Annuities are a great fit for a wide variety of client situations. Annuities sometimes get a bad rap by high-profile financial pundits on TV and in print, a bad rap they often don't deserve. On the other hand, there are occasions where producers use annuities in situations where another product might be a better fit.
Annuities, however, have unique design characteristics unmatched by other products. An annuity may be a sound solution in many client situations. Producers need to consider carefully the variety of needs that annuities are well suited to address.
Fixed annuities especially offer advantages over other kinds of investments. An annuity is not a go-go, growth mutual fund or a rigid certificate of deposit. It is a different instrument, unique unto itself.
Who should consider an annuity? An annuity is worth consideration by anyone who:
o Wants a higher rate of return than certificates of deposit or other investments can provide. Annuities can be a better choice for overall return than other instruments.
o Responds to guaranteed returns. Regardless of the stock market, the economic cycle, or any other circumstance, fixed annuities provide a floor of guaranteed interest.
o Requires safety of principal. Annuity carriers offer the prospect peace of mind from knowing that even as stock values fall, annuity values hold fast.
o Values tax-deferred accumulation. Other products cannot match the tax deferral that annuities provide.
o Has plans that can profit from death benefits and probate avoidance.
o Has a need for lifetime income. Annuities offer a flexible approach to guaranteed lifetime income that is unavailable from competing products.
Stocks, bonds, real estate, CDs, and mutual funds have their own attributes that an investor should consider. None of them have the unique combination of safety, guarantees, and tax advantages that annuities offer.
The best annuity becomes even better with a knowledgeable, patient adviser helping fit product to the need. The best result is one that is client plan-driven, broad scale in terms of outcomes, and long-range in terms of the time horizon.
Any investment has to fit the client's needs. A solid financial adviser makes a point of understanding what the prospect needs ... and wants. It is easy for a producer to be an order taker, but sometimes not the right thing to do. Because consumers do not always completely understand annuities, and because annuities don't always receive the most favorable press, prospects don't walk in asking for them.
The producer must educate a prospect on how annuities fit in a crowded market. Annuities compare favorably with other financial products. The table on page 80* is a quick-reference look comparing annuities to CDs and mutual funds.
Which prospects can benefit from annuities? There are as many kinds of prospects as there are annuities on the market. Some broad categories include:
o Prospects with shorter time horizons. As customers age, their tolerance for bear markets and corrections lessens and the amount of time available to recoup losses is much shorter. Annuities solve that problem nicely.
o Prospects who want a more diversified portfolio. Prospects who have a portion of their investments in riskier investments might benefit from balancing their portfolios. They would be wise to consider annuities as part of the answer.
o Prospects who are skittish about getting back into the market. The interest guarantees and safety of principal offer peace of mind that most other products cannot provide.
In a crowded market, annuities continue to carve out a unique space that is attractive to many prospects. Producers who include them as part of discussions with every prospect will find a fertile market.
*Please see page 80 of the March 2004 LIFE INSURANCE SELLING
