Imagine for a moment you’re a fly on the wall as a prospective client listens to a fixed annuity sales pitch. Here’s what they hear: tax deferred, very low risk, lifetime income, unlimited contributions and a death benefit to top it off. And, not to be lost, clients will never see a negative return in the policy because of market losses; the worst they could get is zero.
Well, when you put it that way…
Once in a while a smart client asks me: “How is it possible for one product to have all these great features” (as they are saying to themselves it’s too good to be true)?
Under of hood of this shiny car are security measures designed to protect annuity investors. This won’t be the sexiest blog I’ve ever written but it may save a sale for you. There are five key security measures in place to protect consumers who purchase fixed annuities:
State guarantee associations. Annuity deposits are given government insurance in the structure of state guarantee associations. Each state has its own insurance section for purposes of policing insurance carriers. If an insurer becomes unable to repay their policies, the state guarantee funds are made available to cover its claims up to $100,000 (the quantity differs by state). Agents should always first check on their state’s regulations for its guarantee association before speaking with a client.
The legal reserve system. Its purpose is to ensure life insurance carriers put away enough reserves to take on all of their prospective claims. Dissimilar to banks, which might only be obligated to have 10% of their assets in reserves, life insurers, depending on their fiscal condition, are mandated to keep as much as 90% of their assets in reserves. Some states have made it as much as 100%.
The ability to “reinsure”. When a life insurer takes on an exceeded amount of risk, such as when they write a high risk life insurance case, they “vend” the risk to a different life insurer. This stops any liability of risk in any one carrier which could put tension on its reserves. Some insurers concentrate in reinsurance and are constantly available to soak up a high risk case. In a number of states, there are criteria that any life insurer is required to act as a reinsurer in order to make sure that there is a market for high risk cases.
Abundance requirements. Another obligation that life insurers must stick to within their state is “surplus”, which is the quantity of assets that go beyond liabilities. Each state has its own obligations and it can apply various percentages related to the fiscal condition of the carrier. Many life insurers set elevated surplus requirements for themselves as a method of exhibiting their fiscal strength.
Examinations done by the state. All life insurance carriers are accountable to an annual audit by their state insurance examiner. All features of the insurer’s fiscal condition are methodically investigated and if there have been any unfavorable alterations from one year to the next, the state may regulate the insurer’s legal reserve and surplus requirements.
Here’s the kicker: these security factors are the main reason no annuity contract owner or beneficiary has lost their premium since they have been sold by life insurance carriers in the United States.
Moral of the story: don’t be afraid to show clients what is under the hood. It may just be what closes the sale. And, always check your state regulations before speaking with clients.
Call 866-547-8780 and talk to Drew Gurley, ext. 102.
Product of the Week: Allianz 222 Annuity (FIA)
Allianz 222 is an exciting product that is a Fixed Indexed Annuity (FIA) with multiple benefits for the client. This is a 10-year product that offers clients growth with no cap and two bonus options. First, all premium contributions for the first three years will be credited a 15% bonus. Second, the protected income value (PIV) will receive an interest bonus equal to 50% of any interest earned from clients’ chosen allocations.
Allianz 222 is a preferred product with Allianz which means agents must meet the criteria to be able to offer these special products. As an Allianz preferred broker we offer the full line of preferred products and can help agents meet the qualification requirements.
- Uncapped growth
- 100% participation
- Spread fee
- Premium and interest bonus
- 15% premium bonus
- 50% interest bonus
- Enhanced death benefits
- Qualified and non-qualified
- LTC income multiplier
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