Within the fixed indexed annuity (FIA) marketplace, volatility controlled (VC) index options are the talk of the town. Developed to increase the attractiveness of FIA returns in a low-interest-rate environment, these new crediting strategies present something new and interesting to consider.
However, without a full understanding of the underlying mechanics and, more importantly, the setting of realistic expectation of their potential returns, these new indexes could turn into a new reason for a client to be confused and turned off.
It’s easy to lose sight of the forest for the trees when discussing these indexes. It’s critical to remember the attractiveness of an FIA rests in its simplicity, insulation from market losses, periodic lock in of gains, and its ability to provide lifetime income, even increasing income, all for no to low annual fees. No individual index should overshadow or distract from this package of benefits.
VC crediting strategies were designed to potentially increase the overall return on FIAs. A VC option should be used if a client is looking to increase their accumulation value, increase or extend their residual death benefit, or increase their lifetime income by either outperforming a rollup or providing more punch to an increasing income option.
VC indexes vary significantly in structure and design. Some use spreads, while others use participation rates and/or longer crediting terms. Many are uncapped. It’s important to understand the underlying indexes and to be comfortable with their transparency. You should also understand how the indexes are managed and will respond under various market conditions.
The Bottom Line: Make sure you understand the latest hot topics and how they could impact your clients before you start making recommendations. Ash Brokerage has access to top carriers in the industry with exposure to a variety of VC indexes, and we’d love to discuss the intricacies and opportunities they may present for your clients.
How important is guaranteed income? Ask any retiree or near-retiree, or read most any survey about concerns in retirement, and the most common fear is running out of money. Financial planners must consider what assets are available and what tools they have available to create and generate guaranteed, lifetime income.
Today, one tool often used in financial plans is an annuity with an income rider. An income rider guarantees an income payment for the life of the insured, and can even be set up to guarantee income payments for the insured’s spouse. Clients may even have the option for increasing income payments under some annuity contracts.
Here’s how it works: The average payout factor at age 70 is 5 percent. If your income base amount is $200,000, then the resulting payout is $10,000. In most cases, this would be the amount the insured would be guaranteed on an annual basis for their lifetime.
With an increasing income payment option, when there is any interest credited to the annuity, the insurance company increases the last annual payment amount by the interest earned, expressed as a percentage. Say your annual income payment was $10,000; however in the last contract year, you earned 4 percent in interest. The insurance company would then increase your lifetime annual income payment to $10,400. Choosing this option would help you keep pace with inflation, and potentially help you offset higher health care and other costs.
The Bottom Line: Guaranteed lifetime income is important to many of your clients. Show them options with annuities and income riders.
Were your clients attracted to an annuity because of the ability to convert its value into a guaranteed stream of income – through annuitization or a lifetime income rider? The options are attractive, so it’s likely you have a few clients who fit that bill.
Statistics show, however, that only a small percentage of clients take advantage of those features – less than 5 percent of annuities are ever converted into an income stream. This means that the vast majority of annuities will eventually pass to the owner’s beneficiary upon their death.
Knowing those facts, you should talk to your clients about death benefit riders that are now available on select indexed annuities. Choosing a death benefit rider (available with a cost assessed at the end of each contract year and with NO medical underwriting) could allow your client’s beneficiary to receive an enhanced rollup value as a death benefit, all the while providing payout options and the opportunity to spread out their tax liability.
The Bottom Line: Instead of discussing interest rates and caps, talk to your clients about how death benefit riders on indexed annuities can create a legacy for their loved ones. Contact your Ash Brokerage annuity RVP or internal wholesaler for help starting the conversation.
Sounds like a line from Forrest Gump, doesn’t it? That may be the case, but the phrase also serves as an apt description for one of the major benefits of fixed annuities: simplicity. I’ve never a client complain because their portfolio or financial plan was “not complex enough.” Have you?
Couple simplicity with tax deferral, liquidity, low to no fees, and guaranteed rates, principal and income, and you have a very desirable product for your conservative clients and those looking to build a solid foundation under a more aggressive portfolio.
Oh, and how about two more benefits that may be the most important of all, especially in today’s economic environment? Correction protection and increasing future income.
A market correction is imminent – perhaps not this month or this year, but potentially next year or shortly after. Existing or soon-to-be-realized market gains are increasingly in jeopardy if they’re not locked in soon. A fixed indexed annuity can protect those gains and give your clients the chance to participate in near term gains, yet to be, before the correction.
Concerning income: If generating income now is important, will is be any less so in the future? No, it will be more critical in the future. Increasing income riders on fixed indexed annuities can guarantee future income increases for minimal cost compared to other alternatives.
The Bottom Line: Simplicity has value and is only one of the many benefits that fixed annuities provide. With a market correction on the horizon, staying in place and not going backwards is progress.
In a traditional investment, the goal is to buy low and sell high. However, most investors end up buying high and selling low. With the stock market at an all-time high, you should have a conversation with your clients about a fixed indexed annuity.
When talking about a fixed indexed annuity, please remember:
The Bottom Line: Ash Brokerage has a diverse lineup of fixed indexed annuities for clients looking for ways to get better yields without risk to principal. Let us help you provide solutions tailored to meet your clients’ needs.
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