In this article, we will discuss in-depth the Allianz Core Income 7 Fixed Index Annuity. It is the second most popular Allianz Fixed Indexed Annuity after Allianz Core Income 7 Annuity, but is it worth it? After extensive research and due diligence, I have tried my best to provide an in-depth and unbiased analysis of this plan.
The Allianz Core Income 7 Fixed Index Annuity with Core Income benefit rider was launched in October 2013 and offers a tenure of 7 years.
Fixed Index Annuities are contracts between the annuitant and an insurance company in which the insurance company promises to credit interest based on the performance of a certain stock market index. Fixed Index Annuities has an inbuilt feature of capital protection, so even if the index goes down, your principal will remain safe.
Annuities are complex products, and many advisors try to missell them without properly understanding the needs of the buyer. Thus, it is very important that you should educate yourself on these products and not solely depend upon the annuity agent’s high-pressure sales pitch.
Product Description – Allianz Core Income 7 Fixed Index Annuity
The Allianz Core Income 7 is a Fixed Indexed Annuity (FIA) plan that offers the annuitant (annuity investor) an opportunity to earn a market index-linked return without having to incur the risk of market downside. It is a suitable plan for retirees or people who are approaching retirement and aim to grow and protect their retirement savings. This plan is also suitable for people who are looking for guaranteed lifetime income or plan to leave a legacy for their loved ones, in addition to protecting and growing their retirement savings.
Let’s have a look at the high-level fine print of Allianz Core Income 7 Fixed Index Annuity, and then we will discuss each point in detail.
|Product Name||Core Income 7 with Core Income Benefit Rider|
|AM Best Rating||A+ (2nd of 16 ratings)|
|Maximum Issue Age||80 Years|
|Minimum Initial Purchase Amount||$10,000|
|Surrender Charge Schedule||7-year surrender schedule (discussed in the article)|
|Crediting Period and Strategies||1-year point to point with participation rate, caps, or spread.|
|2-year point to point with participation rate.|
|Annual fixed with interest rate guaranteed.|
|Plan Types||IRA, Roth IRA, Nonqualified Account, SEP IRA, SIMPLE IRA, 401(a).|
|Indexes||NASDAQ-100 Index, S&P 500 Index, Russell 2000 Index, Bloomberg US Dynamic Balance Index II with and without Index Lock|
|Free Withdrawals||After the first contract year, greater of 10% of your initial premium|
|Death Benefit||Upon the annuitant’s death, the beneficiary will receive greater of (i) Accumulated Value (ii) Cumulative withdrawal amount (iii) Net Premium (iv) Guaranteed minimum value – as a lump sum or as an annuity income|
|Riders||One compulsory rider (with a charge)|
|Core Income Benefit Rider|
|Surrender Value||Greater of Accumulated Value (less any withdrawal charges/MVA) and the Minimum Guaranteed Contract Value|
How does the Allianz Core Income 7 Fixed Index Annuity policy work?
Any annuitant (maximum age at the time of policy issue: 80) can purchase the Allianz Core Income 7 Fixed Index Annuity with a minimum initial purchase amount of $10,000; and in return, he will earn market index returns (calculated through a formula that we will discuss shortly), credited as per the chosen crediting period. Apart from the regular crediting period, there are various events that may trigger earnings credit: On free withdrawals; For a long-term care event or terminal illness or injury event, or when a death benefit is payable. The Allianz Core Income 7 Fixed Index Annuity offers the annuitant to chose from one or more of the four indexes to determine his earnings crediting formula. Three of these indexes have an annual point-to-point strategy, and one of them has several interest crediting strategies, and a fixed rate guaranteed interest strategy to choose from (making a total of 8 strategy options). We will discuss each available index briefly:
The NASDAQ-100 Index is one of the world’s most popular indexes that tracks 100 of the largest domestic and international non-financial companies listed on the NASDAQ Stock Exchange, based on market capitalization. It has a total market cap of $3.5 trillion as of the end of 2020. The NASDAQ-100 Index has a proven history of growth, impact, and performance. The NASDAQ-100 Index was created in January 1985 and tracks 100 of the largest companies listed on the NASDAQ across sectors like Industrial, Technology, Retail, Telecommunication, etc., except Financial Services. The 10-year historical annual return, as shown by the NASDAQ-100, stands at a whopping ~20%.
Russell 2000 Index
The Russell 2000 Index is another one of the world’s most popular indexes that track 2000 of the smaller companies included in the Russell 3000 Index. It has a total market cap of $3.5 trillion as of the end of 2020. The Russell 2000 Index has a proven history of growth, impact, and performance.
The Russell 2000 Index was created in January 1984. The Russell 2000 is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set. The 10-year historical annual return, as shown by the Russell 2000, stands at ~12.34%.
S&P 500 Index
The S&P 500 index is one of the most popular and oldest indexes in the world. It tracks 500 large-cap publicly traded stocks listed in the United States. It is a reliable index and has often succeeded in the test of time.
The S&P 500 Index was created in March 1957 and tracks 500 of the largest companies listed on the S&P across all sectors. The 10-year historical annual return as shown by the S&P stands at ~15.35%.
It is very important to note that the Allianz Core Income 7 Fixed Index Annuity offers the above three indexes with caps in place, meaning that your interest-earning capacity is capped. These rates tend to change frequently; I will discuss more on the rates shortly.
Bloomberg US Dynamic Balance Index II
The Bloomberg US Dynamic Balance Index II reflects the performance of an index strategy that uses the S&P 500 Index and the Bloomberg Barclays US Aggregate RBI Series 1 Index. The S&P 500 Index is a well-established benchmark for U.S. equity markets. The Bloomberg Barclays US Aggregate RBI Series 1 Index is designed to track the Bloomberg Barclays US Aggregate Bond Index —a well-established benchmark for the U.S. bond markets.
The Bloomberg US Dynamic Balance Index II was created in August 2015 and targets a low annualized realized volatility (when the S&P 500 volatility is low, the balance shifts more toward the S&P 500, and so on). The 10 years hypothetical back-tested historical annual return, as shown by Bloomberg, stands at 6.42%, and the actual return since the index inception stands at 7.28%.
In my opinion, the Bloomberg US Dynamic Balance Index II is an ideal index to choose from, as it offers an uncapped strategy with an above-average participation rate and back-tested returns are also higher compared to other indexes.
Note: In addition to allocating the funds in the following indexes, the annuitant also has an option to allocate funds at a fixed interest. These Fixed Rates tend to change from time to time. The Fixed Value Rate at the time of writing this article was 4.00%. It is one of the highest Fixed Interest Rates offered by Fixed Indexed Annuities (FIAs).
Rates and Costs associated with the Allianz Core Income 7 Fixed Index Annuity
The earnings crediting formula
The earnings crediting formula is the most important part of this annuity discussion. It is important to know that we don’t simply get the index return credited to our annuity. There are a few rates and caps that the company has in place that affect our earnings. These rates tend to change over time, and the updated rates can always be checked on the company’s website
The formula to calculate the earnings credited is:
- For Strategies with Participation: (Participation Rate % X Index Return)
- For Strategies with Caps: Index return over a given crediting period with a maximum potential of earning the cap rate
Let’s have a look at the Allianz Core Income 7 Fixed Index Annuity rate sheet (as of 08/01/2023) to understand how the earnings are determined.
The first thing to note is that we have four indexes, three of which have annual point-to-point strategies. The Bloomberg US Dynamic Balance Index II has four strategies. All in, we get to choose from a total of eight strategies (seven index-based and one fixed). The company displays four types of crediting strategies across these rates (Participation, Spreads, Cap, and Fixed). The Participation rate (index allocation rate), spreads, and the strategy caps are the most important.
Let’s quickly go through the terminologies described by Allianz:
Participation rate (PR)
Participation rate describes the annuitant’s participation percentage in a return of an index. For example, suppose the participation rate is 60%, and the index returned 10% over the agreed time. In that case, the annuitant will be eligible for only 60% of the return, i.e., 6%.
Spread is the percentage of the index return that the insurance company will deduct from your interest calculation. For example, if the spread in the contract is 2% and the index returned 8%, you will be eligible for the return minus the spread (8% – 2%), i.e., 6% of the return.
It means at what rate your interest-earning capacity is capped. For example, if an index returned 12% but the contract’s cap rate is 6%. In this situation, the annuitant will be eligible for an interest credit of 6% only. It doesn’t matter how much the index goes above the cap rate; the maximum interest that can be earned is the cap rate.
Fixed account rates
If you opt for a fixed account rate, you simply earn the fixed rates for a particular period specified by the company before your policy beginning. These rates usually tend to be very low as compared to other fixed avenues such as CDs and MYGAs, so you should avoid fixed rates in a general scenario. The 1-year fixed-rate on this policy at the time of writing this article was 2.4%., which is actually good compared to other FIA’s fixed-rate offering.
This is one of my most liked features of the Allianz Core Income 7 Fixed Index Annuity, and the even better news is that this option is available to annuitants free of cost!
Note that there is also a rider charge displayed. The Allianz Core Income 7 Fixed Index Annuity comes with a compulsory rider called the “Core Income Benefit Rider.” It costs 1.25% during the time of writing this article and is deducted on a monthly basis from the accumulated value. The rider rate can change from time to time. We will discuss briefly on this rider in the next section.
Should your needs change unexpectedly and you need to take an excess withdrawal (a withdrawal that is above the free withdrawal amount available in a given contract year), you may be entitled to access additional monies; although certain charges and penalties may apply. Any amount withdrawn in excess of the remaining free withdrawal amount is subject to a Surrender Charge. Below is the Surrender Charge schedule for Allianz Core Income 7 Fixed Index Annuity.
|Completed Contract Years||1||2||3||4||5||6||7||8+|
|Surrender Charge %||8.5%||8.0%||7.0%||6.0%||5.0%||4.0%||3.0%||0%|
In case you need to surrender your policy, a Market Value Adjustment (MVA) will be applied to the portion of the withdrawal or surrender that exceeds the free withdrawal amount during the withdrawal charge period. Note that this surrender charge schedule is only valid for the Allianz Core Income 7 Fixed Index Annuity product for select states. For complete details about each state, you may visit the product’s brochure here. The surrender charge of Allianz Core Income 7 Fixed Index Annuity is pretty much in line with all the other annuity issuers.
The Allianz Core Income 7 Fixed Index Annuity levies no annual contract or administrative fees but comes with a compulsory core income benefit rider which currently costs 1.25% annually, deducted on a monthly basis from accumulated value. Mandatory Rider I’ve mentioned a couple of times that the Allianz Core Income 7 Fixed Index Annuity comes with a mandatory Core Income benefit Rider – We will discuss it in detail here.
Core Income Benefit Rider Core Income Benefit Rider is an income rider that helps to increase your lifetime guaranteed annual withdrawal percentage. The higher your withdrawal percentage, the higher your lifetime income will be. The Core Income Benefit Rider currently costs 1.25% annually, deducted on a monthly basis from accumulated value.
When you decide to start receiving income, you can choose from two lifetime withdrawal options – Level Income and Increasing Income:
Level Income: It offers known and predictable income. You already know the withdrawal percentage during the time you opt for income. That percentage is multiplied by your accumulated income to calculate your annual payments. Increasing Income: It offers an opportunity for annual payment increases. It offers lower payments initially. But has the potential to increase each year by the interest rate credited to your chosen allocation options in your contract.
Let’s have a look at the rider benefit chart to know more about the withdrawals percentage under both these options.
For Level Income, it’s very obvious that withdrawal percentages are outright mentioned, and your lifetime income will be calculated by multiplying the withdrawal percentage by your accumulated income.
Coming to Increasing Income, notice that the initial withdrawal percentages are lower than what they were in Level Income. But they have this feature of “Annual Increase%”; let us understand how this thing works. Let’s consider an Annuitant “X” who is 60 years old and wants to opt for a single policy.
Under Level Income, she would have a withdrawal percentage of 4% if she starts taking the withdrawal immediately; a withdrawal percentage of 4.5% if she waits for 5 years (age 65), and so on.
Under Increasing Income, she would have a withdrawal percentage of 3.5% if she starts taking the withdrawal immediately; a withdrawal percentage of 5.25% [3.5% + (0.35% increasing income x 5 years)] if she waits for 5 years (age 65), and so on.
On the face of it, It seems like the rider is beneficial if they opted for the increasing income option, but you must keep in mind two things:
The rider charge
The rider charge is a bummer! They will compulsory charge 1.25% annually of the accumulation value, deducted from your account each month, which will reduce your annual accumulation value by 1.25% each year. Even after charging 1.25%, their withdrawal percentage is not that great! Other companies offer similar withdrawals percentages at a low or no cost!
Lifetime income calculation
Most companies use “Income Benefit Base x Withdrawal Percentage” to calculate lifetime income, but Allianz uses “Accumulated Value x Withdrawal Percentage” to calculate the same. Now, the “Income Benefit Base” is usually greater than the “Accumulated Value.” The greater base will result in a greater lifetime income, but in the case of Allianz, the base that they use for lifetime income calculation is smaller. I can safely say this rider is not as “attractive” as the insurance agents describe it.
What makes this product stand out?
Although I do not like this policy much, the Allianz Core Income 7 Fixed Index Annuity still offers some features that not many fixed indexed annuities offer. The ones that I like the most are:
High Fixed Interest Rate
As discussed above, the Allianz Core Income 7 Fixed Index Annuity offers an interest rate of 2.4% in its fixed crediting strategy. This rate is one of the highest I have come across. Other policies in a similar domain offer a low fixed interest rate of about 1-1.5%. Thus, this policy is good for conservative annuitants that are seeking to get CDs like interest rates with the protection of an annuity.
Optional Lock-in of Positive Performance
As this is a Fixed Income Annuity, you are naturally protected from market downturns. But you may have a high chance of missing out on some of the one-off index gains between the two earnings crediting points. This is where the Optional Lock-in features come in handy. Generally, Index gains are automatically locked in at the end of the strategy term, but this feature gives you an option to manually lock in index gains once per strategy term. It means you can lock in index gains when you feel that index is peaked.
Broad Index Choices
The Allianz Core Income 7 Fixed Index Annuity offers annuitants to participate in some of the broad and popular market indexes such as the NASDAQ-100 Index, Russell 2000 Index, and the S&P 500 Index. Usually, the Fixed Indexed Annuities offer a very limited choice of broad market and popular indexes, but the Allianz offers three of the most popular indexes as a strategic choice. However, all of them are capped, which may be a deal-breaker for many.
What I don’t like
I don’t like plenty of things about the Allianz Core Income 7 Fixed Index Annuity. Most of them are those that limit the income earning capacity of an annuitant.
Caps on the Popular Indexes
The rate sheet mentions that S&P 500, NASDAQ-100, and the Russell 2000 strategies are all capped. These are some of the most popular indexes globally, and I believe that the annuitant should be given a decent opportunity to participate in these indexes.
Compulsory Paid Rider
The Allianz Core Income 7 Fixed Index Annuity comes with a compulsory Core Income Benefit Rider that costs 1.25% of the accumulated value each year. Even after it being a paid rider, it doesn’t offer an attractive income earning capacity. Moreover, Allianz calculates the lifetime income based on “Accumulated Value” and not the “Benefit Value” that other companies use. The Benefit Value offers a high lifetime income as compared to Accumulated Value.
No Enhanced Benefit Rider
Even after charging for Core Income Benefit Rider, the Allianz Core Income 7 Fixed Index Annuity doesn’t offer any enhanced benefit rider. Today, many companies offer free enhanced benefit rider, where the annuitant gets an option to double their lifetime income or to withdraw penalty-free, all of their account value of certain events (like terminal illness, or confinement to a Qualified Care Facility) occur.
Low Realistic Return Expectations
You might have known by now that this is a conservative policy that focuses more on income protection rather than income growth. As a conservative policy, the realistic return expectations are pretty average, ranging between 2-5%. It is not the best policy for someone who is looking only for growth and accumulation.
You must always keep in mind that, unlike CDs, annuities are not guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other federal insurance agency. An annuity’s “guarantee” is only as strong as the insurance company that issues the annuity, so it is always important to assess the issuing company before buying an annuity.
Allianz Life Company
Allianz Life Company has been in the business since 1896. It is a subsidiary of Allianz SE, one of the oldest financial services and insurance companies, and has been in the business for over 13 decades. It is one of the largest providers of fixed and fixed indexed annuities in the US for many years and has regularly been in the top ten Fixed Indexed Annuity Sales. Allianz SE is a Fortune 500 company ranking #38.
It is rated as follows by the rating agencies:
|AM Best||A+ (2nd of 16 ratings)|
|Moody’s||A1 (5th of 21 ratings)|
|S&P||AA (3rd of 21 ratings)|
Allianz Life Company has managed to maintain decent ratings for many years. It is considered to be strong and stable financially. As of year-end 2020, some of the other financial highlights for Allianz SE include its:
Rating Agency Rating AM Best A+ (2nd of 16 ratings) Moody’s A1 (5th of 21 ratings) S&P AA (3rd of 21 ratings)
- EUR 80.8 billion of a total stockholders’ equity
- $9.6 billion in net operating income
- $1060.01 billion in total assets
Thus, going by the operating history and financial numbers, we can safely gauge that you can trust your savings with Allianz Annuity Life Company.
The Allianz Core Income 7 Fixed Index Annuity may not be the best fixed indexed policy for a wide range of annuitants. It has a low income earning potential, and almost all the indexes are capped at a low rate. Another thing that I don’t like about this policy is that an annuitant must compulsorily buy their Core Income Benefit rider, which is costly for what it offers.
Although, it may prove to be an ideal policy for a very conservative annuitant who is looking for income protection, above anything. It offers a relatively higher fixed interest rate, and the company issuing this policy is one of the strongest life insurance companies in the world. Overall, this policy is almost the same as when it was launched 8 years ago and didn’t innovate enough to compete with other policies in the same domain.
You might be interested in checking out my in-depth, unbiased reviews on other annuity products here.