WHAT IS A TWO TIER ANNUITY?
Fixed annuity sales in 2002 grew by about 60%.
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The
FSD Fixed Annuity Journal And Interest Rate Review |
|
February 2003 |
|
Annuity Review
(PDF Format)
A variety of sales ideas, product discussions/comparisons and miscellaneous thoughts. WHAT IS A TWO TIER ANNUITY? Over the past few years a resurgence in sales of "two tier" annuities has occurred. I firmly believe this is due to very aggressive marketing efforts certainly not because of the contracts strengths. A two tier annuity, in my personal opinion, is deceptive. I am annoyed at how many two tier products are sold without an understanding that to receive anywhere near the promised rates, the contract must be annuitized. Why force a client to make that decision many years in advance. To change their minds clients must absorb potentially huge interest givebacks. The longer they hold the annuity the bigger the potential loss becomes. Studies have shown that over 95% of all annuity holders do not annuitize. I also find some agents don’t know they sold a two tier product because it wasn’t explained to them. Read the contract. I have been in this business over 30 years. I have seen a number of two tier products sold during that time. I have spoken to clients who are now shocked that their transfer value or surrender value (with no surrender charge applicable) are vastly different from their latest account statement. Their situation gets worse each year since the difference grows larger each year. Before you sell a two tier ask yourself what great benefit does the client receive for locking up his money forever. Call FSD for more details. FSD WILL NOT SELL TWO TIER ANNUITIES! Fixed annuity sales in 2002 grew by about 60% The reasons, I think are very obvious. Firstly, clients have become extremely risk averse. Secondly, as I experience everyday, many people who sold mutual funds or stocks need to make a living and now view fixed annuities as an ally not a foe. Even with interest rates relatively low, clients still benefit greatly from the positive aspects of fixed annuities.
Perhaps the least utilized fixed product offering is the SPIA. In the past, I have published articles about immediate annuities. (Please go to www.fsdfinancial.com to download SPIA myths article.) I have long felt that a lifetime SPIA with a money back guarantee feature is probably the most overlooked product we can offer. It is truly amazing how many people, if they annuitize for life, have enough money to provide an adequate monthly income and still have funds leftover for other investments. The past couple of years has taught many seniors that they should tie down at least some income on a guaranteed basis. There are 3 basic ways that fixed annuities can generate an income. Each has its own benefits. We can usually at least double income for seniors currently using C.D.’s to provide income. Give us a call at FSD and we can prepare an income illustration. Your senior clients need to increase their income without risk - we can help. 3 WAYS TO INCOME Many seniors have seen their investment income drop severely over the past few years due to record low interest rates. That is a big problem. Fixed annuities can provide income in 3 basic methods. 1. Life Annuity - provides guaranteed income for life. Large portion of payment is tax free. 2. Systematic Withdrawal - automatically pays earned interest monthly. 3. Split Annuity - produces a monthly income on one side and builds back to original premium on the other side. Payments 75-90% tax free. Any of these methods may double the monthly income. The split annuity and the systematic method also retain the original investment. Ask your clients if they want to safely double their income. Call FSD and we can illustrate how. |
|
Monthly Journal February 2003 |
Two Sales are Better than One I recently had the opportunity to assist a broker in a $100,000 indexed annuity presentation. In speaking with the clients, I learned that the couple, in their early 60's, had a $1 million IRA. In addition to the indexed annuity sale, the broker was also presenting a $200,000 face 2nd-to-die policy. I asked the clients, who had a lot of other assets, why $200,000? They answered that the premium for a $1 million policy was too much. I went on to ask about the IRA and they told me their intention was to leave it to the kids. I suggested using $200,000 of the IRA to buy a 7-year period certain immediate annuity to fund a 7-pay 2nd-to-die life insurance policy. If they had died with the $200,00 still in their IRA it would only be worth about $50,000 to the children because of income tax and then estate tax. By moving it to an immediate annuity to fund a $1 million life policy we converted $50,000 after tax to $1 million. It is becoming common to use highly taxable IRA money to fund life
insurance policies vis-a-vis immediate annuities. And, by the way, you make
two sales instead of one. |
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