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How to Buy an Annuity: What is Suitable and Appropriate?

Stan Haithcock
November 4, 2021
How to Buy an Annuity: What is Suitable and Appropriate?

Today’s topic is a good one, a big one, an important one. What is suitable and appropriate when buying an annuity? It's detailed. I'm going to go through the reasons we have to go through the application process and ask you.


There's a method behind the madness, as they say. In this case, the madness is making sure that it's suitable and appropriate for you. All right, a little history lesson from Stan, the Annuity Man®. A little bit more than ten years ago in America, annuity companies weren't as detailed as they are now. They didn't care as much about the details of where the money was coming from and all that stuff. People were putting tons and tons of money into annuities and putting way more than they should. As my CEO points out, in her excellent example, someone's furnace would break, and they didn't have enough money available without penalty to fix the furnace because I had it all in the annuities.  

From that point, lawsuits happen, then the attorney's general gets involved from all states, and now there are some strict laws and regulations in place when you fill out the application for annuities. For us, if you choose to do business and work with my team and me, we're going to follow those rules to the T. There is no gray area that we're going into. We're going to ask the questions.

Application Process

The application process is all about suitability and appropriateness. We have to ask by law questions that we do not share, or it's all confidential, that some people don't like to answer. Net worth and social security number and all this stuff. But guess what? That's not us. We are just asking the questions that we are required to ask by law. That the carriers require us to ask. We don't ask any additional questions other than that. The bottom line is that when you go through the application process and ask us the questions, we're required to ask them to you. We are not making them up. We're required to ask you those questions and the answers you give are confidential.  

You have to feel comfortable with that. But from a practical and appropriateness standpoint, the insurance company is the one that's issuing the annuity. They want to make sure that you're not putting too much money into the annuity based upon your investable net worth; they want to make sure that it's solving you for your specific goal. Another suitable and appropriate thing that's big is, let's just say you want to transfer the annuity that you already have to another annuity.

An upfront bonus is candy for the stupid.

First of all, never buy an annuity for an upfront bonus as an upfront bonus is candy for the stupid. There are no philanthropists at annuity companies. But under the suitable and appropriate category, the carrier gets your application. If you're trying to transfer the annuity that you're at to a new annuity, we have to make a side-by-side comparison. We will look at the application of the annuity you're coming from, and the contractual guarantees of the annuity you're going to. Now spoiler alert, with a lot of these products, indexed annuities, etc., that are out there, once you're in them, annuity companies are innovative.

If you were an annuity company owner, what would you do? You would design the products so that they would be tough to transfer. Why? Because you want to hold onto that asset as the annuity carrier. Well, if you attach an income writer to a fixed indexed annuity and five or 60 years down the road, someone pitches you to transfer that annuity, guess what doesn't transfer? The income writer benefit. Under the suitability and appropriateness standards that the annuity industry is set in the application process.

I mean, side-by-side comparison, you're not going to be able to transfer that annuity most of the time. Suitability and appropriateness, some people think it's a pain in the butt because you've got to go through all these questions, and we're asking these things, and we're putting or sending the application to the carrier, etc. All of this is designed to protect you. The annuity company doesn't want some person putting all their money into an annuity. They do not want that to happen.

If the application is filled out inappropriately, that agent is going to lose their license. As much as you think it's the Wild, Wild West, the annuity company is ultra regulated, and the carriers want to ensure that you're getting exactly what you want and what you had signed up for. They want to make sure that you're not putting too much money in. How to buy an annuity involves making sure it's suitable and appropriate for you. That's a good thing. You have to remember that.  

With some of the questions that you're going to be asked, you will have to provide these detailed answers. First, you're going to have to tell my staff why you're buying this annuity. The annuity company that's receiving your money wants to know that as well. They're going to want to know your experience in buying financial products, whether stocks or bonds, mutual funds, or whatever; they want to know if you have other annuities. They're going to want to know your income, and they're going to want to know your net worth. Also, they're going possibly want to know the breakdown of the income. They're going to want to know the details of the holdings that you have.


I know what you're saying out there. You're saying, "Wait a minute, I have to give up all this information just to buy an annuity?'' The answer is yes. Once again, I go back to the original premise. Why are they asking this? Why are they getting this detailed information? I mean, all of this is non-shared, and it's confidential. But they are asking to make sure that it's suitable and appropriate for your specific situation. They're not digging in for anything other than that. They're trying to protect the consumers. I don't blame carriers for the sales messages you’ll hear because they cannot regulate what agents say. I want you to be educated. I want you to be informed. I want you to make a good decision.

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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