It's a new year, and a great time to look at new ways of growing your business. If you've chosen to do that by starting to sell fixed and indexed annuities, great; you've chosen well. Fixed annuity products are more popular and more consumer-friendly than ever.
It's no secret, though, that there are a lot of misconceptions out there about annuity products. You make it clear that you've got some preconceived (and often incorrect) assumptions when you ask the following questions.
1. Aren't fixed annuities bad for clients?
Let's get this one out of the way first. Even setting aside the fact that there are numerous different types of annuities, and hundreds of products of each type, there is no such thing as a category of financial products that is inherently "bad."
That's not to say that annuities are right for everyone; that would be equally absurd. As with most things in life, the answer lies somewhere in between. What is good or bad for a client depends heavily upon their individual circumstances. The ideal client for a fixed annuity is typically at or near retirement age, has $100k or more in liquid assets, and has a low risk tolerance. Even within that subset of the population, though, there are myriad options available. Should they look at a SPIA? A DIA? An indexed annuity? Should they buy an income rider or not?
See also: 5 prime annuity prospects
Saying that all annuities are bad is like saying all cars are bad. If you have a one-mile commute to work and don't travel much, you probably shouldn't be driving an SUV. If you're a contractor who regularly hauls heavy equipment on the job, a coupe isn't going to work well for you. The same principle holds true for annuities, or any other financial tool.
2. What's the interest rate on this SPIA?
Somewhere, an actuary is reading this section header and laughing. Asking about the interest rate on a SPIA points to a fundamental misunderstanding of what a SPIA is and what it's supposed to do, which makes it all the more unnerving to the annuity-savvy advisor that this question gets asked all the time.
A SPIA, or immediate annuity, is what most people think of when they hear the word "annuity." If you need to explain it in one sentence, it's an exchange of a lump sum of cash for a stream of payments over a certain period of time, typically the client's lifetime.
Since an insurance carrier doesn't know the exact day you're going to die, it would be extremely difficult — not to mention downright irresponsible — for them to try to price it for maximum earnings over the agreed-upon time period. It's true that a carrier will sometimes try to be consistently the best in a certain client sweet spot — females aged 64 to 69, for example — but if you're using SPIAs to try to earn tons of money, you're not using them correctly. They should be used to cover known, fixed expenses. Accumulation of interest is best left to a deferred annuity or to investments.
3. How can I get a hybrid annuity?
4. How much should I invest in a fixed annuity?
5. Aren't annuities expensive?
