Annuities can be a tough sell, especially for seniors, because they don’t want their money to be locked up. You mention a 5- or 7-year contract and you can feel the immediate hesitation in the air.
We teamed up with two experts in the senior insurance market to answer your toughest annuity questions.
John Hockaday is the Founder of Sams/Hockaday & Associates and the COO & Principal of New Horizons Insurance Marketing. He has been selling insurance and mentoring agents for over 30 years. He is also the co-author of How to Sell Short-Term Care with Confidence.
Michael Sams is a Sales Associate for Sams/Hockaday & Associates. He trains and mentors new agents and has a book of business that is 1,000+ customers strong.
Q: Is it really worth it to sell a shorter contract annuity? The commission doesn’t last very long, and the longer-term annuities have way better pay-outs.
A: John: It’s no secret that 15-, 17-, and even 20-year terms annuities have crazy high commissions.
But, we don’t write those kinds when we’re working with seniors. If you’re talking to a 75-year-old, and you put them in a 12-year contract, you’re not looking out for them.
However, it’s absolutely worth it sell a 5-year or even a 3- or 1-year if that’s your last resort. Why? Because once that contract is up, you can revisit your client and roll that money into another contract.
When you sell that initial annuity, you can always tell your client that you’re hoping that in 5 years, the interest rates are better, and you can move that money into a better-interest annuity. That means that both you and the client are getting a good deal. Your client is earning interest safely, and you’re earning repeat commissions.
Q: Should you shift your focus to a 1-year annuity if your clients seem wary of a longer term?
A: Michael: As I go through a presentation, I feel as though I establish that the frequency and amount of their withdrawals are all going to fall in line with the 5-year contract. Most of the time I will include the 10% free withdraw even if a client doesn’t forsee the need to withdraw money. Otherwise, I don’t even bring up the 5-year.
If they say they their chunk of money is really an emergency fund or they plan on buying a car soon, I don’t even mention a 5-year. But if they really aren’t touching the money that much, I would recommend it. I stick to my guns and explain my recommendation.
If they back off, I do remind them that based off how much money they usually withdrawal that this is the best fit. If I’m down to my last straw, then I’ll bring up the 1 or 3-year. But I always mention that the interest rates aren’t that great for the 1 or 3 year option.
I don’t write very much of the shorter terms, but that’s how that approach goes for me.
Q: I don’t want to bring up annuities to my client because they seem too confusing. What should I do?
A: John: Anything can be simple or complicated, but when it comes down to it, it really isn’t that complicated. If you sit down and really look at the annuities you should be offering to seniors (MYGAs), you’ll find that they’re really, really simple.
When you bring in all the different flavors of annuities, the conversation can get complex. But the kind that we do day-in and day-out for the senior market is just so simple.
Seniors are looking for
- a guarantee on return, and
- access to that money.
In other words, no surprises.
Multi-Year Guaranteed (MYGA) annuities are really 95% of what we do for our seniors. They’re easy to understand.
If your client doesn't understand something when it comes to their money, they aren’t going to do it. And that’s why we do so much annuity business — everyone can walk away with confidence in it.
Q: What if your client has money in the stock market, but they don’t know their current rate of return?
A: Michael: If your client doesn’t know what percentage they’re making on their money, set up a theoretical situation.
You can say something like this:
“Let’s just say that you’re getting 4%. If you’re sitting at medium risk, I’d highly recommend that you have no risk and make a little better than 3%.”
You don’t know if they’re getting 4% or not — they may be getting 8% — but if you can make some kind of comparison to move the sale forward, it’ll be to your benefit.
Q: How are surrender charges calculated?
A: John: If an insurance company is guaranteeing the client 3%, and the commission is around 3%, then the company has 6% of their money at risk in that first year.
They have to have a surrender charge that’s at least 6%. If the client backs out in the first year, they have to recoup those losses to make sure they aren’t losing money. As the years go on, the risk lowers, and you’ll see that surrender charge follow suit.
One of the reasons KSKJ can give higher interest to the customer and higher commission to the agent is because if there’s a death in the first 3 years, they charge commission back to the agent. It’s just part of the trade. You can go to a company that doesn’t do that, but maybe you only make half of the commission.
Q: A single, 70-year-old client has $180,000, and she currently draws $400 out of her account each month. She’s reluctant to sign on for an annuity. What do I do?
A: Michael: Advise her to take $5,000-10,000 and put it in her checking account. Put the rest of it into the guaranteed contract. After the first year, she can start taking up to 10% out with the 10% free withdrawal.
That’s up to $18,000 she can take out each year.
The focus now shifts from “my money is locked up for the length of the contract” to “I can take out more than I need and still make money.”
Q: What about disclosure documents I have been reading about?
A: Michael: With all lines of insurance, there are disclosure statements that need to be signed. There are a few new ones with annuities, but it’s best as the agent to not make a bigger deal out of them than need be. It’s just another required form.