Why Your Clients Don’t Have to Tie Up Money Any Longer
April 5, 2010 by Chris Conklin
4 ways to address the ‘surrender charge’ objection in an annuity sale
When clients see the attractive features of annuities — such as the annual reset no-loss guarantees of fixed indexed annuities, the appealing interest rates of fixed annuities, or the guaranteed income features of variable annuities — they may say to themselves, “It seems too good to be true. What’s the catch?”
Some see surrender charges as the catch, and object. “That’s a deal-breaker,” they say. “I don’t like having my money tied up.”
How can you effectively address this objection? Here are four ideas.
#1 Check priorities
Your clients often have money stored in various financial products through various providers, and when considering where to put their retirement money, they’ll usually look at a number of different criteria: They want their money to be safe, they want the potential to earn a high interest rate, and they want to be able to move their money whenever they want. In short, their three objectives are safety, earnings potential, and liquidity.
One question you can ask clients early in the sales process — long before you present a product — is, “In what order do these three goals matter to you?”
Anyone who lists liquidity first should not buy an annuity, but very few people will put liquidity first. Most will name “making sure my money is safe” as their No. 1 priority. The typical order is safety first, earnings potential second, and liquidity third.
For the annuity specialist, this order is wonderful, because annuities offer excellent guarantees of safety, plus the potential to earn a better interest rate than other safe alternatives. So, when clients object later on to the surrender charge, you can remind them that liquidity is third on their list of priorities.
There really isn’t any other product that offers a similar safety and earnings potential to annuities — which means that wherever your clients have their money today, they are compromising on either safety or earnings potential in favor of liquidity.
What sense does it make to compromise your first or second priority to achieve your third priority?
#2 Learn from the bank
Customers need only look as far as their bank accounts to see that it’s impossible to obtain safety, earnings potential, and liquidity in one product.
Let’s say you have a checking account, which gives you excellent safety and liquidity. If you tell a bank employee that you want more earnings, they will offer you a certificate of deposit, which limits your liquidity. In fact, the longer you agree to limit your liquidity, the higher the interest rate your bank can offer you.
An annuity offers your clients safety, earnings potential, and some liquidity — and as they can see from their bank, this is a very attractive combination for one product to offer.
#3 Illustrate the fairness concept
Now that your surrender-charge-phobic client has learned that any product offering safety and earnings potential requires a time commitment, you can then show them how those who break that time commitment and pull their money out early cost money to the company offering the product — and that company needs to recover those costs from somebody.
The company could charge their entire client base by offering lower caps — that is, by taking it out of every customer’s earnings potential. Most of your clients would consider that approach to be unfair and would rather see the company charge only those people who cost the company money by breaking their time commitment.
Guess what? That is exactly what an annuity company does.
If your client doesn’t break their time commitment, they won’t be required to pay the surrender charge, and they won’t lose anything related to the other customers who did break their time commitment.
#4 Leverage the power of choice
It empowers our clients to offer them choices. To that end, you can offer annuities with a range of surrender charge durations. Clients will easily see that accepting a longer surrender charge duration often comes with certain benefits, such as a higher interest rate or a premium bonus. When they see that there are benefits associated with the restricted liquidity, the surrender charge feature is more acceptable.
You can also help them to understand the provisions that allow them to take partial withdrawals — or even full withdrawals under certain hardships — without a surrender penalty. This will help them realize that the annuity is not completely tying up their money.
The bottom line is that clients are not as familiar with annuities as you are. These four strategies can help your clients understand the rationale behind the surrender charge — and often, understanding leads to a favorable purchase decision.
Chris Conklin is a licensed agent and principal and actuary of Insurance Insight Group. He can be reached at 801-290-3320 or firstname.lastname@example.org.