There are of course many, many insurance companies and many, many different types of annuities with many, many different features and the Allianz 222 is just one of them. Does buying an annuity even benefit you? Is the Allianz 222 the right one? Well let’s find out!
Here’s what is covered in today’s review. I will of course be discussing the fixed index annuity the Allianz 222 and all its most important features including; riders, death benefits, and income for life guarantees. We also will take a look at some terms and insurance company lingo that you might not be up to speed on.
This review will not be an endorsement nor will it be a completely negative appraisal of the Allianz 222. What I strive to do is give you the reader the pros-and-cons of the product and help you understand its components. If you are currently considering purchasing this annuity under the recommendation from an agent read this first so you can better make an informed decision. Purchasing the Allianz 222 should benefit you, not just the agent or your adviser.
To begin, an annuity like the Allianz 222 is an insurance product that is in the simplest terms is just a contract between a person (like you) and an insurance company. You give the insurance company money and in return they give you some contractually guaranteed promises, which in the case of annuities usually revolve around agreeing to pay you money for your entire life and/or the life of your spouse.
The fixed index part is language in the contract that says the value of your income account has the ability to increase. The increases are not guaranteed and are many times over emphasized or misrepresented by commissioned agents (imagine that!). There is however the potential for capturing gains on an annual basis when the market goes up and there is no chance of losing those annual gains to market decreases once the gains have been captured.
You: What? You mean I only get market upside exposure and no market downside exposure?
Me: Yeah that is what I am saying.
You: But, but that sounds too good to be true!
Me: Wait a minute take a step back and think about this. I didn’t say you would get all the market upside, just no market downside. Think about it, there are other ways to avoid market downside risk like bank Certificates of Deposit or US Treasury bills and/or other fixed interest accounts.
You: Oh yeah, you’re right.
Me: These are very conservative investment accounts, they are not designed for huge accumulation. Will they beat many fixed interest accounts in the long run? Yeah, “probably yes” would be my guess, but it is not guaranteed. Will they beat the overall market? Highly unlikely.
The income account is just an accounting record, it is not cash. You cannot borrow against it or withdraw it. It is just used to calculate the amount of income you will get. If your income account has $100,000 balance and the insurance company has agreed to pay you 5% of that per year for the rest of your life than ($100,000 X 5% = $5000 per year).
A rider is just another name for contract addendum’s in insurance products. Riders can add important benefits and features to annuity contracts, like buying an extended warranty when you purchase a car or a new power drill. Sometimes adding the rider makes sense and sometimes it doesn’t (I recently purchased a pre-owned car and bought an extended warranty, but when I got my new power drill at Home Depot they offered to sell me an extended warranty, but it just didn’t make sense to me since it was 20% of the cost of the drill. Insurance contract riders usually cost money, but you probably already guessed that.
You might have heard your agent or adviser refer to the Allianz 222 as a hybrid annuity. Don’t get confused, Q-Tip or cotton swab it means the same thing as fixed index annuity. Hybrid annuity is just a marketing term that reflects that a fixed index annuity has features of other types of annuities. Insurance companies took the good parts (supposedly anyway) of other types of annuities and combined them together at midnight during a severe lightening storm and created a better annuity. No really, they do call it a hybrid because has combined features of other annuities.
The Allianz 222 has some unique features and some not so unique. One not so unique feature is a 15% income account value bonus. What this means (see paragraph above about income account) is that for the first 3 year Allianz adds 15% value to any monies you deposit for income calculating purposes. I say not so unique because many other fixed index annuities offer income account value bonuses, but that doesn’t mean it isn’t a valuable feature.
You: What does that mean? Why did you italicize value and income calculating purposes?
Me: Let me give you an example, it is the easiest way to explain. Scenerio 1: say that an insurance company tells you that at the time you elect to turn on your lifetime income stream that they will give you 5% of whatever value is in the income account and they will pay you this amount for the rest of your life. Let’s say that you deposited $100,000 lump sum in a fixed index annuity and then immediately turned on your income stream, then: $100,000 X 5% = $5000 per year of income for the rest of your life. Pretty easy huh? Now let’s look at how that Allianz 222’s 15% bonus affects your lifetime income stream. Scenerio 2: you deposit $100,000 lump sum in the Allianz 222 fixed income annuity. Allianz gives you a 15% bonus (or $15,000) in income account value for the purposes of calculating income. Now when they calculate your income it would be based upon $115,000, so $115,000 X 5% = $5750 per year of guaranteed income for life. This may not seem like much in our little example but the numbers can add up over time, especially if you deposit more than $100,000 and you are credited more than 5%.
Me: And to further explain, when I say income calculating purposes I mean just that. The 15% bonus is only an imaginary calculated number, it is not cash. You cannot deposit $100,000 and then withdraw $115,000 the next day. Sorry. The figures in the income account are not a lump sum that you can withdraw. The money you receive after you elect to turn on your guaranteed income stream is real money, but the income account value is just an imaginary amount that is only used for calculating purposes.
You: Okay I am starting to understand, but what happened to my $100,000 can I ever withdraw any lump sums after I deposit my money in case I need emergency funds?
Me: Yes, you can but remember the 15% bonus amount is just an imaginary number that is used when calculating your lifetime income stream. It is not a lump sum amount, you cannot withdraw it as such!
One feature that is a little uncommon to other fixed index annuities is the index choices offered by the Allianz 222. The Allianz 222 offers the Barclays US Dynamic Balance Index as one of its index crediting choices.
You: What is an index? What is are they used for? And what is so special about the Barclays US Dynamic Balance Index?
Me: An index is just a measurement of the market. For example the most famous index is the S&P 500 Index. The SP500 just looks at the individual performance of the 500 biggest companies in the market and then adds together the results. If the performance results of all 500 companies added together is a positive number then the market is said to be up, if the result turn out to be a negative number than the market is said to be down. This is another way that the income account is credited and just like the 15% bonus is an imaginary number and not available for lump sum withdrawl. The gains from increases in the index that are credited to the income account value are used to calculate guaranteed income amounts. So in our Scenerio 2 above if a person did not elect to turn on the income stream immediately after depositing the $100,000, the $115,000 (after bonus) might grow to $250,000 over time and the annual lifetime income amount the person would receive would be substantially more.
Me: By the way, in my humble opinion there is nothing special about the Barclays US Dynamic Balance Index when used for index crediting purposes.
Me: One more thing, the Allianz 222 gives you a choice of different indexes so you don’t have to use the Barclays US Dynamic Balance Index if you prefer not too, you can always use another index. The choice of which index to use for crediting purposes is up to you, the amount you would be credited is up to chance (did the index go up or down this year?) and the amount of the gain that is credited to you is limited by the insurance company. For example your chosen index might have increased 15% this year but the insurance company might only credit you with 5% gain for the year. Still if the index declines -15% next year this does not cause a decrease in your income account value.
Expect limited gains, don’t expect to beat the market. You won’t. Maybe long term gains somewhere in the neighborhood of 2.5% to 5.5% overall. If you want access to your money as a lump sum be prepared to pay a penalty on cash withdrawals for at least X years. The Allianz 222 performs best as a long term set-it-and-forget it product, don’t use it like a checking account and take out money that is over and above what your guaranteed income stream amount is. Although it allows you to take out lump sum withdrawals I would recommend doing that only in emergencies. The Allianz 222 is designed for providing you an income for life and that is what it does best.
This is an independent product review, not a recommendation to buy or sell an annuity. This review is not endorsed by any insurance company and I do not receive any compensation for this review. This review is meant to be an independent analysis to provide the reader with information and concepts to help them make informed decisions. Before purchasing any investment product be sure to do your own due diligence and consult a properly licensed professional should you have specific questions as they relate to your individual circumstances. All names, marks, and materials used for this review are property of their respective owners.