Make the agent sign your own annuity agreement

The vast majority of annuities sold today are variable or indexed, and those products can be complex and confusing not only to the consumer but sometimes to the agent as well.

Too often, the annuity buyer and the annuity seller aren’t on the same page when it comes to how the recommended annuity actually works. I find that many annuity owners think they own something that actually is too good to be true — but doesn’t contractually exist. In essence, they bought the annuity dream, instead of the contractual realities of the policy.

This buying mistake should never happen and there is one foolproof way that I recommend to make sure it doesn’t happen to you.

Bullet points with travel points

Too many annuity sales are bullet point presentations that push only the positive aspects on the recommended product. All annuities have good and bad aspects along with contractual limitations — but that’s not the typical sales pitch you will hear.

The genesis of all annuity sales pitches start with the issuing carrier “bullet pointing” the product benefits to the sales and marketing organizations (SMOs) that will then push their version of those bullet points to the annuity agent. Many SMOs over hype the annuity product to the agent, so the agent in turn takes those bullet points and then pitches their interpretation to the consumer. By the time the consumer hears them, these sales bullet points have traveled through three sales levels (carrier-SMO-agent). It isn’t surprising that the annuity product typically ends up sounding too good to be true when recommended.

Transcribe the sales pitch

In a world of high pressure pitches, bad chicken dinner seminars, and Internet annuity promotions, it’s important to fully understand how the annuity you might buy actually works and the contractual guarantees that will be in place. Because agents are usually anxious for you to sign the annuity application, my advice is to turn the table on that annuity agent and have them sign something from you as well just to make sure that you both are on the same page.

After the annuity agent has explained the product to you, write down exactly how you understand the annuity will work and the benefits that were pitched. Be as detailed as possible, and take your time in putting this document together. Make sure to include all fees, annual sales charges, surrender penalties, and how any attached riders (i.e. benefits) work. Try to cover everything that was addressed during the sales process.

It’s very important to have the agent also sign off on and clarify real return expectations, especially with over hyped indexed (inappropriately called “hybrid”) annuities. Just an industry hint, indexed annuities were designed to compete with CD returns, not the stock market. You also need to completely clarify in writing how any upfront bonus truly functions, and any costs associated. Also verify if there is a shorter surrender charge version of the same annuity that was recommended by the agent. Remember, the longer the surrender charge, the higher the commission.

Once that detailed list is put together in your words, then sign and date the document and ask the selling agent to sign and date it as well. At this point, you are now in the annuity driver’s seat.

The 1,000 pound pen

If the agent has your best interests ahead of the potential annuity sale, they will review your detailed list and make any necessary clarifications, changes, or additions so that you fully understand the product before buying. If changes are made, then you need to write those changes down on your original document and both of you initial and date these updates.

Sometimes that pen you hand to the agent will seem like a 500 pound barbell. If the agent says they won’t sign, then you need to end the meeting immediately and move on to greener annuity pastures. The agent should sign and date your prepared document for you to move forward with the purchase. It’s just that simple, and there are no excuses or agent justifications that should prevent them from signing.

This should be a cut-and-dry issue from your (the annuity buyer) standpoint.

Once the agent signs and dates your “statement of understanding,” then you have documentation and potential leverage if the annuity bullet points and promises don’t contractually pan out. If an annuity carrier sees your document that was signed by you and the selling agent, and if those bullet points aren’t true, you will have a very good chance of getting your money back if needed.

Free look document verification

After your policy is issued, each state has a free look provision that allows you to get your money back without question. Depending on your state, that time period is 10 to 30 days from the time the policy is delivered. During this time frame, you should call the issuing carrier and go over the document you and the agent signed to make sure the product will perform as promised.

Let the annuity company know that you have your own prepared product summary that you and the agent both signed, and you are just verifying exactly how the annuity will work. The customer service people at the issuing carrier will be more than happy to go over this list in detail with you to make sure you are a satisfied customer.

Only your bullet points matter

Always remember that you are in full control of the annuity sales process, and to make your decision on your time frame. There is never an urgency or rush to buy an annuity. Don’t be shy about including your own “statement of understanding” in the sales process. It’s truly a win-win for both you and the agent.

Originally published 6.10.14 by MarketWatch.com