Like many Americans, you have probably seen TV commercials espousing the brilliance of annuities as a safe investment strategy. But what exactly are annuities and as an agent should you sell them? Annuities are a long-term retirement savings product that provide income and protect clients from outliving their money. Many people choose annuities because of the ability to customize investment and payment options. They come in all different types and shapes, and that’s why it’s crucial to understand what is being sold to the senior market.
Types of annuities
There is a large assortment of annuities available and but the four primary types of annuities are: immediate, fixed, variable and fixed-indexed annuities.
Immediate annuities accept lump-sum payments to create an immediate income stream, a mirror of how a life insurance policy works. With life insurance, the client pays a premium which slowly builds a lump-sum benefit payable upon death. With an immediate annuity, the client pays a lump-sum and then receives an immediate monthly income. Annuitants typically receive the income for a certain period (typically five to twenty-years) or over a lifetime.
Fixed annuities offer a guaranteed rate of return typically over a period of one to fifteen years, similar to CD-like investments offered by banks. Fixed annuities do tend to have higher rates of interest. The appeal of fixed annuities is the guaranteed rate of return and guaranteed return of principal. The downside is the annuitant/owner has no control over how the money is invested. A fixed annuity can later be converted to a stream of income if needed.
Variable annuities are a popular option because the client can pick between several investment options similar to bonds, money markets and mutual funds. Variable annuities do not have a guaranteed ROI, but are driven by the performance of the chosen investments. The long-term growth can potentially be higher, but if the market is poor then the value can fall below the original investment. With a variable annuity, it is important that you diligently do your homework to find the most suitable investment options for your clients.
Fixed indexed annuities offer returns based on the changes in a securities index, such as the S&P 500® Composite Stock Price Index. Indexed annuity contracts also offer a specified minimum which the contract value will not fall below, regardless of index performance. After a period of time, the insurance company will credit interest to the investment under the terms of the contract. Different companies use different methods of calculating interest based on the index used and the participation rate. A fixed indexed annuity is not a stock market investment and does not directly participate in any stock or equity investment.
As an independent agent, annuities can be a great way to increase tax-deferred savings for the later years of retirement or to create income for your clients without the fear of outliving their money. For many seniors, it is the perfect product to maintain their standard of living. Annuities with all of their features and riders can be complex. As the agent or expert, it is pertinent that you do your due diligence and inform your client of any penalty fees, surrender charges or any hidden costs. If you have any questions about adding annuity products to your product portfolio, we can help. Contact us today to see which products can make the biggest impact for your clients.
You can see NCC's selection of annuity products here.
Disclaimer: Some annuities mandate financial licenses in order to sell, please check your state and local laws.
About National Contracting Center
NCC is a leading senior insurance marketing firm (FMO) specializing in Medicare Advantage, Medicare Supplements, and Final Expense products for independent agents. NCC partners with you to provide support, training, and concierge service for all your insurance needs.