Provide Peace of Mind in the New Year With These 10 Fixed Annuity Benefits

January 31, 2017

By Rich Lane, 2nd VP of Sales and Marketing, Individual Annuities. This article originally appeared in the December/January 2016 issue of NAFA Annuity Outlook magazine. You can subscribe here.

2016 has been quite a year. With regulations from the Department of Labor potentially changing the way you do business and interest rates staying low, there's a lot to consider before embarking on a new year of sales.

Your clients may also be looking back on the year in anticipation of retooling their financial portfolio. Many are rethinking their investments, given that they have faced, at times, a volatile market. In addition, your clients who are nearing retirement may be considering how to invest their assets to help sustain them for years to come.

To provide you and your clients with peace of mind during a time of uncertainty, fixed annuities may be one option to pursue in the new year. Fixed annuities help protect assets and guarantee a minimum rate of return, all while allowing for flexible payout options. Depending on a client's need for income, two annuity options are available: an immediate annuity, which can provide a payment stream immediately upon purchase; or a deferred annuity, which can be turned from an accumulation product to an income stream at a time of their choosing.

It's no surprise, then, that the popularity of fixed annuities has been growing over the past few years. According to data from the LIMRA Secure Retirement Institute, the first six months of 2016 saw $16.2 billion in fixed indexed annuity sales, a 30 percent increase from the same period in 2015.1 Traditional fixed annuity sales in Q2 2016 were 14 percent greater than the same period in 2015.

There are many benefits to fixed annuities that help your clients rethink a long-term financial strategy. Consider how you can play up these key attributes during your next client meeting.

1. Diversification

There is always room for a fixed annuity as part of a diversified investment approach. A fixed annuity can provide a balanced solution to any client's portfolio by offering multiple guarantees, liquidity, flexibility, accumulation, tax deferral and diversification.

2. Guarantees

Fixed annuities can provide guarantees on the principal investment and interest rates, which can help your clients feel secure. In addition, some fixed annuities can provide a guaranteed return of premium ‰ЫУ even during the surrender charge period.

3. Accumulation

What clients don't realize about a fixed annuity purchase is the amount of accumulation potential that is available to them. A fixed annuity's compounded growth and tax-deferral status can grow savings faster than one may think. A year of tax-deferred growth can have a great effect on a fixed annuity's accumulation potential.

4. Control

Another appealing aspect of fixed annuities is the ability for clients to choose a predictable income stream. Income options from a fixed annuity are numerous and can be tailored to a client's specific financial goals, such as to fund retirement. A lifetime income option provides a client with the control of selecting payments that are guaranteed to continue for the duration of their life.

5. Tax Deferral

The tax benefits of fixed annuities play heavily in the minds of many clients. Because earnings will not be taxed until withdrawals are made or regular distributions start, clients benefit from triple compounding: earning interest on principal, interest on interest, and interest on tax savings.

6. Wealth Transfer

Many people want to ensure their wealth is secure after they pass away. A fixed annuity is a great avenue for providing security to loved ones in the event of a death. A client might not be aware that death benefits payable to their heirs, especially large sums, could actually be a burden. The taxes associated with the proceeds could place beneficiaries in a different tax bracket and/or eat up a significant portion of an inheritance. Fixed annuity payments can help spread out that impact. An annuity can also help an estate avoid probate, allowing beneficiaries to receive annuity proceeds without delays and probate expenses.

7. Liquidity

When there are market uncertainties, consumers have a higher interest in liquidity. A client may hesitate to make a long-term financial commitment without flexibility and access to their funds, including creating an income stream should they need it. A client interested in using a fixed annuity as a tool to secure income for retirement can convert a deferred indexed annuity before or after retirement to create a liquid stream of income.

8. Flexibility

There are many fixed annuity options available, which allow clients to structure payouts according to their financial goals and objectives. Clients often worry that they will outlive their savings, but designations can be set up to help ensure that isn't the case. There are dozens of ways to set up payouts, but here are four of the most common:

  • Joint life. This option provides income for two people, as long as either client is alive. When one client passes away, payments continue to the survivor.
  • Period-certain only. This allows clients to target how long they need an income stream. If they pass away before the end of the certain period, remaining payments continue to the designated beneficiary.
  • Life with a period certain. In this scenario, the annuity sponsor will pay out income for a client's lifetime. If the client were to pass away prior to the end of the certain period elected, the beneficiary receives the remaining payments.
  • Life only. This is the least commonly selected payout. When your client passes away, payments cease ‰ЫУ no matter what. This can be risky, but the upside is this option provides the highest payouts.

9. Peace of Mind

A fixed annuity can be structured to ensure that if anything should happen to a client, the surviving spouse has a source of continued income in place. This type of payout structure can help in case of a catastrophic illness or the need for nursing home care.

10. No Sales Charges

With a fixed annuity, all of your client's premium can earn interest. Nothing will be taken away from your client's principal as long as the contract is continued, and the investment grows tax-deferred.

While serving your clients, remember to protect yourself as well. Work with a reputable annuities carrier that gives you the tools you need to best serve your clients, including customer service, and sales and marketing support. By giving clients reliability and value with fixed annuities, you will stand out as an exceptional insurance broker in a very competitive industry.

1 LIMRA Secure Retirement Institute: Second Quarter 2016 Fixed Indexed Annuity Sales Exceed Quarterly All-Time Record. LIMRA. August 16, 2016.

Sales Director Insights