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:

Indexed life should never be used as an alternative to an indexed annuity.

Why? Why would you want your clients to pay insurance charges when they don’t need life insurance? That just screams, “Suitability problems.” By the way, only an annuity offers guaranteed income that your clients cannot outlive; IUL can’t even come close.

I love indexed life more than the next guy…when used as a solution for life insurance needs. It just isn’t appropriate to suggest a life insurance policy to someone in need of a retirement savings accumulation vehicle.

The indexed annuity sale doesn’t have to be complicated. It isn’t the sexiness of lofty caps that attracts consumers to indexed annuities. It’s the guarantees. We just need to go back to the basics; remember that the principal protection feature of indexed annuities is what consumers value most. Besides, indexed annuity caps are not only relatively competitive compared to other “safe money” retirement savings vehicles, but they also have the power of zero.

And when negative 40 percent is in your rearview mirror, zero doesn’t sound half bad.

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