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July 10, 2012 at 12:35 PM
If you asked me four years ago what the average cap was on an indexed annuity’s annual point-to-point crediting method, my response would have been, “a decent 6.86 percent.” Today, my response is, “a lousy 3.13 percent.”
How are you, the independent insurance agent, supposed to sell that? What does that pitch even sound like? “Valued client: If I told you about a retirement savings product that could guarantee you would never lose a penny as a result of market fluctuation, but that you could earn as much as 3.13 percent if the S&P 500 rose that much or higher, would you be interested?”
Seriously? Most savers remember being able to walk down to their local bank and grab a certificate of deposit, crediting a double-digit rate, just a decade ago. How can you sell a product with a rate no higher than 3.5percent?
Lately, I have been hearing that you no longer have to. Why sell the indexed annuity with the cap of just over 3 percent, when you could sell an indexed life insurance policy with a cap of 12 percent? You heard me righta cap that averages 12 percent.
With historically low interest rates plaguing indexed annuities, some people have started marketing indexed universal life (IUL) as a replacement for indexed annuities. There are IUL products with caps as high as 17 percent today, so it shouldn’t be surprising. Even the loftiest caps on today’s indexed annuities are barely half that rate. That makes the IUL a much easier sale than the indexed annuity, when the sale is based on potential for gains.
But there is a small problem:
