Which Policy & Carrier is right for you?
So your client has decided to buy an annuity. What kind of policy is right for your client? When you are shopping for annuities you will find that there are a lot of policies to choose from, consider the following when making a decision. (In the next section, we will discuss in more detail the different choices of policies you have and the benefits of each.)
Is an annuity right for your client?
In order to answer this question you need to sit down with your client and analyze their short-term and long-term financial goals. An annuity is generally a retirement funding tool. Dollars set aside in annuities should not be utilized until after age 59 1/2. If your clients utilize their annuity funds prior to age 59 1/2 they will more than likely be subject to an IRS penalty of 10%. Therefore, you need to be sure they have sufficient assets set aside for short-term goals, so that they may take full advantage of the power of tax-deferral.
What type of annuity is right for your client?
In order to answer this question properly you need to ask your client the following question. What do you want your annuity to do for you? If your clients are looking to invest money over a period of time to use at retirement, they would want to use either a Flexible Premium Deferred Annuity (FPDA) or Single Premium Deferred Annuities (SPDA). If your clients want to have access to their interest on a regular basis, or as much as 10% of their account on an annual basis, they will want to purchase a FPDA or SPDA with the appropriate withdrawal feature. If they are looking for a guaranteed income over your lifetime or a specified period of time, they will want to purchase a Single Premium Immediate Annuity.
The most important aspect of deciding which annuity is right for your client, is to do your homework. Read about the different features of the annuities you are considering and choose the product that best fits their goals and temperament.
Important things you/your client should know!
Not only should you be researching and picking a policy that best fits your clients needs, you should look at the insurance carrier issuing the policy. There are four major areas to look at when choosing a carrier.
- Have your client read the product brochure and disclosure statement before signing their name.
- You should be able to give your client 5 valid reasons why this particular product is appropriate for them.
- Be sure your client understands the withdrawal privileges.
- Be sure your client understands the contract surrender charges.
- Be sure your client understands what the interest rates on the annuity are, what are the interest rates based on and how is the interest credited.
- Be sure to show your client and have them sign an illustration/prospectus/disclosure of what you are recommending.
- For your own protection fill out and have your client sign an NAIC Suitability disclosure even if you are not in a “suitability” state.
- Financial strength of the carrier:
It is wise to check out the financial strength and claims paying abilities from several rating agencies. Below is a list of the five main rating agencies with telephone numbers and links to their websites.
A.M. Best 908-439-2200
Standard & Poor’s 212-438-2000
Fitch 212-553-0377
Moody’s 212-438-2000
Weiss 561-627-3300
If you follow these tips your clients will know they are working with a competent annuity agent!