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Annuities Are Contractual Commodities: Shootin' It Straight With Stan

Stan Haithcock
November 22, 2023
Annuities Are Contractual Commodities: Shootin' It Straight With Stan

Welcome to Shootin' It Straight With Stan. I'm your host, Stan The Annuity Man, America's annuity agent licensed in all 50 states. I am so glad you joined me on this topic: Annuities Are Contractual Commodities. This might make many industry people mad, but they know I'm right. Let me explain what I'm talking about. We all know what commodities are: wheat, corn, oil, etc. So, when I say the word commodity, I'm not saying that they will deliver nine tons of corn to your front door if you don't close out the contract right. I get all that, and it's amazing how many people argue with me about, "Well, be careful calling it commodities because commodities are..." I understand. Listen, I did that for a long, long time on Wall Street. But I'm trying to tell people that you should own an annuity for what it will do, not what it might do. That's the contractual guarantees of the policy, and once you strip it down to the contractual guarantees of the policy, there are many different types.

‌You Already Own One

‌You can't hate all annuities. You can't do that anyway because that'd make you a hypocrite. After all, you already own the best one on the planet, Social Security, which is the best inflation annuity on the planet. If you're an employer, if you're so fortunate to have a pension, that's your second annuity that you own. That's an annuity, and annuities are contractual commodities.

‌What we do at The Annuity Man separates us from every single person that I know out there because all of them go back and forth between contractual guarantees and then use hypotheticals and theoreticals. We don't do that. You own an annuity for what it will do, not what it might do. When you strip it down to the contractual guarantees only, it becomes commoditized because we represent almost every single carrier out there.

‌Single Premium Immediate Annuity

‌Let me give you an example. Let's say you've come to the conclusion after listening to me, going to my site, running quotes, and answering the following two questions: what do you want the money to do contractually, and when do you want those contractual guarantees to start? Your answer was we want lifetime income and we want it to start immediately. From those two answers, we have determined that a Single Premium Immediate Annuity, the acronym SPIA, is the best one to provide the highest contractual guarantee based upon those two answers.

‌Structuring It

‌Once we get to that, the next step is how you want to structure it. There's a myriad of ways to structure it. So, let's just say you say, okay, we want it for me and the wife, joint life with cash refund. Let's say that we've come to that conclusion. You've read my annuity owner's manual on SPIAs. You've looked at all the different types of quote parameters and structures you can put in. Joint life only, joint life with five, joint life with 10, joint life with 20, joint life with cash refund, joint life with a solvent refund. We've explained that to you on the phone, or you watch videos or read the book, and you say, "We want joint life with a cash refund."

‌Once we get to the structure that makes sense with the product that makes sense, then we've commoditized it. Then we're going to go out, and we're going to quote everybody for the highest contractual guaranteed payment. Now, the last filtering of that, the last filtering of that list that you're going to see, 10 or more, we're going to filter them top 10, etc. Then, we will look at the carrier ratings and the Claims Paying Ability. But we've commoditized the annuity type that you need. So, we can quote all carriers for the highest contractual guarantee.

‌Like a Gallon of Milk

‌Just a spoiler alert because we've commoditized it like that, and that's the way it should be done for rational people out there, not dreamers and hopeful people who want to chase the unicorn and the butterfly and want to believe the sales pitch. There's no sales pitch when you strip down the contractual guarantee. There is none. There's no flashy thing. There's nothing to say other than does this number look good and fair to you, and do you want to lock it in? Period. That's it. There's nothing more than that.

But spoiler alert, these quotes change like a gallon of milk every seven to 10 days and sometimes sooner than that. This means that carriers will adjust their bid to get your business, that contractual guarantee you see because they're trying to fill a tranche with your age range or joint if it's age ranges. Once they fill it up and reach the capacity for that, they're going to lower guarantees to not attract you, if that makes sense.

‌Life Expectancy

‌I know you're out there doing and have been shown small cap, mid-cap value, international, etc. With a life insurance company issuing lifetime income products, they're looking for age ranges and filling those tranches. Knowing that some of you will live longer than some of you at that age, some of you will live shorter, and some will live right on the money to your life expectancy. That's the reason life insurance companies have the big buildings is because they know when we're going to die and they price things accordingly as opposed to a property and casualty company that doesn't know when the hurricane is going to hit, or the fire or the tornado. Life insurance companies know when you're going to die.

‌Client Example

‌So, when you strip it down and commoditize it like that, you're looking for the highest contractual guarantee, but you also know you can't sit on it. I had a call the other day. "Hey, Stan, I ran this quote on your site a month ago for an Immediate Annuity. I want to move forward with that." I'm like, "It's not there anymore. I mean, let's rerun it." I showed him, and he's like, "Oh man, I didn't know that." That's why I'm doing these types of blogs to explain how it works.

‌Just think of a gallon of milk. It spoils every seven to 10 days. You got to get another gallon of milk. In this case, you have to get another quote, and going through the application process, we will lock that quote in, so the guarantee is not determined about money arriving, etc. We do all the paperwork for you. You can go to my site. There's a video on how to buy an annuity and it explains our process to you.

‌But we even take complex products and commoditize them. Give you an example. If you said, the two questions, what do you want the money to contractually do, when do you want those contractual guarantees to start? Let's say you said, "We need lifetime income. We need it to start in seven years. Seven years from now, we need it to start." You're a spreadsheet person. You know exactly what's going to happen. You want to know to the penny.

‌Income Riders

‌You're down to really two products. You're down to a Deferred Income Annuity. It could also be a QLAC, but the other is an Income Rider. Income Riders are typically attached to Variable Annuities and Index Annuities. We don't sell Variable Annuities. We don't sell anything that has the ability to go down. We only sell fixed products, guaranteed products that protect your principal. But Index Annuities, typically and historically, their Income Riders have beaten the Variable Annuity Income Riders contractually. That may change in the future. Who knows? But right now, at the time of this blog, check the date; that's what's happening.

‌But the Index Annuity is a very, very complicated product as a standalone. Caps, spreads, participation rates, upfront bonuses, lots of moving parts, and complexity. When you answer the question, you need income in seven years for lifetime income, we literally ignore that Index Annuity and all of those shiny things that everyone talks about. "If you'd owned it 10 years ago, here's what you'd have got." That's crap. We just use it as an efficient delivery system for Income Riders.

‌So, if you said, "We need income to start in seven years, we want it joint life," then we're going to run a DIA and QLAC quote, and we're going to run an Income Rider quote attached to an Index Annuity. Not looking at the Index Annuity or ever talking about caps, spreads, and participation rates. We're going to quote all Income Riders out there. So, we will base our decision on the highest-paying Income Rider guarantee because the Income Rider is the guarantee.

‌Income Rider Quotes

‌Just look at it like this. Draw a line down a blank sheet of paper; the left-hand side is the index option side that we don't talk about; the right-hand side is the Income Rider guarantee, the contractual guarantee. We strip it down and commoditize it to just look at the Income Rider. So, we're shopping all Income Riders. With that, an agent can't come to you and say, "Well, this is the best Income Rider." Unless he's shopped all carriers, then they don't know that. Now you can visit my site and run Income Rider quotes 24/7/365. We're the only ones to have Income Rider quotes for the consumer at this point. I'm sure someone's going to try to copy me. They always do. I don't blame them, but honestly, it's good for the consumer.

‌But Income Riders are commoditized, because you've told me exactly what you want. Income in seven years, income in five years, income in nine years, or income in eight years. That's an Income Rider quote, but we only look at Income Rider guarantees. When you run the quote, we do not show any cap spreads, participation, or non-guaranteed hypothetical scenarios. We're only showing the contractual number.


‌Now let's talk about inflation real quick. Inflation is kind of the gorilla in the room. I will tell you that annuity companies don't give that away. Suppose you want to attach a Cost-of-Living Adjustment inflation rider to an Immediate Annuity, Deferred Income Annuity, or something like that. In that case, they're just going to simply lower the payment to make up for it. To me, it's not mathematically worth it. The only way I could see it working for you is if you bought two SPIAs without it and one with it, then I'm okay with it. But it's not Social Security, which is just going to increase based upon the political whim of our beloved Congress. They're not running numbers up there. They're just looking for voters.

‌But Income Riders, there's some shenanigans going on there. Indexed Annuities that have Income Riders, there'll be people that say, "Well, our Index Annuity increases with inflation." Well, they've forgotten to tell you that the annuity company lowers that initial payment severely and drastically, so you're never going to make up for it.

‌Everybody wants increasing income. But remember, annuity and life insurance companies that issue annuities are for-profit businesses. They're not going to give that away. They're going to severely and drastically lower that initial payment. But annuities, and there are many different types, are commodity products. They're contractual commodity products. Once we strip it down to the contractual guarantees, they're immediately commoditized for us to quote for the highest contractual guaranteed number. That's how simple this is.

‌This Is the Way

‌That's how simple the annuity industry could make this. I'm making this for them. They're coming along with me; eventually, this will be how annuities are purchased nationwide. We'll look back at this time period, and from the time of this blog in this ballpark, sales will triple with the annuity industry because I'm out here blasting this contractual guarantees-only message. I'm blasting that annuities are contractual commodities. I'm blasting it because it's true, and I'm blasting it because it's the way to buy annuities. It's the proper way for consumers to consider the purchase of an annuity. You never, ever, ever, ever, ever consider purchasing an annuity on a non-guaranteed return number. Once you go down that track of non-guarantees, hypotheticals, theoreticals, back-tested numbers, and unicorns chasing the butterflies, then it's not commoditized anymore. Then it's just sales pitch. It's a pitch circus. Whose sales pitch is better, and all of them are bad.

‌They Don't Need Sales Pitches

‌Annuities don't need sales pitches because they're contractual commodities. Contractual commodities don't need sales pitches. They don't need high pressure. They don't need whiz-bang brochures. You just need a calculator to run all quotes with all carriers like we have at The Annuity Man, and you need to look at the number to see if it's fair for you, period. That's it.

‌I mean, seriously. There are times that I'm amazed I have to say this to the public and the industry, because no one's saying it other than me. I'm not patting myself on the back. I'm just a good old Southern boy from North Carolina who looks at this stuff and the finances and Wall Street, whatever. I look at it from a simple standpoint. I break it down to the simple standpoint where you can make a decision.

‌In this case, strip it down to the contractual guarantees. Turn that strategy into a commodity, which means we can shop all carriers for the highest contractual guarantee at that time, so you can make a good decision solely on that contractual guarantee and make that decision on your terms and your time frame. So, remember that annuities are contractual commodities. If you don't look at them like that, you're going to make a mistake, and you're going to buy the sales pitch and then realize later that you own the contractual realities. Why not just start and finish at the contractual realities? My name is Stan The Annuity Man. We'll see you next time.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.

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