There are more than 43 million seniors age 65 or older in the United States today, making this community a prime target for annuity sales. However, the matter of how to market ethically to this demographic can be controversial and complex.
First, recognize that some seniors will benefit from buying an annuity and some will not. There can be myriad benefits depending on the age of the annuity purchaser, the type of annuity and the goals of the purchaser. The next factor to consider is the suitability of the annuity for the consumer, based on the potential buyer’s financial portfolio. Finally, to prevent elder abuse, it’s important to take precautions when selling any financial products to this group.
Seniors who are preparing for retirement or are in retirement need to examine their savings, investments and future needs. For some, Social Security and pension plans will not provide an adequate income to cover living expenses. An annuity can supplement income during retirement years, and certain contracts guarantee lifetime payments.
Another reason seniors choose annuities is for the tax advantages. Not only are taxes deferred during the contribution phase, but if the proceeds from some annuities are used to pay for long-term care insurance premiums, it could be tax free.
Further, seniors who are planning to leave money to a spouse or other family members can choose an annuity with a death benefit that provides income to a beneficiary.
Before investing in an annuity, financial experts may recommend that seniors who are still working first max out contributions to employer-match plans like 401(k)s, and create a diverse portfolio to make sure they are getting the most out of their money. It’s also important to make sure there are accessible funds for emergencies, rather than tying up all assets in a long-term vehicle like an annuity.
While annuities have multiple benefits, seniors in retirement need to consider their investment choices wisely. Seniors who are older than 65, for example, should probably not be sold a deferred annuity that won’t provide any income for 10 or more years. In these cases, an immediate annuity, which provides payments within 12 months, is likely a much better choice. Insurance agents seeking to help seniors determine what is in their best interest should make sure they have answers to the following questions before paperwork is signed:
- Is the annuitant providing income for someone else?
- How long does the annuitant want to receive payments?
- When does the annuitant want to begin receiving payments?
- What is the risk tolerance level of the annuitant?
- Will the annuitant benefit from the tax breaks associated with this investment?
- Does the annuitant fully understand surrender charges and all components of the contract?
In addition to assessing the financial state of a potential annuity purchaser who is a senior, there has been concern about assessing the mental state of older clients who may be suffering from dementia and/or Alzheimer’s. While insurance agents are not medical practitioners, there must be an increased awareness that as seniors age, there are varying levels of comprehension. When explaining annuity contracts, care must be taken to fully disclose all details of this complicated financial product.
Advantage Compendium, which provides research and consulting services to financial firms, released a study in 2012 that examined how cognitive impairment, elder abuse laws and senior decision-making affect financial professionals.
The report includes a few tips for dealing with seniors:
- Take your time.
- Be repetitious.
- Take breaks.
- Meet in the morning.
- Avoid background noise.
- Avoid multitasking.
The authors conclude: “There isn’t a one-size-fits-all answer. The two truths are those clients over age 79 need financial products and the services of financial professionals, and that a significant percentage of those over age 79 have dementia. Those that wish to work with this market will need to establish their own guidelines.”