaranteed issue, attach that death benefit rider, and we'll find the best ones for you. If you go to The Annuity Man and contact me, I'll shop all carriers for the best death benefit rider out there for you. The other L is legacy slash confinement care. And again, Income Riders can be purchased to provide that lifetime income stream and some confinement care benefit, especially if you can't qualify for long-term care because long-term care is a health insurance product. You have to be underwritten for that, and many people out there can't qualify.

‌Remember, annuity companies have the big buildings for a reason, right? They want to ensure healthy young people. And so, these types of products and Index Annuities really solve the PILL.

That doesn't mean you need to buy it. But the PILL, once again, principal protection, income for life, legacy, long-term care slash confinement care. The reason I put long-term care is that's how people categorize it in their heads. But with these Income Riders, it's confinement care or enhanced benefit. But depending on what you want to solve for, I encourage you to contact me. Let's go through every single policy. Let's shop for the highest contractual guarantee so you can make an informed decision. All right? I know we went through a lot. I encourage you to get my book, Fixed Index Annuity Owner's Manual, by clicking this link. I appreciate you joining me today. See you next time.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.

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