MEMBERS Single Premium Immediate Annuity Review

Product Policy

How Does the MEMBERS Single Premium Immediate Annuity policy work?

The MEMBERS Single Premium Immediate Annuity (SPIA) provides a simple and efficient way to convert a lump-sum payment into a guaranteed income stream. It is designed for individuals who want immediate or near-term income security, typically for retirement. Here’s a detailed breakdown of how it works:

Initial Premium Payment
To begin, you make a one-time premium payment to CMFG Life Insurance Company.
The minimum initial payment is $10,000, while the maximum without prior approval is $999,999.
Once funded, the annuity is activated, and income payments are calculated based on factors such as your age, premium amount, and the payment option you select.
Payment Timing
Income payments can start no sooner than one month after the contract is issued and must begin within one year of issue.
This immediate payout feature makes SPIAs ideal for individuals who require income without delay or within a short timeframe.
Payment Frequency
Payments can be made on a monthly, quarterly, semi-annual, or annual basis, depending on your preference.
Monthly payments are commonly chosen for consistent cash flow management during retirement.
Payout Options: You can customize the income stream by selecting from several payout options:
Single Life Fixed Income: Provides guaranteed payments for your lifetime. This option offers the highest initial income among all choices since payments end upon your death.
Joint Life Fixed Income with 100% to Survivor: Guarantees payments for the lifetime of both you and a designated survivor. Payments continue at the same level for the survivor after your death.
Joint Life Fixed Income with 50% to Survivor: Similar to the 100% option but reduces payments to 50% for the survivor. This accommodates anticipated lower expenses for the survivor, balancing lifetime income with affordability. Payments are relatively higher than the “Joint Life Fixed Income with 100% to Survivor” option.
Life with Cash Refund: Ensures lifetime payments for you, and if the total income paid is less than the initial premium at the time of your death, the remaining balance is refunded to your beneficiary.
Life with Guarantee Period: Provides lifetime payments but guarantees a set period (e.g., 10 or 20 years). If you pass away during this period, payments continue to your beneficiary until the period ends.
Fixed Installment Income: Offers fixed payments for a specific number of years. This option is ideal for individuals needing income over a defined period without a lifetime guarantee.
Rate Lock
When you apply for the annuity, the payment rates are locked for 15 days and extended for another 30 days if the application is received without payment. If funds are delayed, the contract will still use the higher rate if rates decrease during this period.
Tax Advantages
For non-qualified contracts, a portion of each payment may be tax-exempt, reflecting the return of the original premium. The remaining portion, considered earnings, is taxable.
Qualified rollovers from retirement accounts can fund the SPIA without immediate tax consequences.

Example

Suppose you are a 65-year-old male and purchase the MEMBERS SPIA with a $100,000 premium. You choose the Single Life Fixed Income option, with annual payments starting immediately. Based on your age and the insurer’s rate table, a percentage of your premium will be paid to you for the rest of your life, regardless of how long you live. You can also select other options such as Cash Refund and Life w/10-year guarantee. Let’s see how the rates work in these scenarios.

Life Only: 7.57%

This option provides the highest payout rate because it is based solely on the annuitant's lifetime. Payments will continue for as long as the annuitant lives, but there is no provision for beneficiaries after the annuitant’s death. This is ideal for individuals who want to maximize their income during their lifetime and are less concerned about leaving a financial legacy.

Example: For a $100,000 premium, the annual income would be:

$100,000 × 7.57% = $7,570 per year

Payments will stop immediately upon the annuitant’s death

2. Life with Cash Refund: 7.07%

This option guarantees lifetime payments, with the added benefit that if the total payments received before death are less than the initial premium, the remaining balance will be refunded to the beneficiary. The slightly lower rate reflects the additional security provided to beneficiaries.

Example: For a $100,000 premium, the annual income would be:

$100,000 × 7.07% = $7,070 per year

If the annuitant passes away after receiving only $50,000 in payments, the remaining $50,000 will be refunded to the beneficiary.

3. Life with 10-Year Guarantee: 7.35%

This option guarantees lifetime payments but ensures that income will continue for at least 10 years, even if the annuitant passes away during that period. If the annuitant lives beyond the 10 years, payments will continue for their lifetime, but if they pass away earlier, the beneficiary will receive the remaining payments for the 10-year period.

Example: For a $100,000 premium, the annual income would be:

$100,000 × 7.35% = $7,350 per year

If the annuitant passes away in year 5, the beneficiary will receive the remaining 5 years of payments (5 × $7,350 = $36,750). If the annuitant lives beyond 10 years, payments will continue for life.

Note that these rates are current as of the writing of this article (November 2024). It’s important to note that annuity rates are subject to change based on a variety of factors, including interest rate movements, market conditions, and the insurer’s underwriting policies. For the most accurate and up-to-date rates, we recommend consulting your trusted financial advisor or reaching out directly to the insurer. Your advisor can also help determine which payout option best aligns with your retirement goals and financial circumstances.

Suitability of the MEMBERS Single Premium Immediate Annuity

The MEMBERS Single Premium Immediate Annuity (SPIA) is a financial product designed for individuals seeking reliable, immediate income. Its straightforward structure and guaranteed income make it an attractive choice for certain types of investors and retirement planners. Below, we discuss the scenarios where this annuity is most suitable:

Ideal for the Following Individuals:

Retirees Needing Immediate Income: If you’ve recently retired or are about to retire and need a steady income stream to replace your paycheck, the SPIA can help ensure financial stability. Payments begin shortly after purchase, providing immediate support.
Conservative Investors: This annuity is ideal for individuals who prioritize security and are uncomfortable with the risks associated with market-linked investments. The guaranteed payouts eliminate exposure to market volatility.
Longevity Protection Seekers: The lifetime income options ensure that you will never outlive your savings, making it suitable for those concerned about the financial risks of an extended lifespan.
Individuals with a Lump Sum to Invest: If you have a lump sum from a retirement account, inheritance, or other sources, the SPIA converts that amount into predictable income, offering peace of mind.
Beneficiary Protection Concerns: For individuals who want to ensure a legacy for their loved ones, options such as Life with Cash Refund or Life with 10-Year Guarantee provide a safety net for beneficiaries.

Less Suitable for the Following Individuals:

Those Needing Liquidity: Once funds are committed to the SPIA, they cannot be accessed outside of the scheduled payments. This lack of flexibility makes it unsuitable for individuals who may need quick access to their capital for emergencies or unforeseen expenses.
Growth-Oriented Investors: The SPIA does not provide market-linked returns or potential for capital appreciation. It is better suited for those valuing income stability over growth.
Younger Individuals or Long Deferral Periods: Individuals who do not need immediate income may find deferred income annuities or other investment options more appropriate for maximizing growth.
Those Seeking Inflation Protection: While predictable, the payments do not inherently increase over time unless an inflation-adjusted option is explicitly chosen. For individuals concerned about inflation, this could erode purchasing power over the years.

Key Considerations

The MEMBERS SPIA works best when integrated into a broader financial strategy. It is especially effective as a supplement to Social Security or pension income, filling gaps in your monthly cash flow. However, prospective buyers should carefully evaluate their overall financial picture, liquidity needs, and long-term goals before committing.

Riders

The MEMBERS Single Premium Immediate Annuity is a plain vanilla annuity that does not include optional riders, making it a straightforward choice for individuals seeking simplicity and guaranteed income without added complexities. This simplicity appeals to those who prioritize predictable retirement income over additional features.

Contract/Administrative Charge

The MEMBERS Single Premium Immediate Annuity levies no annual contract or administrative fees.

Advantages of the MEMBERS Single Premium Immediate Annuity

Guaranteed Income: Payments are fixed and guaranteed for life or a specified period, ensuring financial stability and eliminating uncertainty.
Immediate Payouts: Income begins shortly after the initial premium payment, making it an ideal solution for those who need immediate cash flow in retirement.
Flexible Payout Options: A variety of payment structures, such as Life Only, Cash Refund, and Life with Guarantee Period, allow you to customize the annuity to suit your income and legacy needs.
Simplicity: The SPIA is easy to understand and manage, providing a straightforward solution without the complexities of market-linked investments or ongoing management.
Tax Advantages: For non-qualified contracts, a portion of each payment is considered a return of principal and is tax-free. Additionally, rollovers from qualified retirement accounts into the SPIA can defer taxes on the principal.
Rate Lock Feature: The rate lock provides assurance against changing interest rates during the application process, ensuring you receive favorable terms even if rates decline.
Beneficiary Protection: Options such as Life with Cash Refund or Life with 10-Year Guarantee provide peace of mind by ensuring your principal or guaranteed payments are preserved for your loved ones.

Disadvantages of the MEMBERS Single Premium Immediate Annuity

Lack of Liquidity: Once the premium is paid, the funds are locked into the annuity. Outside of scheduled payments, there is no access to the invested capital, making it unsuitable for individuals who may face unexpected financial needs.
No Growth Potential: The SPIA does not offer any market-linked returns or the possibility of capital appreciation. While it provides stability, it lacks the potential for higher gains associated with riskier investments.
Inflation Risk: Payments are fixed unless an inflation-adjusted option is chosen. This can lead to a decline in purchasing power over time, especially during periods of high inflation.
Commitment to a Long-Term Contract: Once purchased, the terms of the annuity cannot be changed. This rigidity may be a disadvantage for individuals whose financial situation or needs evolve over time.
Limited Features Compared to Other Annuities: Unlike some modern annuities, the SPIA does not offer optional riders such as long-term care or confinement waivers, which could be valuable in certain circumstances.
Potential Opportunity Cost: For younger individuals or those with a longer time horizon, investing in market-linked products might offer better returns compared to locking in immediate payments.

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.

CMFG Life Insurance Company

CMFG Life Insurance Company, operating under the brand name TruStage Financial Group (formerly known as CUNA Mutual Group), is a mutual insurance company that provides financial services to cooperatives, credit unions, their members, and other customers worldwide. Founded in 1935 as the CUNA Mutual Insurance Society, the company has grown to serve over 30 million consumers through its lending, retirement, and wealth management products. TruStage Financial Group offers a broad range of insurance and investment products, including commercial and personal insurance, lending services, wealth management, and retirement solutions. Its insurance arm, TruStage, provides various products such as whole and term life insurance, accidental death and dismemberment insurance, auto insurance, property insurance, and annuities. Headquartered in Madison, Wisconsin, the company employs nearly 3,700 people across multiple locations in the United States and internationally.

It is rated as follows by the rating agencies:

Going by the ratings, it is considered to be strong and stable financially. As of December 2023, some of the financial highlights for CMFG Life Insurance Company include its:

$45 billion in Assets
$2.9 billion in policyholder surplus
$42.1 billion in liabilities
$5.43 billion in total sales
$140 million in net income

Going by the operating history, financial numbers, and ratings, we can safely gauge that you can trust your savings with the CMFG Life Insurance Company.

Conclusion

With the advancements in healthcare and technology, the average American today lives longer than ever. So, it’s very important to have a retirement corpus that can grow safely and steadily and have the ability to provide a fixed stream of income during the retirement years. This not only helps you mitigate the risk of outliving your income but also ensures that you continue to live a decent life even in your retirement.

The MEMBERS Single Premium Immediate Annuity is straightforward to understand and easy to implement in a retirement plan. By converting a lump sum into guaranteed payments, it provides financial security and peace of mind. The variety of payout options ensures that individuals can tailor the annuity to meet their unique needs, whether prioritizing lifetime income, legacy planning, or a specific income timeline.

We understand that choosing the right annuity can be a complex decision, influenced by a myriad of factors such as market conditions, individual financial goals, and evolving life circumstances. To better serve you in this critical decision-making process, we regularly conduct in-depth reviews of various annuity products, examining features, costs, and potential benefits. Dive deeper into our extensive reviews.