Everything seems to becoming a commodity today. In our insurance arena, it seems to be that way with property and casualty coverage since you can buy it online. When's the last time you've been driving, listening to your Sirius or XM radio, that you did not hear a commercial for term insurance? Well, it's great that people have access to all the information about the financial products today because they should become more knowledgeable and better informed consumers. But it becomes a problem when they start to look at annuities as a commodity.
I think they are being short-changed – and advisors and the insurance companies are being short-changed as well – because annuities are not a commodity. An annuity fills so many voids, so many niches and can solve many problems. But the greatest one was highlighted in a recent Wall Street Journal article called “Retiring Babyboomers Come Up Short Of Cash.”
It was a very long column about annuities that said, “The fixed annuity sales pitch is hard to resist amid alarming markets. Many people today are looking for a safe haven, and they're looking for where they can get income guarantees for life regardless how long that life may last.”
Think we can help? There are many different options.
First, let's take a look at the immediate annuity. The single premium immediate annuity can provide a stream of cash for a long period of time that you can't outlive. And if a person did not have other dependents, the life-only option can really fill the void. Many people are starting to talk more about longevity SPIAs. These are products where you give a lump sum of cash today and then ask for the payout in 10, 15, 20 years from now or longer. It can be a great product for younger Americans. But don't we also do that with our indexed annuities that have the guaranteed lifetime withdrawal benefit?
When we are able, with most contracts, to come close to doubling the income account value in 10 years, it's a hard proposition to pass on. So, why is everyone just now jumping on the bandwagon? Let's take a closer look.
Let's take a look at it from the agent's perspective. Are we offering this product correctly? Are we using consultative selling? Are we asking where it hurts? Are we separating discretionary from essential income? Are we finding those dollars? Are we asking if they'll need more income later? Are we assuming inflation? Wall Street seems to have had the edge on us for many years when they said that the solution to this income problem would be bonds. How about laddering bonds? How about laddering annuities? We have the software available to illustrate the laddering of annuities to provide income down the road when needed. Seems to me you would be able to use a combination of immediate annuities and indexed annuities with income riders and really make the annuity shine.
I believe that many Americans have not fallen in love with the annuity because of the emotional side of the current financial market. And this emotional side can truly cost us and our clients some money - seems like many are just doing ‘nothing’.
I believe that we have to start out with a risk tolerance questionnaire. And we need to have our clients complete the questionnaire, answer the questions, total up the score and determine their risk tolerance. Are they aggressive? Are they conservative or moderately-aggressive? There are many different combinations. It is now time for them to take a look at safe money options. If they don't have the stomach for the risk, if the emotions are running so high that they're afraid that they're going to miss an opportunity, then just take a portion of their money and start moving toward safe money places. I think we need to take a look at where we've been.
This has been a rollercoaster and many economists are stating that this could be a very volatile market for the next two to five years. Many economists are saying that we had better get used to these low yields and the feds saying that we're going to keep interest rates where they are through mid-2013. We need to ask our clients, “What are you waiting for?”
I was reading one of the nation's largest newspapers where they always list the average five-year CD rate. They show what it is this week, the previous week and what it was one year ago. The average five-year CD in America, as of mid-September, was 1.34 percent. How about a simple MYGA to combat that? There are still products out there that are paying 2.75 percent, 3 percent and more over a five year period. Sure it has a penalty for early surrender or early withdrawal, but not unlike the CD. We can’t forget to explain the nursing home riders, the terminal illness riders, return of premium options and the beauty of the ability to use guaranteed lifetime withdrawal benefits. What about the death benefit options on some of these indexed annuities? A person could give you $100,000 in premium and that death benefit could rise to upwards of $200,000.
Do you think this would be of interest for some of your clients that could be uninsurable or highly rated? I think it is truly just another feather in the cap of these great annuity products. So, don’t let the annuity become a commodity – it is so much more than that. It is up to us to tell the story… before someone else does.
Raymond J. Ohlson, CLU, CRC is president and CEO of The Ohlson Group – www.ohlsongroup.com.
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