So far, the first decade of the new millennium has been characterized by sustained low interest rates. Many pre-retiree boomers seek dependable returns on their savings to offset inflation and current income taxes. While index and variable annuities can be valuable to the right prospects, adding deferred fixed annuities to your product portfolio can give your clients another option for meeting those goals.
Typical features of fixed annuity policies include:
o Guaranteed minimum interest rates
o Differing surrender periods
o Current interest rates, depending on the selected surrender period
o Easy renewals for the same or a different guarantee period
o Yearly withdrawals of a certain percentage without a surrender penalty
o Deposit flexibility -- either single premium or monthly -- to meet different financial situations
o No premium loads, expenses, or policy fees
o Income settlement options
Return of principal
If your clients incorporated annuities into their savings portfolio, many would benefit from the diversity, tax advantages, partial liquidity, and reasonable returns in this low-interest environment. For those who have modest discretionary funds to set aside that they cannot afford to lose through high-risk investments, return of principal is just as important as return on principal.
Thus, in your annuity selling proposition, you should point out how the product's features become benefits. Some examples of scripts to use with qualified clients or prospects are:
o "Since you will have no current taxes on the interest earnings, through compounding interest, your ultimate retirement nest egg will grow much larger than it otherwise would."
o "Since the insurance company makes all the investments with this fixed annuity, you can rest assured that for you, there will be no investment management risks, worries, or hassles."
Clients are more apt to buy the most suitable products if you help them vis-ualize how they will benefit from the purchase, particularly if the products can help them achieve financial security.
More money growing more quickly
For many, tax-deferred growth is the most appealing factor of a fixed annuity. Funds that grow on this basis grow much more quickly, and ultimately they grow a larger fund, even after eventual taxes are paid in the future. You may want to use the chart to demonstrate the power of tax deferral. Sample interest rates are illustrated for different tax brackets. The left column represents tax-deferred interest growth. All other columns represent what one would have to earn at the stated tax bracket -- because current income taxes are deducted -- to equal the tax-deferred interest earnings.
Sales applications
There are many sales applications for a deferred fixed annuity:
o IRA rollovers of qualified plan money. The consulting firm of Spectrem Group recently estimated that high-balance IRA rollovers among baby boomers over the next several years will total around $2.7 trillion. Keep in close contact with clients who are liable to retire early so you can help them roll over their vested pension, 401(k), and other plan benefits into an IRA using a fixed annuity.
o Gifting from grandparents for higher-education funds. Set up an annuity for grandchildren through gifting to help them grow a college fund more quickly than they otherwise would.
Parents could be owners or custodians under your state's laws until the child reaches their maturity age.
o Transfer passive, currently taxed assets into one tax-deferred asset. Asset reallocation appeals to many people, particularly seniors living on relatively fixed incomes. With some creativity, you can split a portion of passive (i.e., idle and unused) assets into a single premium immediate annuity (SPIA) for more income now and move the balance into a deferred annuity to grow your client's asset base.
o Income that cannot be outlived. Your most powerful sales point can be simply showing your clients the original nature of an annuity: the accumulation of funds that can be converted into future income.
Industry studies show that most annuity prospects do not know about income settlement options, and when told of them, they tend to find annuities more appealing.
Annuities immediately provide clients with multiple guaranteed income options for one or two people.
With the exception of life insurance, no other financial vehicle can offer this benefit.
Show your clients how a fixed deferred annuity can minimize their investment anxiety, maximize their tax advantages, and increase their prosperity, and annuities could be your means to more prosperity, as well.
Larry L. Cox, CLU is president of Cox Insurance Marketing Solutions. He can be reached at larrycox@metrocast.net.
