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The Power Of Selling The Surrender Period

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This feature of fixed annuities is widely misunderstood

One of the great enigmas in today’s insurance industry is the polar-opposite realities and perceptions held by people both in and outside of the industry regarding surrender periods on fixed annuities. For whatever reason, the positive aspects of surrender periods are almost always overshadowed by negative perceptions.

There is no feature so misunderstood as the surrender period of a fixed annuity. Far too many producers have a tendency to gloss over them, or even try to avoid them, rather than taking advantage of the power surrender periods offer as selling features in a presentation.

Prospects tend to see them as a type of prison that separates them from their money, rather than the benefits they grant as safe havens that provide guarantees other investments can’t come close to offering.

Both prospects and producers tend to see surrender periods as a loss of control, when, in fact, they offer the ultimate control when it comes to time and accumulation.

It doesn’t matter if the room is full of captive or independent agents, it’s the rare exception when someone attending one of my courses isn’t aware of and well versed in the “feature/benefit” sales technique. There is a simple reason this technique is so well known and widely used in the insurance industry: it works. So, it comes as no surprise that when it’s time for attendees to demonstrate their skills, they almost all rely on this time-proven and powerful technique.

What does surprise me is that when the topic of surrender periods comes up, features and benefits along with common sense and reality tend to get discarded and more often than not replaced with vagueness, or even worse, avoidance. And, of course, there are always those people who are willing to share what they consider very “clever” ways to sidestep this issue. Fortunately most people attending recognize these as highly unethical and less-than-clever approaches.

When it comes to surrender periods, the best-kept secret is that when used correctly, a surrender period provides us with a powerful feature that offers extremely positive benefits for the client. It is, in fact, one of the few opportunities we in the annuity business have to debunk a negative perception with a positive reality. It is also one that can be backed up with unequivocal mathematical fact.

If you’re looking for a way to separate yourself from the herd, this is it!

To do this successfully, we must first explain to the prospect three fundamentals of fixed annuities: purpose, time, guarantees.

Purpose: Fixed annuities by their nature are a distribution vehicle. Yet, because they have proven over time to be extremely good accumulation vehicles, we tend to forget that they are not designed to last forever. As such, failure to implement a distribution strategy will result in the conversion of a good plan into a tax time bomb. This unfortunately is something too many producers and almost all prospects fail to take into consideration. Thus the surrender period can and should be used as a preset future date at which time the client will have a choice to either begin distribution or reexamine interest rate options and start another accumulation period.

Time: The time component allows us the luxury of establishing specific periods in which we can employ multiple options. The fact that a date can be set allows us to plan different uses for other assets to best take advantage of current and future market conditions.

Guarantees: The guaranteed interest rate feature of a fixed annuity is a huge benefit that allows us without question to identify the minimum value the annuity will have at a future date.

When it comes to financial strategies, any viable plan has to revolve around these three components. A fixed annuity is one of the very few options that can provide us with the ability to guarantee a specific dollar amount over a specific period of time. This is a powerful tool when used alone or in conjunction with other investment vehicles. And it is the surrender period that provides us with this tool.

See the chart for the key points to making the surrender period a positive part of the sales presentation.

The “feature/benefit” sales technique works well for surrender periods in fixed annuities. The feature: selling the positive aspects of surrender periods not only better educates your clients it will also almost assuredly set you apart from your competition. The benefit: larger cases and more referrals.

Jonathan Neal is a senior partner with CCG-Capital Consulting Group, LLC. He can be reached at [email protected].

Key Points

1. Establish a clear purpose for the money.

2. Agree on a specific, realistic period of time the money can be put to work.

3. Make sure the client understands that even though the annuity may pay more than the guaranteed interest rate, it can never pay less than that amount. If the annuity being recommended has a bonus feature, make sure the client understands how that bonus is calculated.

4. Make sure the client understands the tax-deferred features of the accumulation and distribution phases of the annuity.

5. In order to ensure the client is in a position to reap the full benefits of an annuity, make sure a reasonable portion of his/her assets are placed in an easily accessible, liquid vehicle that doesn’t conflict with the annuity.


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