How To Maximize Safety In Fixed Annuities
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How do you maximize the safety of your clients money in fixed annuities? There are a number of ways. Here a few ideas.
To offer only highly rated companies is a quick and easy first response. However, the highest rated companies normally pay lower interest rates than can be found with companies rated B to A-.
Clients want and search for higher rates. And, in todays open information age, rates are posted on hundreds of thousands of Web sites, in bank lobbies and newspaper advertising. That makes it easy to find out which companies pay the highest rates.
Therefore, agents are often faced with the dilemma, "If I dont sell the higher rate with a B++ company, my clients will find an agent who will sell it to them."
There is another problem, too. Just because the company was rated A+ when the annuity was sold, that doesnt mean the company will keep the high rating. Remember Executive Life, Fidelity Bankers Life, First Capital Life, and others that quickly fell from grace? What happened to those companies will continue to be discussed for years, but the end result was the same: The companies were placed in liquidation.
But, due to state guaranty laws, the vast majority of those policyowner funds were protected.
This means that there are ways to maximize safety under the guaranty laws. Basically stated, fixed annuity values are protected up to $100,000 per owner designation, per company. As I understand current laws, the amount is greater in 6 states and less in 4 states. Here is what I do in Texas: If a client has $300,000 and wants to make certain all the money is protected, including future interest earnings, while taking advantage of the highest rate possible, we set up 3 contracts in Company A for $80,000 each.
In annuity 1, the husband is the Owner and Annuitant. In annuity 2, the wife is the Owner and Annuitant. In annuity 3, the husband and wife are Joint Owners with the husband as the annuitant. Then, well put $60,000 in the next highest rate we can find in Company B, normally with the husband as Owner and Annuitant. That way, as the money grows, it will be protected under the guaranty laws because they are covered up to $100,000 per owner designation, per company.
"I didnt think we could tell clients about the guaranty laws," is a comment I often hear from agents. Thats only a partially true statement. An agent cannot advertise or hold the guaranty laws out as an inducement to get someone to purchase a policy of insurance, but if a client asks about the law, the agent has a fiduciary responsibility to explain the law to that person.
In the example above, there was no mention of the guaranty law to the client. I just set the annuities up that way, explaining to the clients that the arrangement will maximize safety and flexibility. If they ask questions, I answer them directly.
