Annuity Sales Pitches: The Facts Behind the Most Popular One

Hi there. Stan The Annuity Man, America's annuity agent, licensed in all 50 states, the top agent on the planet for a reason because I educate first. I don't sell first. I educate first. By the way, everybody out there, visit The Annuity Man, and you can download all my books for free. I've written seven on the annuity topic. I know you're saying, wait a minute, how do you write seven books on annuities? I mean, you got no life. You're right. I have no life. My life is to educate the public. That's my driving goal. Also, it's a reflection of 32 years of marriage. I digress. No. I'm kidding. My wife never reads these blogs, so that's good. I can get away with that kind of stuff.

Today's topic is a good one for me because this is the one that makes the top of my head pop off. This is the one that makes the veins pop out of my neck. This is the one when my producer saw me this morning before we got going, and they had to do makeup; I had this vein popping out of my eye. That happens when we talk about annuity sales pitches, not annuity truth, and it's happening across the country. I'm going to take them one by one, the main ones, and I'm going to blow them up factually or flatulating factually. How about that? That's a whole other story. The bottom line is I will knock the cover off the ball with this one so that if somebody, some Yahoo agent, is saying what I'm getting ready to say, I will quote them because I hear it all. People call in and say, this guy told me this, and I just write it down. I'm like, really? And so, I'm going to blow that up, so you don't make a mistake, and if you do make a mistake, I'll tell you how to get out of it.

Market Upside With No Downside

The way to get out of an annuity, if somebody sells you one, you get pressured into it, and they are too good to be true to you, is you have a free look time period. You can always get out of an annuity after it's issued, which is good. But let's talk about sales pitches. Many of them happening right now are around a really good product. It's called a Fixed Index Annuity, but it's sold improperly. Index Annuities were designed in 1995 to compete with CD returns. That's exactly what they do. But here's the pitch. Market upside with no downside. Now, think about that for a second. You're going to get stock market returns, and you're going to protect your principal. Shoot, I'm in. Six-minute abs, that's fantastic. Take the pill, lose the weight. I mean, give me a break. If that were true, the FED would only buy Indexed Annuities. That's not the truth. Indexed Annuities are Fixed Annuities issued by life insurance companies. They're not securities. They're not regulated by FIN or the SEC. They're not stocks or bonds or mutual funds or ETFs.

Market Participation With Principal Protection

They're Fixed Annuities, and the return is based on a call option that has limitations on the upside, and I'm talking about severe limitations in a lot of cases. So, when you hear market upside with no downside, or the other one you hear is market participation with principal protection, that's nonsense. I mean, I really wish that the annuity industry could reel that in. I do not blame the annuity industry. I do not blame the carriers because there is no way for them to oversee an army of agents out there ripping and tearing and saying what they have to say to get the sale. It's just impossible. What I don't like are the ads that never say the word annuity but talk about never losing a penny and getting market returns and all that stuff. That should be outlawed. That should be regulated. The problem is these Fixed Annuities are regulated at the state level. So, if you run a national ad on the radio or television, who's going to regulate that? Hopefully, the carriers do, but they never mention a carrier.

They just broadly talk about the greatness and the pie in the sky and the unicorns chasing the butterflies and the planets aligning themselves, and it's too good to be true. The bottom line with an Index Annuity is it's a CD product. Never buy one for the hypothetical, theoretical, projected back-tested, hopeful agent return scenarios. What they're doing out there is showing you that if you'd owned it 10 years ago, this is what your return would've been. That's complete and utter garbage because 10 years ago, interest rates were different, you know, caps and spreads and participation rates were different. Those three things limit the upside of an Index Annuity. Don't believe that hype. The other thing that happens out there is you can get 7% on an index annuity. No. You can't. Or 8% or 6%, I know what you're saying, really, can you? Can you give me that? No. With a ten-year treasury hovering, it's less than 1% at the time of this blog, between half of 1% to 2%. I mean, that's crazy. That is low.

Income Rider

There's no genius at an annuity company that's figured out how to get you 7%. What the agent is referring to in playing the semantic word game a little bit is that it is an Income Rider, which is an attached benefit for future income, but it grows by that amount. But you cannot peel off the interest. You cannot transfer it. You cannot cash it in. You can only use it to calculate your first income payment.

I got a call the other day. "I just bought an 8% annuity from Ole Flippy Johnson down here in Poughkeepsie." No. You didn't. Again, the guy's name wasn't Flippy Johnson, but that's a great name. No. You didn't. You bought an Income Rider that you can't peel off the interest. You can't cash it in, and you can't transfer it. Of course, he argued with me. I said, well, great. Call the carrier and tell them to put you on a monthly plan where you can peel off that seven or 8% interest. So, he called. Of course, they said, you can't do that.

Upfront Bonus

He called back. You're right, Stan The Annuity Man. Well, I told him to free look the policy, because that's what he thought he bought. He thought he had bought a Jimmy Carter CD-type product that would pay him 8%. The other thing about the Indexed Annuity, and once again, the disclaimer, is that I sell more Indexed Annuities than probably 95% of all agents. That's not my primary bailiwick, as they say. I like the word bailiwick. I love contractual guarantees. I use Indexed Annuities as an efficient delivery system for these Income Riders when they need future pension plans. But a lot of Indexed Annuities give away what's called an upfront bonus. Okay. That sounds fantastic. Upfront bonus, free money. No. No. No. No. No. There are no philanthropist annuity companies giving away free money. The upfront bonus is just part of the overall contractual guarantee. So, when quoting Indexed Annuities with Income Riders, if they have a bonus, that's just part of the calculation. That's part of us putting it through our annuity calculators to spit out the highest contractual guaranteed income for your specific situation.

What we found most of the time is that the companies offering the upfront bonus have a lower contractual guarantee. Why? There's a hundred pennies in the dollar. They've got to take the money from somewhere. When they're giving an upfront bonus, that doesn't mean anything. The upfront bonus is candy for the stupid. Hopefully, that's not you. As they say in Vegas, if you don't know who the rube at the table is, it's you. Right? So, don't be that person. Don't believe all of that stuff.

To tie up the Indexed Annuity pitch, if you said, Stan, give me the worst Indexed Annuity pitch that has no facts but is all sizzle, no stake. Here it comes. Are you ready? "Hey, I've got this annuity. You can get an upfront bonus on it. It's going to give you 7% growth. You're going to get market upside with no downside. And oh, by the way, and I didn't even tell you this on the phone, you can get free long-term care on it. Do you want to buy it?" How about that? How good was that? You're like, boy, that sounds pretty good. It doesn't exist. Let's break it down.

"Hey, I got this new upfront bonus." Upfront bonus, not free money. Right? Okay. Not free money. "Hey, you're going to get market upside with no downside." Not true. It's a CD product. "Hey, you're going to get 7% of interest, guaranteed." It's not interest. It grows on the income benefit side, but you can't peel off the interest, cash it in, or transfer it. Then, the other one that they throw in with some products is giving you free long-term care. Huh? No. It is a benefit that is guaranteed for confinement care or enhanced benefit, but in essence, you're getting your money back quicker when you get sicker. That's all it is. Now, if you're that guy smoking Kools and non-filtered cigarettes and drinking a bottle of Jack Daniels every day, it's the only thing you can get. But I wouldn't put too much weight on that benefit and never cash in true long-term care for that benefit. But that's how the products are being presented.

Sold Improperly

It's unfortunate because I think Fixed Index Annuities are a great product, but what's going to happen is many of them are being sold improperly, and people are getting mad. They were looking for their market returns. They're wanting to peel off the interest. They want that upfront bonus and better care than the confinement care they were promised. Let's just lead with the facts, you know, and lead with the limitations on these products. Index Annuities are very good CD-type products, and they're very good if you want to quote all carriers for a lifetime income stream for the income rider for a future pension plan. It's really that simple.

The last thing on this annuity sales pitch is that if anyone ever says annuities are like bonds, walk away. Get up and leave. I know some really high-level annuity pundits have tried to make that correlation. Having managed bonds for very large organizations on the street in my previous life with large brokerage firms, I know that annuities are not bonds, period, end of story. Now, I do want you to visit The Annuity Man. You can download all of my books on annuities for free. I've written a book on Indexed Annuities. I've written a book on Income Riders. You can also use our proprietary annuity calculators to get all kinds of annuity quotes, all different types, for the highest contractual guarantee. It's fantastic. And remember, annuities are commodities. You shop all carriers for the highest contractual guarantee. So, with that being said, I know that was a lot, but I'll see you on the following Stan The Annuity Man blog.

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.