So far in this module, we’ve mentioned hybrid products that combine insurance with potential investment vehicles.
This next product is geared more toward providing your client with a guaranteed source of income: an annuity.
Annuities are essentially a contracted agreement between your client and an insurance company. They will make a series of payments or a lump sum payment in exchange for disbursements in regular intervals.
How those payments are distributed is our first way of categorizing annuities.
In a deferred annuity, payment begins on a future day set by the policyholder.
Immediate annuities, on the other hand, begin paying out monthly or annual payments immediately.
But what about the other investment considerations… Like interest rates and payment options?
Fixed annuities fall into both of the previously mentioned categories.
Deferred Fixed Annuities accumulate regular rates of interest, while Immediate Fixed Annuities make fixed payment to your client depending on their age and amount of money invested.
Fixed Indexed Annuities work similarly to fixed annuities, only with an interest rate that is tied to a market index.
Like Indexed Universal Life, this annuity gives your client exposure to some of the upside of investing in the stock market without having to experience market downturns.
But like those plans we mentioned in the life insurance episode, fixed indexed annuities include interest rate caps and participation rates that will limit returns. Consider this a conservative approach to funding retirement, well-suited for those who are close to retiring or already retired.
Variable annuities are also tied to a specific market index, but they present much more risk to your client’s investment. In this case, if the market does poorly, so will the value of your client’s annuity. There are also taxes and fees that apply in certain situations, like withdrawing the money before a certain age that will add penalties to your client’s investment.
Indexed Annuities, also called Equity-Indexed annuities are also tied to market performance. However, unlike variable annuities, indexed annuities usually include a rider guaranteeing a minimum annual income based on a specified interest rate. It’s called a Guaranteed Minimum Income Benefit Rider, and it will help protect your client from market downturns. As with many other riders, there are fees associated with a GMIB rider. With this rider in place though, it’s likely that the guaranteed minimum income amount will be higher than what could be possible from an actual market value account without the rider in place.
A crucial aspect of offering annuities is making sure your client understands every part of this investment vehicle. You should review interest rates, insurer’s A.M. best ratings, guarantees, surrender periods, administrative fees, and inflation protection on each plan you present to your client.
Like most ancillary products, annuities can be a great fit for Medicare beneficiaries. Annuities can provide options for retirement income rollovers as well as retirement income management. But some products will be more beneficial than others, depending on the age of your client and where they’re at financially.
This is when fact-finding really comes in to play so you know which products to pitch to which clients.
In 2013, Gallup surveyed annuity owners and found that the average age for a first annuity purchase was age 52. Buyers were mostly female. The household income of annuity buyers fell in the range of $20,000 to $74,999. The survey also found that most annuity owners were already retired.
For those approaching retirement, deferred annuities with a payout date beginning on or around their retirement is a viable strategy. If your clients are already retired, immediate annuities may make more sense.
Once you get started working with fixed annuities, they’re pretty simple to understand. But that doesn’t mean we don’t still offer plenty of training and resources for agents. Our More than Medicare portfolio includes many fixed annuity options that are ideal for your senior client base.
In addition, we offer both fixed and fixed indexed annuities as well as long-term care solutions and have partnered with product experts to provide top level support. You can attend live agent training webinars which are hosted monthly by our product specialists. The More than Medicare team, along with our highly knowledgeable specialists also assist Ritter agents by running quotes and illustrations, providing product comparisons and new business case management.
Our job is to support you every step of the way, teaching you about new products, helping you choose carriers, and giving you the training and tools to add annuities to your portfolio and cross-sell them with confidence.