INDEXED ANNUITIES
Things they won ’ t tell you
What happened to the good ‘ ole days when I could get a simple indexed annuity ? It isn ’ t easy anymore — TRUST ME !
I have viewed myself as an educator on life insurance and annuity products for well into two decades . That said , I ’ ve not been as vocal about some things as I maybe should . Let this article be a first step in righting those wrongs .
Who can you trust in the indexed annuity sale ? Yourself . Maybe your prospect . Insurance companies can adversely affect the amount of indexed interest earned on the business they have on the books , and the way they do it may not be as obvious as you would think . Let ’ s discuss each of them here .
Bait-and-Switch on Inforce Renewal Rates
Yes , it happens . Insurance companies have to buy new options each year of an annual reset indexed annuity . Often , market conditions warrant reductions in caps , participation rates , and even increases in spread rates . Some companies out-price their products to offer uber-competitive rates in the first year with the intention to reduce rates once it hits contract anniversary two . If the insurance company doesn ’ t publish their in-force renewal rates , caps , pars , and spreads for either consumers or agents , perhaps you should ask yourself why .
Changing Indexing Methods on Inforce Business
This one didn ’ t seem like a big deal to me when I was developing , but when it was done to me , it became a very BIG deal ! I was earning TOO MUCH on my multi-year indexing method AND the minimum cap on that indexing method was too HIGH . The insurance company did the only thing that they could — they pulled the indexing method clean off the contract . If the indexing method is filed as a RIDER on the annuity as opposed to being part of the base contract , there is a good chance it could happen to your clients too .
Sheryl Moore is President and CEO of the life and annuity market research firm of Wink , Inc . Her company provides competitive intelligence , market research , product development , consulting services and insight to select financial services companies . She may be reached at sjm @ intelrockstar . com .
Manipulating the Index
“ Hey ! That ’ s not possible !” you are thinking . Wrong . There have been insurance companies that have had their own indices , although only a couple . Make sure the company in charge of the index is not the same as the company in charge of paying your commission .
REALLY Manipulating the Index
You know these new multi-asset , proprietary , volatility-controlled indices ? I like to classify them as “ hybrid indices ” because they are generally created by taking one or more other indices , smashing them together , and throwing a sprinkle of cash or bonds along with them , and making it an entirely new index . But there ’ s a problem . The index is brand new , it has no history , making the option pricing at introduction pretty darned attractive . This translates to attractive participation rates and spreads for the purchaser . However , before you know it , the index is being taken away , and replaced with some new index with a similar name . What changed ? Well , the name , but perhaps also the cash component of the index . That , my friends , will put some major drag on the performance of your clients ’ indexed annuities .
What happened to the good ‘ ole days when I could get a simple indexed annuity ? It isn ’ t easy anymore — TRUST ME !
46 Perspectives Q3 2021