With all the tools out there to aid people with their investing, not much is known about annuities and how to use them adequately. Effective annuity advisors know their product and how to sell them, but it would benefit these advisors to learn how to teach their clients about the pros and cons of annuities. Clients that are educated about products feel more secure with their advisors and are easier to work with. Empowered clients can also become repeat clients so keeping customers informed is a key to selling annuities. The following are facts about annuities that your clients should know:
- First off, a client needs to know that an annuity is an agreement or contract between an individual and an insurance company in which the insurance company agrees to take the individual’s money and promises to provide an income for a set time, provide asset growth, provide long-term care benefits and a death benefit.
- There are two types of annuities: fixed annuities and variable annuities
- When it comes to fixed annuities, there are several types that can be utilized: immediate, deferred, multi-year guarantee annuities (MYGAS) and indexed annuities. While the types may vary, fixed annuities have a fixed principal and are guaranteed by the holder of the annuity.
- Immediate annuities start paying an income almost immediately, typically in less than one year
- Deferred annuities have a later income dispersion and can be deferred from one to fifty years
- MYGAS works by paying a fixed interest rate yearly for a specific number of years
- Indexed annuities gain value based on how certain stocks are performing like the S&P or Dow Jones.
- Variable annuities are seen primarily as investments with the principal value variable and based on performance of accounts chosen by the client.
- While variable annuities might earn more, they are more volatile, making fixed annuities a more conservative choice for long term money growth.
The important thing to remember is annuities aren’t the right choice for every client. Making sure a client is educated on how annuities work will help advisors guide customers toward appropriate products and avoid future problems.