Agents Responding to Consumers Seeking Multi-Year Guarantees Should Provide Different Options

If you said multi-year guaranteed annuity three times fast to your clients, they could get easily confused. For the sake of clarity, we will just call them MYGAs, and you will know what we’re talking about. After all, you’re in the biz, too. An MYGA is a financial investment that agents sell to clients who wish to see their annuity pay off at a minimum level over multiple years. These clients could be counting on the yearly payouts from their annuity, for example, for a portion of their retirement income. If that’s the case, it’s very important that clients understand how the payouts work. They can weigh the advantages of multi-year payouts with other types of annuities that yield more interest but pay less often. The higher the risk that consumers are willing to assume, the greater the potential growth of their investments.

Give Consumers Different Options

For consumers seeking annuities, many options could fit their financial goals. Some consumers seek the comfort of a fixed rate annuity, which works kind of like a certificate of deposit. While a fixed rate annuity is issued by an insurance company instead of a financial institution, the interest that it produces could be higher than typical CDs. Some clients want a high-risk annuity, but they should be aware that there will be good years and bad years to weather with this kind of investment. They should be most concerned with accessing annuity fund illustrations that accurately predict their average payout per year and what they could lose during bad years. They should give lesser attention to what payouts look like in very good years because that scenario will be less likely.

Breaking It Down

Sellers of annuities like yourself have an ethical responsibility to inform consumers and to answer the questions of those who are by their very nature the most cautious. Don’t ask them to digest a lot of glossy materials from an insurance company and sign paperwork to purchase a porduct until they know what they are buying. Consumers need a clear understanding of the fees that an insurer that you represent could charge them each year, perhaps as a percentage of their principal invested. Encourage them to compare fees with minimum payouts. If a variable annuity, for example, pays out less than the fees that a client is charged for that same year, she could actually lose money.

Stocks Vs. Bonds

Explain to your clients that typical annuities will include investments in a variety of stocks and bonds. While stocks can be more volatile, bonds can be more predictable, especially to the extent that government entities and other bond issuers afford to service their debts.

Caution Consumers About Seeking Guaranteed Income Riders

Some clients want additional guarantees built into their annuities, such as the guaranteed income rider. They pay more for a specific amount to be issued to them in the form of a benefit each year. They may not realize that taking out more than the minimum specified in their income benefit schedule essentially eliminates the guarantee provided by the rider. They should examine the fees that their annuity issuer will charge to put a rider in place. It could be something like 4 percent, on a variable annuity.

There Are Many Options

Clients should start out investing their money a little bit at a time. They can choose multi-year payouts from insurance companies with lower risk annuity products. With this kind of structured investment available, those who need predictability will get exactly what they seek. As the agent selling an annuity product, you’ll get to earn your commission or fee knowing that you’ve matched them with the right product.

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