10 Questions Insurance Agents Could Hear at Holiday Parties

When you're asked a question, other people are watching.

You're presenting a very short lecture. It can impress people. This is an opportunity to show your professionalism.

Here are 10 questions I hear the most often.

1. People talk about private pensions. What are they?

It's a catchy expression. It alliterates, like "Peter Piper picked a peck of pickled peppers."

What's the real question? It sounds like something good, but I don't know what it is. Tell me.

Bad answer: It's something for people who worry their company will fire them before they are vested in the company's retirement plan.

Better answer: This is an easy-to-understand expression describing what an annuity does. You put money in. This is the accumulation phase. When you retire, they flip a switch, and you get a specific annual payment for the rest of your life. It does what a traditional pension does, but you own it.

2. Can you tell me what an annuity is in 25 words or less?

There's an old expression, "I asked for the time. Don't tell me how to build a watch.

What's the real question? I want to know the basics, but I'm not in the mood to get into the details.

Bad answer: Do you have attention deficit disorder? This will take as long as it takes.

Better answer: It's a product guaranteed by insurance companies. You put in a sum of money. It pays an income for life.

3. Why is the big Powerball and Mega Millions number called an annuity? I always see that in the fine print.

What's the real question? Why is the cash payout amount different?

Bad answer: They post the bigger number to get people excited. About 90% take cash instead.

Better answer: You have heard stories of people who squander their winnings. It's been said 70% do. The annuity payout gives you a lot more, but it is paid out in smaller segments, so it lasts longer.

4. Are annuities a new product? Have they been around long? There are so many new products today.

What's the real question? I have heard of them, but I can't remember the first time. Was it recent?

Bad answer: They have been around forever. Like that jacket you're wearing.

Better answer: They actually date back to the Roman Empire. They gained popularity in the 1600s. In 1812, the Pennsylvania Company for Insurance started selling them here.

5. Why would a person buy an annuity instead of a CD or a bond? If you retain ownership of your money with a bond, this sounds like common sense.

What's the real question? If I buy an annuity, I lose control of my money. Why would anyone do that?

Bad answer: You would be surprised how dumb people can be, or how susceptible they are to the persuasive powers of an insurance agent.

Better answer: You might want to provide for your spouse after you die. You want them to get a payment like a paycheck.

You worry someone unscrupulous would cheat them out of their money.

You want them to get more money in income than they would in bank interest.

You know the payments are only partially taxable because they are a blend of principal and interest.

6. Does the income stop when the person collecting money dies? That is what I have always heard. It bothers me.

What's the real question? What happens to my spouse if I buy an annuity, start collecting income and get hit by a bus the next day?

Bad answer: Just don't tell the insurance company. Keep collecting and signing the checks after they are dead.

Better answer: When you order a new car from the dealership, you can customize it. Annuities work the same way. There are options for a guaranteed minimum number of payments. You can list someone else to keep collecting the income after you die.

7. How do annuities figure into your estate taxes when you die? Now that I am accumulating more and more money, I am starting to get concerned about estate taxes.

What's the real question? Is this a magic investment that skips inheritance taxes?

Bad answer: What do you care? You can't take it with you?

Better answer: There are a lot of factors. This is not suitable for a casual party discussion. The simple answer is that taxation is based on what you do with it. If there is an accumulated cash value and it is withdrawn, that gets taxed. If the beneficiary continues to take payments, those payments are taxed when they arrive. You need to ask a tax professional.

8. Is it true that you can give money to charity and collect an income? This sounds too good to be true.

What's the real question? Can I have my cake and eat it too?

Bad answer: Sure. You sign the papers, and they hire a hit man to bump you off.

Better answer: Yes. This is called a charitable gift annuity. You give a gift to the charity. There are some tax breaks. The annuity pays you an annual income until you die. Then the charity owns what is left.

9. I hear on TV annuities are bad. What do you think? If I hear it on TV, it must be true.

What's the real question? I hear educated, respected people making negative comments. I'm concerned. What do you think?

Bad answer: Don't listen to those idiots. Trust me.

Better answer: First, tell me what you've heard. Everything in life has good and bad points.

Annuities are a good fit for some, like people who need a dependable, guaranteed income.

There are bad points, like surrender charges.

Those are needed so the insurance company can make long-term investments to provide the guaranteed income.

No one should put all their money in one investment.

It's smart to spread your money around and own a bit of each.

10. Who backs up an annuity?

What's the real question? I always hear the word guarantee, but who stands behind that promise?

Bad answer: What does it matter? Don't worry about it.

Better answer: The insurance company writing the policy guarantees the annuity.

Insurance companies are rated for stability just like corporate bond issuers are rated.

You know the financial strength of the company when you buy the annuity. The insurance industry is heavily regulated. Every state has an insurance commission looking over companies' shoulder.

State guaranty associations may provide a backup. (But ask your compliance advisors before talking about them.)

Many insurance companies have been around for 100-plus years.

Bryce Sanders, president of Perceptive Business Solutions Inc., has provided training for the financial services industry on high-net-worth client acquisition since 2001. He is the author of the book “Captivating the Wealthy Investor.”