Response: The four types of annuities
December 31, 2009 by Stephen P. Poitevint
PDF for Setting It Straight with RJ
ORIGINAL ARTICLE CAN BE FOUND AT: The four types of annuities
Stephen,
I am an independent market research analyst who specializes exclusively in the indexed annuity (IA) and indexed life markets. I have tracked the companies, products, marketing, and sales of these products for over a decade. I used to provide similar services for fixed and variable products, but I believe so strongly in the value proposition of indexed products that I started my own company focusing on IAs exclusively. I do not endorse any company or financial product, and millions look to us for accurate, unbiased information on the insurance market. In fact, we are the firm that regulators look to, and work with, when needing assistance with these products.
I wanted to contact you about your recent article in The Post Searchlight, ” The four types of annuities.” There were several inaccurate statements in the article, which caught my attention. I know that a paper as prestigious as The Post Searchlight wants to ensure that their content is accurate. I further realize that Raymond James would not want you disseminating inaccurate information about the products you sell, so I am reaching out to assist you.
First, there are three questions that must be answered, when looking into what type of annuity is right for you/your clients:
1. What level of market risk am I willing to assume with the annuity?
a. If more concerned about a high minimum guarantee, regardless of the lower level of interest accumulation, consider a fixed annuity.
b. If willing to accept a lower minimum guarantee than a fixed annuity, but looking for potentially greater interest accumulation, consider an indexed annuity.
c. If willing to accept no minimum guarantee, in exchange for the possibility of unlimited interest accumulation, consider a variable annuity.
2. How soon will I be taking income?
a. If within the first year, consider an immediate annuity (offered in fixed, indexed, and variable types).
b. If it is further in the future, consider a deferred annuity (offered in fixed, indexed, and variable types).
3. How many premium payments will I be making?
a. If only a single payment, consider a single premium immediate annuity or a single premium deferred annuity.
b. If making more than one payment, consider a flexible premium deferred annuity.
There are not “four basic types of annuities.” There are immediate and deferred annuities. Immediate and deferred annuities come in fixed, indexed, and variable varieties.
Second, although you are quick to point out that the guarantees on annuities are only as strong as the company backing them, you don’t mention that annuities are also backed by a state guaranty fund. This is an important point to mention in your discussion of claims-paying abilities of the insurer.
Third, all indexed annuities have a guaranteed principal protection feature. This protects the client from losing any of the original principal as a result of market downturns. In addition, some indexed annuities also include a provision that will provide a return of premium (ROP), should the client wish to surrender prior to the expiration of the contract’s surrender charges. It is inaccurate for you to say that “the insurance company guarantees to return your principal after a given time frame [usually five to 10 years).” Actually, indexed annuities return the principal PLUS INTEREST at the end of the contract term. On the average indexed annuity, the contract would receive a return of 118% at the end of the contract, even if the market declined every single year.
Fourth, variable annuities do not offer a guaranteed death benefit, unless the client elects an optional Guaranteed Minimum Death Benefit (GMDB) rider. These riders have costs. By contrast, all indexed annuities pay the full account value to the designated beneficiary at death- at no extra cost.
Fifth, a “life and period certain” income option on an immediate annuity can be any number of years. The payout option you discussed is a “life or 20 year period certain.”
Sixth, immediate annuities can also be indexed.
Seventh, your article seems geared at pushing variable annuities; particularly where you close and discuss risks, charges, expenses, and prospectuses. However, I think it is important for you to note that every client has a different risk tolerance. Just as annuities are not right for everyone, variable annuities are not right for every annuity client. It is more important to identify your client’s risk tolerance today than it was a year ago! Please note the differences.
In closing, I’d like to draw your attention to the fact that NOT ONE INDEXED ANNUITY OWNER HAS LOST A PENNY DUE TO THE MARKET DECLINES. This is a powerful story for the value of indexed annuities! I hope it is a story that you can portray accurately to your clients, and your readers, in the future.
Should you ever need assistance with the FACTS on indexed annuities, please do not hesitate to reach out to us.
Thanks!
Sheryl J. Moore
President and CEO
LifeSpecs.com
AnnuitySpecs.com
Advantage Group Associates, Inc.
(515) 262-2623 office
(515) 313-5799 cell
(515) 266-4689 fax
