Are you selling annuities because they pay big commissions to the selling broker or producer?
That’s true in some cases, depending on the annuity.
But the reality is, very few insurance products are ever really bought.
Most consumers don’t have the sophistication, expertise, or patience to learn about personal finance strategies on their own without an advisor guiding them through the process.
And sadly, while you read this, more people are playing video games than reading about how an annuity can provide lifetime income on a tax-favorable basis.
Why Aren’t You Selling Annuities?
The good news is that most life insurance producers are selling annuities, right?
Wrong.
Even though all you need is a life license and continuing education to sell annuities (and a securities license to sell variable annuities), many producers shy away from doing so because they appear complicated and they’re simply a foreign concept.
Here's a little refresher to put the simplicity of annuities into perspective.
Annuities 101
Annuities are income-oriented insurance products issued by insurance carriers.
There are two basic categories of annuities: deferred and immediate.
- With a deferred annuity, money is paid to the insurance carrier and accumulates until the person who receives the money, called the annuitant, is ready to begin taking withdrawals, in many cases during retirement. In other words, the income is deferred until some later date.
- With an immediate annuity, the annuitant begins to receive payments soon after they make their initial deposit to the insurance carrier.
Within the above two categories, there are two types of annuities.
Fixed Annuities
This is a contract between a life insurance company and a customer (the annuitant). The contract obligates the company to make a series of fixed “annuity” payments to the annuitant for the duration of the contract.
Fixed annuities frequently provide a steady, guaranteed income for life or some other chosen duration.
Variable Annuities
A variable annuity is a tax-deferred retirement contract that allows the annuitant to choose from a selection of mutual fund investments and pays a level of income that is determined by the underlying performance of the investments. The income stream is not typically guaranteed.
There are a myriad of different types of annuities – far too exhaustive for the sake of this blog.
But whatever the annuity, they will fall into the above categories for the purpose of definition.
Sounds simple enough, right?
Like any financial vehicle, annuities have both positive and negative attributes, but for the right person, it's the benefits that stand out.
Selling An Annuity to Benefit Your Client
For the right person, there are three main benefits of an annuity.
1. The Power of Tax Deferral and “Triple” Compounding
Annuities pay interest on the principle, interest on the interest earned, and interest on the taxes that would have been paid if it was in an investment that was being taxed annually.
2. It’s the Only Financial Tool That Can Guarantee a Lifetime Income
Annuities can be part of a well-thought-out retirement plan because they offer the flexibility to access cash without tax penalties after age 59 ½.
Actually, annuities might have certain advantages over traditional retirement plans because, in the event of an emergency, an annuity allows access to some of the account value with penalty-free withdrawals.
3. They Provide a Convenient and Safe Way to Transfer Wealth to Heirs.
Annuities avoid probate, which is important because no one wants a court to decide who should receive their financial legacy.
The Bottom Line on Selling Annuities
When you cut through all the noisy articles that say annuities are not a good purchase, you’ll find that they can be very appropriate for some people.
When all is said and done, annuities are simple financial products and easy to sell.
If you spend some time learning about them and find a suitable prospect, you surely can develop a new source of revenue for your life insurance business.
And the next time you get a big honkin’ commission check, you’ll know it’s because you did something special for a client.
Originally published 7/16; Updated 4/21
