Most Americans Baffled by Annuities

To combat misinformation, find creative ways to teach prospects about the key features and benefits of annuities.

By LIMRA and SRI

As more and more Americans flock to products with guarantees in today’s unsettling business environment, it is interesting to note the huge number of people who find annuities baffling.

According to a Secure Retirement Institute ® (SRI) study, only one in four consumers can correctly answer at least seven out of 10 annuity-related questions. In addition, more than 40% answered “not sure” to each of the 10 questions.

“Our study revealed annuity owners go to the head of the class when it comes to understanding how annuities work,” said Matt Drinkwater, corporate vice president at SRI. “Almost six in 10 annuity owners achieved a high score on the annuity quiz, compared with just 21% of those who don’t own an annuity. We believe that knowledge likely contributes to annuity owners’ positive views of annuities. Twice as many annuity owners view the products positively, compared to non-owners (83% to 41%).”

The research also showed that Americans are confused about how to turn workplace savings into lifetime guaranteed income. Based on the quiz, only one in four consumers understood that annuities could be purchased with money saved in workplace retirement plans, such as 401(k) and 403(b) plans.

In general, the study found that consumers who reported having greater financial knowledge in general scored higher on the annuities quiz. Almost half of consumers (49%) claiming to be very knowledgeable about financial products or investments had a high annuity knowledge score, compared with 35% of those who professed to be somewhat knowledgeable. Just 17% of consumers who said they were not very knowledgeable achieved a high annuity knowledge score.

To put this into perspective, fewer than one in 10 Americans consider themselves very knowledgeable about financial products and investments, according to a 2019 SRI study.

HIGHER ANNUITY KNOWLEDGE, MORE POSITIVE PERCEPTIONS

The study also finds that consumers who have a high level of annuity knowledge are more likely to have positive views about annuities than those who scored poorly. Sixty-three percent of consumers who answered at least seven of the 10 questions correctly had a positive view of annuities, compared with just 27% of those who answered three or fewer questions correctly.

Fewer than 1 in 10 Americans consider themselves very knowledgeable about financial products and investments, according to a 2019 SRI study.

“Greater annuity knowledge also translated into higher interest in converting assets into guaranteed lifetime annuities,” Drinkwater noted. “Nearly four in 10 consumers (37%) with high annuity knowledge expressed interest in annuitizing a portion of their retirement assets, compared with only 15% of those with low knowledge levels.”

Educating Consumers

SRI researchers suggest that consumers who have less knowledge about annuities may be more susceptible to negative press coverage of annuities, which could impact their views

To combat misinformation, financial advisors and annuity manufacturers should find creative and engaging ways to teach potential clients about the key features and benefits of annuities, the survey noted. Non-traditional forms of learning, such as online games and tools, can increase awareness and improve knowledge about annuities.

Other steps you can take to increase consumers’ knowledge of annuities include:

• Post facts about annuities or dispel common myths about the product via social media.

• Send out email blasts each week to share longer articles on annuities and their advantages. You can also provide case studies of how annuities are helping some of your current clients secure a sound financial future.

For more information, visit LIMRA at www.limra.com/sri.