Shop that Single Premium Immediate Annuity
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The
FSD Fixed Annuity Journal And Interest Rate Review |
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December 1997 |
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Annuity Review
(PDF Format) A variety of sales ideas, product discussions/comparisons and miscellaneous thoughts. Shop that Single Premium Immediate Annuity Deferred annuities have many areas to consider when selecting a product. We must discuss rates (bonus and base), guarantee periods, surrender charges, liquidity, death benefit, nursing home waivers and so on. The Single Premium Immediate Annuity, or SPIA, is
different. Basically, we want to know one of just two things: The first question asks us to solve for the income amount, whereas the second gives us the income amount and asks us to solve for the deposit needed to generate that income. Apples to apples comparisons are easy with SPIA's. We look at company ratings and commission rates as the primary variables. By shopping your SPIA quotes with FSD F INANCIAL SERVICES you can get your client a lower price (or higher payout). The differences among carriers can be stunning.The chart below shows the different monthly payouts payable to a 70 year old male depositing $100,000 of nonqualified money. (Quotes assume no state premium tax). The Rise and Fall of Participation Rates OK, so maybe not so much the rise of participation rates. But we have certainly been seeing the fall of equity indexed annuity (EIA) participation rates. So why are they falling? Do the insurance carriers merely want to increase their profit margins? Are they getting greedy in this tremendous EIA market? Believe it or not, the answer is no. The real answer as to why participation rates are coming down is, for the most part, twofold. It has to do with interest rates and the price of S&P call options. As for the former, interest rates are low, lower than they've been in a long time. With lower rates comes a greater percentage of EIA premium dollars that carriers have to allocate towards the purchase of investment grade bonds which cover the principal guarantee. As such, a smaller portion of the premium is left over to purchase the S&P call options. The result: lower participation rates. The price of the options also plays a role in the participation rates. With higher prices, fewer options per premium dollar can be purchased. But what exactly increases option prices? Greater stock market volatility and greater demand for the options increases the prices, and both of these forces are bidding up the prices in today's environment. So are EIA's losing their attractiveness? I think not. Participation rates that were once 80% and now 70% isn't terribly alarming to me. If the S&P 500 increases 20% in a given year, clients would now earn 14% instead of 16%. Are clients going to be upset at earning 14% with no risk to their principal? If the participation rate was even as low as 50%, God bless! They'd still be making 10%! That is a fantastic interest rate on a fully guaranteed product. BYE-BYE BENEFICIAL STANDARD Effective 12/31/97, Beneficial Standard will be absorbed into American Life and Casualty. Both are Conseco companies. We will be sending out new American Life contracting paperwork shortly to Beneficial agents. The 10% Pre-59½ Penalty Tax is really an attractive feature of annuities. The key to success for most millionaires is discipline and systematic investing over a period of years. Savings accounts and mutual funds offer ready access to one's funds, thus inhibiting investors to save successfully. The 10% excise (pre 59½) tax is an attractive feature for this reason. The tax instills discipline and keeps investors on the long-term financial path towards a secure future. Thus, the annuity is an ideal vehicle that equips our clients with the necessary components to disciplined and systematic savings. The 10% tax is an asset of the annuity, so promote it as such! NOTICE: Did you receive a Safekey Indexed Annuity kit BEFORE November 1997? If you did, please discard all application forms immediately and call FSD FINANCIAL SERVICES at (800) 373-9697 for current materials. FSD has just added yet another AAA rated carrier to our annuity portfolio: AIG LIFE Call us for a competitive immediate annuity quote from AIG or any of our other AAA rated carriers.
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