Category: Sales · 5 min read
8 Annuity Myths and their Antidotes
on March 5, 2019
on March 5, 2019
As financial professionals, we all know the strong benefits that annuities can offer clients: lifetime guaranteed income, and comfort that they’ll have enough money to retire. But outside industry professionals, it's common to find misconceptions about annuities, such as the guarantees can’t be trusted and that lifetime income can be created other ways.
Here are some additional myths about annuities and tips to overcome them, so you can help your clients make the right decision for their retirement.
Myth #1: Annuities are Very Expensive and Have High Fees
Some of your clients may not even be considering an annuity because they assume that it’s too expensive or it has too many fees associated with it. Help them reconsider.
Annuities are competitively priced, and this is the only product with a guaranteed income. Fixed annuities typically don’t have any direct fees associated with them (unless your clients want to add some additional features, like optional riders or an enhanced death benefit).
To combat this, make sure you know the ins and outs of the various kinds of annuities, and present a few options to your clients that are worth considering. Talk your clients through each one, explain any fees up front, and let them know that it is a reasonable option for their retirement planning. That way, they can see how varied annuities can be, and how you can help them find the one that fits their goals.
Myth #2: Annuities are Only for People That are Ready to Retire
We both know this isn’t true, but your clients may not. If you have clients that plan to retire in five, 10, or even 15 years, tell them this: annuities can protect their retirement funds from market volatility and inflation, while providing opportunities for growth. As your clients start to rebalance their portfolios to include more secure and less risky strategies, let them know that annuities can provide a stable storage for their retirement savings.
Myth #3: Annuities are too Complicated
You don’t know what you don’t know. And many people don’t know about annuities, so they view them as mysterious and complicated. What they need is someone to explain to them how annuities work and how they can help them after they retire.
Here are some helpful resources for informing your clients about annuities. One resource you can use is this informational brochure from the National Association of Insurance Commissioners (NAIC) that explains all about fixed annuities.1 You can also take advantage of our Retirement Analyzer Pro tool, which provides easy-to-understand summaries to help your clients see their current retirement status and the steps needed to meet their retirement goals. This puts annuities into practice, and shows how they can help your clients in retirement.
What they need is someone to explain to them how annuities work and how they can help them after they retire.
Myth #4: Annuities are all the Same
Without the right information, many clients can view all annuities as the same. To help them, break down the differences between variable annuities, fixed annuities, fixed index annuities, and immediate annuities to give them the full picture. Put it in simple language, free of any industry jargon, to help them understand. Basically, you want your clients to know they have options when it comes to choosing an annuity, and the right choice for them depends on their specific wants and preferences.
Myth #5: The Insurance Company Keeps any Remaining Money When a Client Dies
Another reason that people may not choose an annuity is because they don’t know what happens to money in an annuity if they die. Even though an insurance company holding on to the remaining money only happens in a “life only” immediate annuity, your clients may think that it applies to other annuities, too. Make it known to your clients that in almost every annuity, the remaining money would go to their beneficiaries to dispel any concerns and make it clear what happens to their money if they pass away.
Myth #6: Lifetime Income can be Created Other Ways
Don’t let this myth go unbusted. Sure, Social Security and pensions may provide some income, but will they provide enough? Annuities may play an important role in your clients’ retirement plans. Your clients may be unaware of how to generate guaranteed lifetime income, so educate them about the unique roles of the big three: annuities, Social Security, and pensions. After you’ve done that, work with them to make sure they have a plan for their guaranteed lifetime income sources.
Your clients may be unaware of how to generate guaranteed lifetime income, so educate them about the unique roles of the big three: annuities, Social Security, and pensions.
Myth #7: Everyone Should own an Annuity
Sometimes the client you’re dealing with may want an annuity, but it may not be the best move financially or strategically (or it simply may not be possible). In these instances, you need to act in your clients’ best interest and guide them in another direction. Instead, provide other alternatives that can also help prepare them for retirement and have the lifestyle they want.
Myth #8: The Guarantees in an Annuity Can’t be Trusted
Be upfront with your clients about how annuities are insured. Let them know that, unlike bank savings accounts and certificates of deposits, annuities are not insured by The Federal Deposit Insurance Corporation (FDIC). However, many insurance companies will also have “reinsurance”, which provides another safety net for them if anything happens. If you want, you can also evaluate a company’s financial strength by asking your state insurance department. Whenever possible, offer annuities from companies that you trust and believe will follow through or still be financially sound when your clients are ready to retire, and get your clients on board with it, too.
With these myths in mind, talk to your clients about the truth of annuities, so you can alleviate any concerns or problems they may have. Many people are misinformed about how annuities work, so shed some light on the inner-workings of annuities to help them make informed decisions on their retirement strategy.
1. NAIC. “NAIC Buyer’s Guide for Fixed Deferred Annuities.” 2013. Web. https://www.naic.org/documents/prod_serv_consumer_anb_le_2013.pdf
For Financial Professional use only, not for use with the general public. #19-0096-022620
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