It’s January 2012. Many of us are now sitting in our offices, trying to figure out how to have a good year.
If you haven’t tried them in the past, make 2012 the year you become acquainted with variable annuities (VAs). As most of you know, there have been many changes in the annuity world during the past year. Many major U.S. life insurance companies exited the annuity marketplace due to the increasing cost to these companies and much lower interest rates than in the past. My guess is we are going to see increased volatility in the market over the next couple of years. If this is indeed the case, many consumers will be looking for a way to have a guaranteed income no matter how the market performs.
People inherently know they need to be in the market in order to outpace inflation. They know leaving money in the bank will only allow them to go broke safely. If your client can be in the market and have the potential for a guaranteed growth rate, a guaranteed death benefit and a guaranteed income for the rest of his or her life, a variable annuity may make a lot of sense as you continue to build a financial plan.
As an advisor, you should be going through your book of business and looking for people who might benefit from these three potential guarantees no other financial product provides. Existing clients and prospects alike may be interested in adding variable annuities to their portfolios, so be sure to keep in contact with clients as 2012 progresses.
In your conversation with your clients, be sure to include a discussion about the following items:
- VAs are suitable for long-term investing and are subject to market volatility and risk.
- Discuss that VAs have fees and expenses associated with the contract and underlying investment options.
- Fully explain the features, limitations and restrictions of the riders and guarantees attached to the VA contract. It is important not to over-emphasize the riders and guarantees, but discuss them in the context of the VA contract.
- Discuss that there are additional fees and expenses associated with the guarantees and riders.
- Be sure to cover the parameters for withdrawals in general and the tax penalties for early withdrawals.
- Explain that any guarantees are based on the claims-paying ability of the issuing insurance company.
The one thing for certain is insurance companies will continue to change the guarantees associated with variable annuities because of low interest rates. Plus, the cost to maintain these variable annuities is becoming prohibitively expensive to the life insurance company. You as an agent need to do your homework by meeting with as many large carriers as you can, and really understanding the guarantees they are willing to provide to the public. Once you have assessed their offered guarantees and have made sure they are right for your client, next meet with the client to explain how these assurances could benefit them.
I can assure you the more emphasis you place on variable annuities within a balanced portfolio, the better start you will have to 2012. I wish all of the best of luck moving forward and hope you have a prosperous year.
Variable annuities are offered by prospectus only. The prospectus contains information about the product’s features, risks, charges and expenses, and the investment objectives, risks and policies of the underlying portfolios, as well as other information about the underlying funding choices. Read the prospectus and consider this information carefully before you invest. Product availability and features may vary be state. All product guarantees are based on the financial strength and claims paying ability of the issuing insurance company.