Annuity Education Without Sales Pitches

Annuities can be confusing.

There are different product types, different carriers, different guarantees, and plenty of sales pitches promising benefits that can sound almost too good to be true.

That's why education should come before the sale.

You should understand exactly what an annuity contractually guarantees, what it doesn't guarantee, and why you're considering it before you ever sign an application.

There's no reason to rush.

Key Takeaways

• Understand an annuity before deciding whether to purchase one.
• Annuities are commodity products, so multiple carriers should be compared.
• Focus on contractual guarantees rather than hypothetical projections.
• The PILL framework identifies the four primary annuity objectives.
• There should be no artificial urgency to purchase an annuity.
• Request the specimen policy and other documentation if you want to review the contract before applying.

Start With Education

Annuities aren't products you should purchase simply because someone recommends one.

Before considering a specific carrier or contract, understand what annuities actually do.

There are numerous annuity types, but their contractual objectives can generally be summarized using the PILL framework:

• Principal Protection
• Income for Life
• Legacy
• Long-Term Care

If you don't need to solve for one or more of those objectives, you may not need an annuity.

Ask Two Questions Before Looking at Products

Instead of starting with a product, start with two questions:

What do you want the money to contractually do?

When do you want those contractual guarantees to start?

Those two answers help determine whether an annuity is appropriate and, if it is, which type should be evaluated.

Someone needing lifetime income next month requires a different solution from someone seeking income seven years from now.

Someone seeking principal protection has another objective entirely.

Annuities Are Commodity Products

There's no single annuity that's universally better than every other annuity.

Insurance companies compete against each other.

One carrier may provide the strongest contractual guarantee for one situation while another carrier may be more competitive for someone else.

That's why comparing multiple carriers matters.

The objective is to find the contractual guarantee that best addresses your specific situation rather than choosing a company solely because you recognize its name.

Don't Buy an Annuity for Growth

Annuities are insurance contracts.

They're designed primarily for guarantees rather than market growth.

If you want market growth, market-based investments are designed to provide that opportunity.

The annuity side of your financial plan should focus on transferring specific risks to an insurance company.

That might mean protecting principal or guaranteeing an income stream you cannot outlive.

Contractual vs. Hypothetical

One of the most important parts of annuity education is learning to separate contractual guarantees from hypothetical projections.

Sales presentations can include:

• projected returns
• indexed performance
• back-tested results
• bonuses
• illustrations
• hypothetical future values

Those numbers can look impressive.

But an annuity is a contract.

Determine which numbers in the presentation are actually guaranteed by the issuing insurance company.

There's No Urgency to Buy an Annuity

Annuities aren't something you should be pressured into buying immediately.

If someone tells you that you need to sign right now because a bonus or opportunity is disappearing, don't allow artificial urgency to replace due diligence.

Take your time.

Learn about the product.

Compare carriers.

Read the documentation.

The appropriate timeline is the amount of time you need to understand the contract and make a comfortable decision.

Ask for the Specimen Policy

You don't have to wait until after purchasing an annuity to start looking at the contractual language.

Ask for a specimen policy.

A specimen policy allows you to review an example of the actual annuity contract before completing the purchase.

If you want to see what the application looks like before moving forward, ask for that too.

The more you understand beforehand, the less likely you are to discover something unexpected later.

Understand How Annuity Commissions Work

Annuity commissions are generally built into the product.

The insurance company pays the commission from its general account rather than presenting the buyer with a separate upfront commission bill.

That doesn't mean compensation should be ignored.

Understanding how the person recommending a product is compensated can help you evaluate the recommendation and ask better questions.

Know Who You're Talking To

Annuities are regulated insurance products.

Someone discussing and selling an annuity needs to be appropriately licensed for the state where the transaction occurs.

Before taking a recommendation seriously, make sure the person you're dealing with has the appropriate licensing and can clearly explain the contract.

Learn Before You Schedule a Call

You don't have to begin the process by talking to an agent.

You can educate yourself first.

Read about the different annuity types.

Run quotes.

Understand the difference between accumulation products and lifetime income products.

Learn how Income Riders work.

Then, when you do speak with someone, you'll be prepared to ask much better questions.

Free Annuity Owner's Manuals

We've created owner's manuals covering six major annuity categories:

• Single Premium Immediate Annuities
• Deferred Income Annuities
• Qualified Longevity Annuity Contracts
• Fixed Index Annuities
• Multi-Year Guarantee Annuities
• Income Riders

These resources are available for free and can help you understand how each product works before deciding whether it belongs in your retirement plan.

Compare Quotes on Your Own

You can also use our annuity calculators to run quotes and compare contractual guarantees.

That gives you an opportunity to understand the numbers before deciding whether you want additional help.

For lifetime income, compare contractual payouts.

For guaranteed accumulation, compare current rates and terms.

The comparison should always match the financial objective.

Make the Decision on Your Timeframe

The goal of annuity education isn't to convince everyone to buy an annuity.

It's to give you enough information to determine whether you need one.

If you do, understand the available choices and compare them.

If you don't need an annuity, don't buy one.

Either way, the decision should happen on your terms and your timeframe.

The Bottom Line

Good annuity education should make the product easier to understand, not create pressure to buy.

Start with the financial problem you're trying to solve. Understand the contractual guarantees. Compare multiple carriers. Ask for the specimen policy if you want to read the contract beforehand.

Take as much time as you need.

An annuity is a long-term insurance contract, and understanding it before you buy is far more important than responding to a sales pitch.

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