Clients–and advisors–need to understand how these benefits work
Death benefits are not the reason clients buy annuities, say industry leaders. Besides, many annuities terminate by surrender, rollover or annuitization–not by death of the policy owner.
Still, death benefits are important policy features in most annuity contracts, because people do die with annuities intact, sometimes never having touched them since the day of policy issue.
In fact, the client and advisor understanding the annuity death benefit and how it works definitely contributes to successful annuity outcome, says Gregory G. Theis, a financial consultant with Seniors Only Financial, Homer Glen, Ill.
If the client doesn't understand and ends up with the wrong death benefit, he explains, "you can have a lot of problems." Not the least of these are miscommunication, suitability and compliance issues.
A lot of people with whom Theis speaks tell him they didn't even know their contract had a death benefit when they bought it, or they say they do not know how it works.
These buyers may have purchased a fixed annuity that does not waive the policy surrender charges at death, for example. "Most fixed annuities don't do that," Theis allows, "but some do."
Even the simpler fixed annuities can pose complexities in the area of death benefits, he stresses, because not all death benefit provisions are alike and because structuring the product for the client situation can entail minute but critical details that impact other elements of a client's financial and estate plan.
"You have to know what you are doing" when evaluating the various death benefit features, he concludes.
Gene Pastula, president of Westland Financial Services, San Diego, Calif., agrees. That's true for advisors as well as clients, he says, noting that the majority of advisors either do not know how annuity death benefits work when they come to him for training, or they lack sufficient training to explain it clearly to clients.
That concerns him.
If understanding is not achieved, the resulting complaints will only fuel the flames of anti-annuity critics, Pastula says.
Consumers need to know there are good, user-friendly annuities available, Pastula adds. These are products that are good to the customer–including at time of death.
Most annuity products do have some form of death benefit, say experts.
These include deferred annuities of the fixed, indexed and variable variety; period certain immediate annuities; and even a few lifetime immediate annuities that offer to commute the policy value upon death of the annuitant, says Brent Salso, senior marketer at Ann Arbor Annuity Exchange, Ann Arbor, Mich.
Knowing that, Salso says he routinely checks out all the details on the policy under consideration, and then "I lay it all out for the client."
It's a full disclosure approach, Salso says. He goes over the death benefit with clients (along with the other features), keeps detailed notes about the discussion, dates the notes, and reviews it all again with the client when going through the company-supplied disclosure materials.
This disclosure "absolutely" has to happen for the client's needs to be served, he maintains. For instance, if a variable annuity with an enhanced death benefit is involved, the client needs to know that there is a cost for this feature, says Salso.
Clients also need to know what their heirs should expect to happen if death occurs while the annuity is still intact. "It might be that a client does not want the heir to have a lump sum benefit option, due to the heir's spendthrift tendencies," he explains.
But how best to incorporate a death benefit discussion into the client session? That's a nagging question for many advisors, given that people generally don't buy annuities for the death benefit.
One approach is to screen products that the advisor will sell, to ensure that the death benefit and other features are client-friendly, says Pastula. Some insurance marketing organizations do this screening, he points out, and so do other marketers.
The message should be, "choose top-tier carriers and products you are proud to sell," he says.
At the carrier level, the focus turns to providing education and materials that deal with the death benefit. One example is the approach used at Lincoln Benefit Life, Lincoln, Neb.
"We work it into the entire consultative process," says Larry Dahl, the incoming president of the Allstate subsidiary.
