ANNUITY
Five-Point Checklist Ensures Satisfied Annuity Buyers H ere is how to keep the language straight in an annuity sale — and make sure clients know what they’re buying. By Ray Kathawa
E
ven though Americans say their primary financial fear is retiring without enough money, a poll by the National Foundation for Credit Counseling found that nearly 30 percent of households save nothing for retirement. That is unfortunate, because tools are available for people to position themselves well financially before and during retirement. Our job as advisors is to bridge that knowledge gap so clients understand their options, make educated choices and realize their goals. This is especially true with annuities, which aren’t the easiest investments for clients to understand. To help clients make an educated decision, here are five crucial topics to discuss before they sign on the dotted line.
Know the Carrier
When clients buy an annuity, they’re 48
InsuranceNewsNet Magazine » May 2016
really buying the carrier. The product is simply a vessel. So they need to understand the company selling the annuity. Start with financials, because an insurance contract is only as good as the firm behind it. Go through the statements and show why it’s a solid carrier, why it can fulfill its obligations, and why it’s ultimately a sound company to entrust with your money. Understand the carrier’s assets, liabilities and solvency ratio to strengthen the quantitative side of the story. The carrier’s ratings and industry longevity are the qualitative complement to the numbers. So go over the A.M. Best, Standard & Poor’s, Moody’s and Fitch reports, and discuss the firm’s history. Impressive ratings and demonstrated financial stability validate your proposed solution and provide invaluable third-party credibility that helps reinforce the decision to buy an annuity from a particular carrier. Make sure clients understand the role the National Organization of Life & Health Insurance Guaranty Associations (NOLHGA) plays in protecting policyholders. It’s an additional piece of
assurance for clients to know there’s an organization protecting them against carrier insolvency.
Understand Liquidity Provisions
One of the main reasons clients purchase annuities is to harness the guaranteed income streams they can create, but clients need to understand that their money is not in a lockbox that can never be opened. In my experience, the biggest objection to buying an annuity is the lack of liquidity. That’s why clients must know the liquidity provisions before they agree to buy an annuity. At minimum, a list of discussion topics should include: » What amount they can get out of the annuity without a penalty. » When they can access that amount without a penalty. » Fees or penalties for excess withdrawals beyond the penalty-free amount.