Sell VAs only? Plans change, and so should you

What are the possibilities that your clients will use their annuities for purposes other than what you discussed at point-of-sale? This question should be of particular interest to agents who sell their clients only variable annuities (VAs). If I had a dollar for every time a “VA agent” asked, “Why should I sell indexed annuities, when I can sell my clients VAs with living benefit riders?,” I’d be a rich, rich woman.

Indexed annuities (IAs) are “safe money products,” where the purchaser can never lose money due to market fluctuation. Indexed annuities’ potential for gains is limited, but they have rich guarantees: death benefits, cash values, an income that cannot be outlived, and more—all without an annual fee.

Variable annuities are “risk money products,” where the purchaser can lose not only their gains, but also their original investment. On the other hand, the potential for gains is unlimited with VAs. This type of annuity has the potential to lose the death benefit, liquidity features and guaranteed lifetime income should the value of the contract be depleted. In order to have guarantees in a VA, you must pay an annual fee for one or more optional living or death benefit riders. For example, using a rider such as a Guaranteed Lifetime Withdrawal Benefit (GLWB) can hedge against some of the risks associated with a VA, i.e., a GLWB guarantees the purchaser that the lifetime income stream they receive will never drop below a specified level.

My perspective? A VA with a living or death benefit rider is just an attempt at emulating an IA. Yet, it is more dangerous because it can lose value. Yet, there are hundreds of agents that have the mentality, “Why sell the IA, when I can offer my clients all of the market’s upside and protect them from risks at the same time? An IAs’ gains are limited.”