In the past few years, many insurers have been heavily promoting indexed annuities and variable annuities, allowing their fixed annuity portfolio to fall out of competition.
But now, as a result of the Securities and Exchange Commission’s recent adoption of Rule 151A and in light of the increased cost of guarantees on VAs, most insurers have changed their attitude about fixed annuities. They are pursuing the FA market more aggressively.
Some insurers will simply try dusting off old annuity policy forms with a possible tweak or two. Others will develop all new contracts. In view of this, here are some tips from an old annuity pro on ingredients needed for the ideal fixed annuity.
Rate: The most important ingredient in a fixed annuity is the interest rate. If the rate is the highest one available, clients and agents will find it. The only marketing effort required of the insurer is a simple e-mail to producers and/or a posting of the rate on the company website. Then, the world will beat a path to the insurer’s door.
It’s really been interesting to watch so much time, money, energy, and creativity being directed toward developing more “gimmicky” annuities with higher commissions. If the insurers redirected all that expense to increasing the interest rate, they could solve their marketing problems overnight and fire a bunch of home office recruiting/marketing people.
Multi-year guarantee: Many years ago, I used to sell “trust me” contracts, where clients put their money in an annuity for a period of years and then trusted the insurer to be fair with rates during the interim. The world changed and I no longer offer that type of annuity to my clients. Unfortunately, I don’t think you can trust insurers to be fair on renewal rates after the first contract year, unless the renewal rates are contractually guaranteed.
Now, I only offer multi-year guaranteed rate contracts, where the initial rate matches the length of the penalty period. These contracts are often called “MYG” or “CD” type annuities.
Keep it simple. Make the contract easy to read and understand.
For example, the company will pay the owner 5% for 5 years. At the end of 5 years, the owner can cash out, transfer to another annuity, or let it ride at whatever the renewal rates are until the owner decides to do something else. In the meantime, if the owner dies, the full accumulated value is available to the beneficiary.