When the conventional wisdom of well-established insurance and investment products is challenged, skepticism is merited. Sometimes however, closer examination reveals that a simple yet fundamental change will deliver substantial benefits not just to investors, but also to the agents who serve them. This is the case with the development of a secondary market providing liquidity for annuities.
While there has been much discussion throughout the industry over the last 12 to 18 months regarding how an agent can best enhance their overall practice within this marketplace, innovations continue to create new solutions for agents and their clients. This, in turn, gives agents more possibilities than ever to provide better service to their clients while improving their own bottom line.
Beneficiaries can get a better death benefit payout
"Dear Mrs. Jones: We're sorry to hear of your recent loss. Please accept our sincerest sympathies. Listed below are the options available to you as the named beneficiary: 1) Annuitize the contract receiving the annuitization value for a minimum payout period of five years, which would result in $1,913 per month paid to you over 60 months; or 2) Select the lump sum distribution and receive the cash value of $79,595."
This is an example of what a beneficiary might receive from the carrier on a certain subset of deferred annuities. Many of these individuals are in a situation where they would prefer the lump sum option but don't want to pay the surrender penalties to access that lump sum. It becomes a question of "What's the worse of the two evils?"
But what other options exist? Enter option three: the secondary market. Mrs. Jones inherited this annuity from her mother, and her mother's agent was able to work with Mrs. Jones to create the third and much better suited option. Through the sale of this annuity payment option in the secondary market, the agent was able to raise $92,346 for Mrs. Jones, a full $12,751 more than the cash option available from the insurance company. This was made possible because the purchaser of this annuity offered a present value lump sum based on the five-year payout option rather than the cash surrender option. Imagine what this did for this agent's relationship with Mrs. Jones. Not only is his client's daughter in a much better position to achieve her family's financial goals, he also increased the likelihood that Mrs. Jones will become a long-term client if she wasn't already.
More value for life-contingent payments
In previous discussions throughout the industry, the secondary market's focus has been on guaranteed payment streams. But through innovation in the marketplace, annuity owners can now sell more than just the guaranteed payments from an annuity -- they can also sell the so-called life-only payments, those payments that are outside of the guaranteed period and only last as long the annuitant is alive. Here's an example.
When he was 46, Carl purchased an annuity for stable, secure income to supplement his military pension. He bought an immediate annuity with a so-called life with 10 years' certain term, which means that in exchange for an up-front sum of cash, he would get $1,100 a month guaranteed for 10 years, and after that, the payments would continue as long as he lived.
When Carl went back to work several years later, however, he no longer needed the annuity payments, and there were a lot of things he could do with a lump sum of cash. The insurance carrier, however, would not give him any cash value for his annuity. When Carl explored ways to sell his payments for a lump sum of cash, the problem was that with just 12 guaranteed payments remaining, the most Carl could get for his annuity was $10,000.
But there was better solution. Carl would not only raise $10,000 from the 12 remaining guaranteed payments, but he could also raise another $70,000 in exchange for the lifetime payments, for a total of $80,000. And, as the icing on the cake, Carl only had to sell his payments to age 70 to raise the money he needed, so if he's still alive in 15 years, he'll get his $1,100 monthly payment returned to him at that point for the remainder of his life.
It's important for agents to appreciate the secondary market for exactly what it is: another tool that creates more options for your clients. Whether a transaction in the secondary market is right for an individual depends on their particular situation. But more possibilities in more situations can only be a good thing for the investor and the agent who advises them.
Michael Vaughan is the managing director of J.G. Wentworth's Annuity Purchase Program. Contact Vaughan toll-free at 800-535-0195 x2387, direct at 484-434-2387, or by email at mvaughan@jgwannuities.com.
|
