Allianz Core Income 7 Fixed Indexed Annuity Review

Product Policy

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, terminal illness or injury event, or when a death benefit is payable.

The Allianz Core Income 7 Fixed Index Annuity offers the annuitant to choose 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:

It is very important to note that the Allianz Core Income 7 Fixed Index Annuity offers the above indexes with caps in place, meaning that your interest-earning capacity is capped. These rates tend to change frequently; I will discuss the rates in detail shortly.

Note: In addition to allocating the funds in the following indexes, the annuitant also has the 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 3.25%.

Rates and Costs

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 08/06/2024) to understand how the earnings are determined.

The first thing to note is that we have four indexes, each of which has annual point-to-point with a cap strategy. The Bloomberg US Dynamic Balance Index II has additional three 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 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: 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.
Cap rates: This refers to the rate at which your interest-earning capacity is capped. For example, if an index returns 12% but the contract’s cap rate is 6%, 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 begins. 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 offerings.

Thus, it is very important to check rates before choosing your preferred index.

Out of all these indexes, I prefer a broad-based index like the S&P 500 or the Nasdaq-100 because of their strong real performance and the relatively high quality of the securities that constitute these indexes.

Index Lock Feature

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 Free 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 the index has peaked. The following explains the feature graphically.

In this hypothetical example, the index value rose to 111 in month 18, at which time the decision was made to lock in the index value. The beginning index value (100) is compared to the locked index value (111), resulting in a change of 11%. If the participation rate were 80%, the indexed interest for this crediting period would be 8.8% (80% of 11%). By using Index Lock, you are able to lock in the day’s ending index value and be assured a positive index credit for the crediting period - no matter what happens during the remaining months.

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 a rider charge is also 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 briefly discuss this rider in the next section.

Surrender Charge

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.

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.

The surrender charge of Allianz Core Income 7 Fixed Index Annuity is pretty much in line with all the other annuity issuers.

Contract/Administrative Charge

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

A core income benefit rider is an income rider that helps 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 when 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. However, it has the potential to increase each year by the interest rate credited to the allocation options you choose in your contract.

Let’s have a look at the rider benefit chart to know more about the withdrawal 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.

When it comes to increasing income, notice that the initial withdrawal percentages are lower than they were in level income. But they have this column labeled “Annual Increase%”; let us understand how this thing works. Let’s consider an Annuitant, “Karen,” who is 60 years old and wants to opt for a single policy.

Under Level Income, she would have a withdrawal percentage of 6.8% if she starts taking the withdrawal immediately, a withdrawal percentage of 7.3% if she waits for 5 years (age 65), and so on.

Under Increasing Income, she would have a withdrawal percentage of 5.70% if she starts taking the withdrawal immediately; a withdrawal percentage of 8.45% [5.70% + (0.55% 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 will benefit if they opt for the increasing income option, but you must keep in mind two things:

The rider charge: The rider charge is a bummer! They will 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 withdrawal 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:

Relatively High Fixed Interest Rate: As discussed above, the Allianz Core Income 7 Fixed Index Annuity offers an interest rate of 3.25% in its fixed crediting strategy. This rate is relatively higher compared to other fixed-income avenues. Thus, this policy may be suitable for conservative annuitants seeking higher-than-CD interest rates with less risk.
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 the index is peaked.
Broad Index Choices: The Allianz Core Income 7 Fixed Index Annuity offers annuitants the opportunity 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, fixed-indexed annuities offer a very limited choice of broad market and popular indexes, but 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 the S&P 500, NASDAQ-100, and Russell 2000 strategies are all capped at relatively lower rates. 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 the “Accumulated Value” and not the “Benefit Value” that other companies use. The benefit value offers a higher lifetime income than the 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.

Company Details

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 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 has been 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.

It is rated as follows by the rating agencies:

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 2023, some of the other financial highlights for Allianz SE include its:

EUR 14.7 billion in total sales / direct written premium
EUR 41.4 billion of total stockholders’ equity
EUR 7.7 billion in net operating income
EUR 129.1 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.

Conclusion

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.

However, 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 several 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.