How to spot empty promises in an annuity pitch
Investors will always be lured in by potential investment growth, hoping to find the next Apple or unknown stock that creates millions.
We all know that true long-term wealth and real growth potential can only be found with equity type investments — but that hasn’t stopped annuity and life insurance agents from pitching their own market dream proposals.
Better late than never
A few months ago, the Iowa Insurance Division released a bulletin that said that they have “observed an increase in misleading advertising by producers and insurance marketing organizations (IMOs) under contract with insurance companies.”
Really? Glad you finally noticed the ongoing over-hyped sales party. Thanks for the memo!
Advertising high interest lifetime income riders as yield or an annual rate of return Promising “uncapped rates of return” and fictional “back testing” return scenarios Showing a newly created index and illustrating how it would have hypothetically done in the past
Annuity dream scenario presentations aren’t alone in the regulatory cross hairs. Life insurance is also pushing the proposal limits as well, and some numbers that I have been shown would make any annuity gunslinger blush with sales pitch envy.
Too many variable universal life (VUL) and indexed universal life (IUL) promoters are guilty of juicing proposal numbers, and recent laws have been passed to try to circumvent these ongoing too-good-to-be-true sales pitches. The new rulings actually go into effect in September, so I guess it’s an agent sales pitch free for all for the next four months. Not sure why it takes four months to try to protect the consumer, so buyer beware.
Peel back the proposal onion
If you are considering a variable or indexed annuity or life insurance product, make sure to request the following:
Have the agent show you the contractual guarantees only (or zero returns) with the proposal, and make your decision solely on those numbers. Make the agent present five or more different carriers that contractually solve for your specified goal, and have all proposals run at contractual guaranteed levels only so you can make a real product comparison. Ask the agent for a specimen policy of the product so you can read what you are actually buying, not just the proposal being pitched.
I receive numerous proposals to review every month from people who have been on the receiving end of an agent pitch and want me to give them an objective opinion on the numbers presented. The vast majority of these non-guaranteed return scenarios I have seen illustrate returns of 6% to as high as 12% annual returns. People that can consistently get those ongoing annual returns typically run hedge funds.
The most popular pitch is for the agent to choose a specific time frame in the past that would show favorable returns “if” you would have owned their recommendation. However, my favorite misleading return scenario is the “brand new” index that the carrier created out of thin air, and is attached to their product of choice. The agent then offers back-tested results to show how this new index would have done in the past. Huh?
Proposals that are typically generated by the carrier do show the contractual guarantees of the product being pitched. It’s usually in the back pages of the proposal — but that’s the only page you should base your decision on in my opinion. If you want market growth, then don’t buy an annuity, and definitely not life insurance. Annuities and life insurance aren’t growth products and should only be considered as pure transfer-of-risk strategies and noncorrelated assets.
Wall Street pledge pin
I am continually amused and shocked by the annuity and life insurance industry getting off message from a branding standpoint. It appears addicted to the stock market, trying to “sell greed” and be part of the Wall Street fraternity — instead of focusing on the unique contractual guarantees that annuities and life insurance can efficiently provide.
For the record, I only look at the contractual guarantees of the policy and never show hypothetical, theoretical, or back-tested return scenarios. In my opinion, annuities and life insurance should be purchases solely for what they “will do, not might do.”
This is real basic stuff in my opinion. Life insurance is for a guaranteed tax-free death benefit. Annuities are for either principal protection or lifetime income. Case closed, so stop with the proposal insanity.
Originally published by MarketWatch 4.28.15 – http://www.marketwatch.com/story/how-to-spot-empty-promises-in-an-annuity-pitch-2015-04-28