Remember all that hand-wringing about the fiscal cliff? As if it were a new phenomenon for the financial services profession. Hardly!
When it comes to those of us who offer fixed annuities, we were long ago hurled over a cliff. Because of unforgiving low interest rates, we now seem to be traveling a long, slow path in a low, flat valley. And projections for when we might finally see a hill — also known as higher interest rates and rising sales — seem to be in the distant future.
As we continue down this path of low and flat rates, we face choices. We could be like many and give up on fixed annuities. Or we could take a fresh look. We could adopt a new approach to how we think about annuities and focus on how they can bring value to our clients in other ways. Annuities can be — and still are — a viable, useful part of your clients’ overall financial protection picture.
Traditionally, annuities are used as accumulation vehicles. But with interest rates hovering around 1 percent, accumulation is almost non-existent. With rates expected to remain low for several years to come, those who sell fixed annuities might feel like umbrella salesmen in the Sahara.
So why would I take the time to write a piece about annuities? Because I still find value in them for my clients. When selling fixed annuities, I encourage you to look beyond the rate. In doing so, you’ll address another critical need for financial protection that your clients likely haven’t addressed yet.
As the National Clearinghouse for Long-Term Care Insurance tells us, at least 70 percent of people over the age of 65 will require long-term care at some point in their lives. Annuities that provide long-term care benefits (known as combo, hybrid or LTC annuities) can help you address these client needs — if you can focus on annuities and provide value through protection rather than accumulation.
These asset-based long-term care annuities are commonly funded with a single-premium that clients reallocate from existing sources, like other annuities, CDs or low-risk accounts owned by your clients. Thanks to the Pension Protection Act, if specific criteria are met, withdrawals from these annuities can be income tax free for qualifying long-term care expenses.
And here’s the really good news: a large segment of the market is out there looking for long-term care solutions. If clients question what to do about their long-term care funding dilemma, LTC annuities can provide the answer, especially for clients who want guaranteed benefits and like to avoid ongoing premiums.