Why the hesitancy for income insurance?
Annuities were developed in the Roman times for guaranteed income for their loyal soldiers and their families. Until the mid 1950s, income annuities were the only strategy available in the United States.
It’s an undisputed fact that annuities are the only strategy that guarantee a lifetime income stream regardless of how long you live. The new term for this needed solution is called solving for longevity risk.
Income annuities are, in essence, income insurance. You are buying guaranteed income. So why are people so hesitant to buy income insurance?
Cars, homes, health … income?
Everyone has insurance on their car, their home, and even their current health or future long-term-care needs. I understand that it’s required in most cases to have this coverage, but isn’t guaranteed income as important from a quality of life standpoint? I would argue that it is.
QLAC shot across the bow
Currently, there is no legal requirement for people to have privately purchased income insurance. There’s an argument that maybe there should be considering the financial status of the United States. I’m sure that some people consider their Social Security payments a form of income insurance, but we all know that was put in place for supplemental….not primary income coverage.
When the Treasury Department and the IRS approved the use of qualified longevity annuity contracts, or QLACs, in July of 2014 for use in Traditional IRAs and select retirement plans, I believe that was the first “shot across the bow” for the government encouraging people to start buying future income guarantees. The government knows that people need income insurance, and are scrambling to put laws and incentives in place to foster that product development and consumer participation.
The hesitancy I hear most often from people considering the purchase of guaranteed income is the fear of missing a market growth opportunity with those locked in assets. The chase for growth and the addiction for the next market “winner” is always the little devil on your shoulder whispering in your ear to not buy that annuity guaranteed income insurance.
There is never a perfect time to buy income insurance. You will never time rates or annuity pricing, just like the bell never rings at the top (or the bottom) of the market. Buying income insurance has to be a disciplined approach and a long term strategy to build the income floor that all of us will eventually need. It’s called reality.
Death, taxes … income
We all know that death and taxes are certainties. Benjamin Franklin’s prophetic saying “nothing is certain except death and taxes” is one of the most repeated quotes in history. Isn’t it a logical thought progression that “income” fits into the certainty category as well?
For most of us, there comes a point in time that receiving a guaranteed income stream (Social Security, pension, annuity, etc.) is of primary importance and supersedes the chase for asset accumulation. So if this true, then why isn’t there an emphasis placed on securing and insuring this eventual need for income?
Hate the seller, not the product
I’m convinced that the negative perceptions people have toward the annuity industry (and all product types) is due to the seemingly unregulated nature of the sales message. In addition, too many annuity sellers (agents, advisors, brokers) use high pressure tactics and can be persistently annoying. I blame the annuity industry for the low bar selling and licensing requirements, and the anything goes approach to secure that almighty premium.
Regardless of this too often shady and sleazy sales environment, annuities are still the only product that guarantees a lifetime income stream regardless of how long you live. That is a fact and the unique benefit proposition that many people will eventually need. It’s called income insurance. Got guarantees? Got income guarantees? Why not?
Originally published 10.6.15 by MarketWatch.com – http://www.marketwatch.com/story/why-the-hesitancy-for-income-insurance-2015-10-06