Monthly Averaging In Index Annuities: Who Needs It And How To Sell It
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Equity-indexed annuities with monthly averaging are a solid choice for many in the senior market. And, they can be simple to explain at point of sale. But when producers are faced with 35 different indexing strategies and numerous equity-indexed products utilizing them, the tendency can be for them to select products for clients that appear to be less intimidating and easiest to explain.
There is a better way. Before choosing which product to present, consider the benefits of the product. In particular, consider the benefits of monthly averaging in equity-indexed products.
EIAs with monthly averaging are typically marketed to seniors who are concerned about taking risks with their money. Theyd like to put money in the stock market, but dont think its worth the risk of losing it all. They worry that if they invest in stocks that may go down, they will end up with less money than originally invested.
The option of EIAs with monthly averaging appeals to this market because it allows for gains in an index, while protecting them from the losses. With such a product, the client has the benefit of averaging both the low points and the high points of 12 months of index performance. That "balances out" the peaks and valleys to provide an average over the total year.
With this approach, the worst result for a client would be a zero return, regardless of how the market performed, without the loss of the original investment. In fact, despite the worst bear market since the Depression, a few carriers indexed-annuity products with monthly averaging returned over 40% during a 5-year period from Sept. 30, 1998, to Sept. 30, 2003.
