Keys to Success: Understanding Our Role When Selling Annuities

Risk equals return. Perhaps no cliché has ever been as true. The more risk you take the greater the potential return. Nowhere is this truer than investing. An investment that provides double digit returns without risk is usually illegal! Just ask Mr. Madoff’s former clients. As insurance agents we live in a low risk world. In fact, our very livelihood is made by helping avoid risk. And, for most of the products we offer, the returns (low!) match the level of risk. But that’s OK. We really aren’t in the investing business. We are in the peace of mind business. We sell safety in the face of life’s uncertainties. We help protect financial assets whether it’s against unforeseen medical expenses or the financial impact of losing a loved one. On the surface this isn’t an earth shattering revelation, right? Except when it comes to some products like annuities which we often see agents marketing incorrectly.

Annuities and Their Role

Annuities are not a viable alternative to stocks. Anyone (you know who you are!) that is trying to sell annuities, either fixed or equity indexed, as a stock alternative is going to have a seriously disappointed client. Annuities have a role to play. They are about wealth preservation. Returns are low, albeit higher than a savings account, but they aren’t a growth product. Annuities are often attacked for their conservative returns, restricted investment options, lengthy durations of accumulation and the difficult to access cash value inside the annuity. While there is some truth to all these arguments, at the core of what an annuity provides, there is nothing better on the market.

Fixed Annuities

There are 2 aspects of a fixed annuity that aren’t mentioned enough.

1. Fixed annuities provide guarantees with respect to minimum returns and the security of your principal. Try getting that in the stock market.
2. A fixed annuity is designed to reduce market risk and market losses to the owner. For these to be accomplished, returns are necessarily lower than risky investments. That way the insurance company can provide the guarantees and a deferred income stream depending upon the owner’s preferences.

In addition to these 2 items above, there are other advantages like the tax deferred accumulation that allows for better compounding returns. Annuities also permit designation of a beneficiary which allows it to pass along to someone with no probate.

There are numerous other features, but I want to focus on my first 2 points because I believe this is why people seek annuities.

A fixed annuity or an equity indexed annuity will guarantee 100% of principal for the life of the contract. Mutual funds, stocks and many bonds cannot guarantee the initial investment. Inherent to their nature is risk, and a lot of it! All the principal can be lost in a mutual fund or stock. Likewise, bond values decreases as the yields increase which also puts principal at risk. An annuity will remove that risk with a guarantee of principal, but it’s paid for with a lower interest rate.

Like in life, the greater the risk, the greater return. This applies to all investments, no matter what kind. They all have risk. Our job as insurance professionals and advisors is to match our client’s risks to the right vehicles.

Match Annuities to Client Needs

Annuities fit for clients seeking to diversify their investments portfolios with a guaranteed product, often to guarantee a portion of their retirement goal. If a client believes they can invest better, then so be it. They are not the right fit for an annuity.

So, when meeting with clients discuss the stability and guarantees inherent to annuities. Annuities will never compete with the S&P and stock market returns, but it can provide security, peace of mind and steady income streams during retirement. Promote these strengths and you should have a successful annuity sales career. It’s also a logical addition to the portfolio of clients looking to add whole life for retirement income.

Need more information on annuities? Contact us and let us help you succeed with your next annuity sale.