With these great numbers showing growth in annuity sales I thought it might be time to look at some of the most common misconceptions agents have about selling annuities.
- Annuities are hard to sell.
The reality is annuities are easier to sell that life insurance because annuities serve the living motives of funding for old age and retirement. Most workers live into retirement, these needs are very real, and as the population mix gets older, these needs become greater.
- Commissions are too low. I can't afford to sell annuities.
Surveys consistently reveal that the average SPDA premium runs a little over $25,000.
Some agents average more.
Typical annuity commission rates range from 2% to 5%. That can amount to $500 to $1,250 on a $25,000 annuity sale.
- Annuities don't have renewals. How can I afford to retire?
Most traditional single premium annuities do not pay trailing commissions in subsequent years and that scares most agents. But if you believe that there is no follow-up compensation, you not taking the long view of growing your book of business. We want 2 things from building our business, right, renewals and a large book of business that affords us future prospecting and needs to address.
You can earn future commissions from:
- Commissions upon annuitization.
- Repeat sales and referrals.
- Selling flexible-premium deferred annuities (FPDAs).
- Replacing older contracts with split annuities A $50,000 annuity sold a little over 6 years ago now usually has a value in excess of up to $75,000.
Lastly, it seems foolish to ignore the income enhancement potential of this vast and growing market.
- 1035 exchanges can only be done from annuity to annuity.
A lot of exchange opportunities are overlooked by agents, either because they don't really understand the rules, or they don't recognize selling opportunities. Overall, about 25% to 30% of all annuity business is 1035 exchange.
For example, we all know you can 1035 exchange from a single-premium deferred annuity (SPDA) to an SPDA, but you can also exchange from:
- FPDA to an SPDA,
- SPDA to an FPDA,
- SPDA or FPDA to a single-premium immediate annuity (SPIA)?
You can also exchange from any life insurance policy to FPDA, or SPIA.
And, you can also exchange from a fixed to a variable annuity, or vice versa.
Think of all the missed opportunities for sales because of the misconception that you can't exchange from a life policy (with cash value) to an SPIA (with new commissions and higher payouts) at retirement.
- Males make up the vast majority of annuity buyers.
In 2013, 51% of all annuity purchasers were female. At younger ages, they put money in qualified plans while over age 65, widows outnumber widowers by almost four to one. Widows are often conservative and have liquid assets.
- Annuity taxation is very complex.
Agents often think they must be a tax expert on the fine points of annuities to sell lots of it however annuity taxation is not complex. Many of the same provisions that are in life insurance are also in annuity contracts. Agents need to recognize that expertise in life or annuity taxation can bring them more sales, and to the extent that this misconception is not recognized, it limits sales.
- People generally like to take risks to earn a higher return.
Most retirees are inherently conservative when it comes to saving for or living into their retirement years. Especially people over 50, they generally want safety and guarantees. Individuals who repositioned their savings to escape extremely low interest rates at the bank still prefer to avoid risk.
- Life income options are not a "good deal."
Most agents have looked away from the sale of immediate annuities with life contingencies. When pre-retirees approach retirement at their company you find that the majority are either doing an IRA rollover for longer deferral, or they are taking some form of guaranteed life income.
You find those who enter their retirement years love lifetime guarantees, and given an option, will frequently choose an income they cannot outlive. One way to accomplish this is to place more of these funds in a SPDA where other systematic forms of withdrawal can be administered reliably, economically, and with safety, until the time is right to elect an immediate annuity. Although agents might just sell more immediate annuities (using the split annuity concept.
- Compound interest (and tax-deferral) is not important or significant.
Agents have a misconception about the power of compound interest (and tax-deferral). Agents should be falling all over each other trying to sell annuities, and that is not happening, I'm guessing, because agents don't really understand the powerful effect this can have on a client's retirement years.
- It's easier to sell $200 per month in a life policy than to transfer $25,000 into an SPDA premium annuity
This simply is not true. The problem most agents have in selling life insurance is the prospect hears the agent saying they must find "new" money in their monthly disposable income to buy a product they are not convinced they need. (Now calm down: Yes, I think life insurance is important.)
- It's easier to sell to meet "living" needs.
- It's easier to transfer money than to find new, monthly or annual premium that is not currently in the budget. (See my point?).
- The $200 is often seen as an expense.
- The $25,000 is usually perceived as an investment, via a transfer of funds.
- Clients are simply repositioning existing money.
- Tax deferral doesn't work if taxes are higher when you retire.
Higher taxes are bad for all of us, but think how bad it is for those whose interest is not tax-deferred. Deferral is still better.
- Annuities are a "specialty." Since I'm not a specialist, I should not sell them.
Now, if you have not sold many annuities because you see doing so as a specialty consider that immediate annuity provisions are in every life policy you sell. And cash values serve accumulation needs like annuities. The need to save, and the need to fund retirement, are the most fundamental values and needs retirees face.
- To sell annuities, you must prospect amongst the wealthy.
The SPDA (and FPDA market) is a middle-class market!
The same people who put money in banks buy annuities and, according to surveys, the average income is under $50,000 per year!
- The 10% federal excise tax penalty for surrender / withdrawal prior to age 59½ is a significant bar to annuity sales.
Seniors retirement money is already saved, and income taxes have been paid.
Retirement money for seniors has been earmarked as "long-term" money, and, since savers have earmarked the money for long-term use, they have no intention to surrender / withdraw before 59 ½.
- Annuities are not a large or important market.
A lot of agents have built their businesses around protecting families against the risk of premature death. With 78+ million of our population now aging into their retirement years, the risk of living too long is just as important a risk, if not more important.
According to the Wink report I referenced in this article, annuity premiums in the second quarter increased dramatically. That shows that annuities are seen as the right vehicle to address the risk of living too long, and outliving retirement money saved. Isn't it in your own financial interest to start picking up the wallet share you are leaving behind?
Lloyd Lofton says concerns about withdrawal penalties should have little effect on consumers' "long-term" money. 
