The Annuity P.I.L.L. Strategy cure!
The “P.I.L.L.” strategy is easy to remember and explains where annuities fit in any portfolio.
I developed this very simple and efficient way to see if an annuity fits your specific situation to help consumers determine their need for an annuity. No more blindly following annuity advertising suggestions or commission hungry agents. The P.I.L.L. strategy protects consumers from the annuity industry gone wild advertising machine.
Annuity suitability is determined by your particular situation. Remember, an annuity is not a growth product!
The annuity industry has made a very good product category confusing for the consumer, so that many people throw their hands up in disgust when considering the purchase of an annuity. Variable and indexed annuities represent the majority of over $200 billion in annual annuity sales, and that’s where the product confusion lies. Agents pitch both of these product types with the primary focus placed on market growth and non-guaranteed dream return scenarios. This is not only unfortunate, but tragic, because this growth dream totally misses the point when it comes to annuities.
P = Principal Protection. Do you want to safeguard your principal?
Annuities can provide complete principal protection using fixed annuities. There are different types of fixed annuities. Fixed Rate Annuities (MYGAs), Fixed Index Annuities (FIAs), and Traditional Fixed Annuities all fully protect your principal and contractually guarantee that safety.
I = Income for Life. Are you looking for guaranteed income payments?
Annuities are developed to provide income and have been around since the Roman times. The word annuity comes from the Latin word “annua”, which means annual payments. Sold in the United States for over 200 years, Income annuities were the only annuity choice up until 1952.That year spawned the first variable annuity offering by the company now known as TIAA-CREF.
Single Premium Immediate Annuities (SPIAs), Longevity Annuities (DIAS – Deferred Income Annuities), Income Riders, and annuitization options on deferred annuities can all provide lifetime income guarantees. Income planning is customized to your specific situation, so sometimes I use advanced annuity strategies to contractually guarantee your income needs are met.
L = Legacy. Do you want to establish legacy payments and protections?
Annuities can also contractually solve for a guaranteed death benefit by attaching a contractual death benefit rider (i.e. attached benefit) at the time of application. Pure life insurance is still the best legacy product available, but maybe you can’t qualify. If you can’t pass the underwriting requirements, then a guaranteed annuity solution might be your only alternative.
Annuity death benefit strategies primarily involve riders that you attach to the policy at the time of application. These riders can guarantee an annual percentage yield used to leave money to your heirs.
L = Long Term Care. Do you need to supplement your traditional long term care?
Some specific annuity types can support Long term care or confinement care coverage needs. Even though the traditional long term care product still provides the best coverage, annuities do offer an alternate choice if you are not healthy enough to qualify for the traditional product.
Long term care annuities come in two forms; simplified issue and guaranteed issue. Simplified issue involves a phone interview with the issuing carrier to qualify for coverage. Guaranteed issue is self-explanatory.
Annuities are not market growth products, they transfer risk to the carriers.
It’s important to reiterate that there is no “G” in the P.I.L.L. acronym. “G” stands for growth. Annuities are not growth products even though that’s how most agents try to incorrectly frame them. In a perfect world, annuities are transfer of risk solutions you own for their contractual guarantees. Own annuities for what they WILL DO, not what they might do. Never make a decision to own an annuity based on theoretical, hypothetical, projected, back tested, potential, or non-guaranteed return scenarios. Get the point? Always buy the contractual guarantees, not an annuity dream.
Use the P.I.L.L. to find out if an annuity might work for your specific situation. In other words, swallow the P.I.L.L., not some agent sales pitch.
Originally published on the About.com educational platform now called thebalance.com