America has a financial and annuity literacy problem.
As reported in survey after survey, Americans score very low when asked about basic financial concepts. Building on the same theme, the annual LIMRA Insurance Barometer Study consistently reports low levels of understanding about the basics of annuity products.
As if these low knowledge levels were not enough, we are seeing conflicting messages in the financial media about annuity products. Should individuals hate annuities as the long running advertising campaign states? Should they love them?
How about a new idea in this ongoing war of words and advertising messages? That idea is simply this: The time is right to educate consumers about annuities so that they understand how these products work — their benefits and restrictions. Today’s annuity products directly address many of the key financial and lifestyle risks our aging population is facing. We need to let the annuity genie out of the bottle.
Once consumers gain this increased understanding, they can better decide if and how this product fits in their financial tool kit. We, as an industry, need to better tell the story that explains the practical benefits of these products. We have not done the job in getting the word out. In my view, we have been reluctant to proactively tell this product’s story.
Let’s understand why the time is right to emphasize annuity literacy in support of one of the industry’s core product offerings.
Getting Past the Noise
A large number of annuity critics exist in the financial media. They express their negativity towards most types of annuity products. They usually counter the proposed purchase of annuity products by offering purely investment based options. They present these alternatives as lower-cost, higher-yielding or being more flexible alternatives to annuity products but without providing the contractual guarantees, minimum returns, guaranteed lifetime income or other benefits that annuity insurance products possess.
The alternative products are also usually positioned as being better in that they have no up-front commission being paid to the selling financial professional but come with lifetime annual fees. In my view, from a purely economic standpoint, consumers will almost always pay more in fees over the life of the investment than up-front commissions paid as part of the annuity sale, as the money put into the annuities will remain invested for the medium to long-term term before being accessed. I believe this mass media negativity is missing this point for the vast majority of consumers.