First of all, we must remember annuities are long-term products designed for retirement income. Your clients can use a portion of their income to purchase a guaranteed stream of income – potentially for life – which is backed by the financial strength and claims-paying ability of the issuing insurance company. With the basics in mind, here are several client benefits to annuities.

Tax deferral

Our products allow the accumulation value to grow while not being subject to tax during the accumulation period. The client is only taxed on the growth when they withdraw the gain from the contract. Of course, for this benefit, tax penalties apply on certain withdrawals prior to age 59½.

Guaranteed income

One of the largest risks in retirement is longevity risk – living so long you run out of money. Some of our products carry an option to convert the accumulation value to a lifetime stream of income, regardless of the remaining account value. This transfer of risk can help ensure your clients won’t run out money. It’s important to remember, however, that these long-term products should not be for the entire portfolio, just a portion.

Guaranteed growth

Because traditional fixed annuities are contractual agreements between a client and an insurance company, many contracts carry a guaranteed minimum interest rate. Many times, these guarantees are higher than prevailing interest rates on taxable instruments. Check your local interest rates against highly rated insurance carriers’ interest rates to make a decision on which contracts might be more attractive for your client. Due to the carrier providing these guarantees, most insurance contracts require the contract to be held a certain number of years. Make sure your client’s objectives meet the holding period in order to not be charged a penalty from the insurance company.

Low fees

As mentioned above, many tax-deferred vehicles require a holding period before the contract is 100 percent free of any withdrawal charges. That holding period allows the insurance carrier to invest 100 percent of the client’s premium with no upfront sales charge. Over time, this initial savings can impact the overall growth of the contract for the client. With newer products that are linked to an external index, clients need to understand the limitations on growth potential each product has as the insurance company is guaranteeing the principal.

Clearly, our financial products have both advantages and disadvantages. Each client scenario might call for different solutions. However, annuities may be a suitable fit for many clients, especially those concerned about running out of money in their lifetime. Don’t rely on what you’ve heard about these products. Instead, give a fair and balanced assessment to whether they can help meet the client’s objectives.

Bottom Line: Don’t allow media bias to affect how and when you might use an annuity with a client. There are solid reasons to look toward an annuity to solve many client situations.