Whan an Annuity?

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Jul 17, 2005 3:39 pm

This is supposed to be a learning forum.  It would be fun for one
of the insurance types to explain to the stockbroker types when an
annuity is the appropriate product for a client to buy.




Jul 17, 2005 4:29 pm
Put Trader:

This is supposed to be a learning forum.  It would be fun for one of the insurance types to explain to the stockbroker types when an annuity is the appropriate product for a client to buy.




When you get an insurance license, we'll share that with you.

Jul 17, 2005 4:35 pm
annuity guy:
Put Trader:

This is supposed to be a
learning forum.  It would be fun for one of the insurance types to
explain to the stockbroker types when an annuity is the appropriate
product for a client to buy.




When you get an insurance license, we'll share that with you.





Pretend I'm a client.  The question does not require a license,
all I asked was when an annuity is an appropriate product for the
client.



Surely there is a situation where an annuity is better than anything
else available to the client?  I understand that in your limited
world an annuity is all you can shove down the client's throat--but is
that action every the absolulte best choice of all the products that
the client could buy?

Jul 17, 2005 4:38 pm

It's best because it's what I believe in the most.

Jul 17, 2005 4:40 pm
annuity guy:

It's best because it's what I believe in the most.





But what about what is best for the client?  Do you insurance types not give a schidt about your clients?

Jul 17, 2005 4:57 pm

The subaccounts in the annuity that I use produce returns that are superior to retail mutual funds, the indices, and stocks. The only thing better is what YOU do for YOUR clients. My clients are more interested in putting more money in their pockets than what got them there.


I will concede, however, that many annuities suck. If you're gonna use mutual fund subaccounts that underperform the market, an annuity makes no sense. I've seen people sell the guarantees as the reason to buy the annuities. In my opinion, the guarantees are a waste of money.

Jul 17, 2005 5:02 pm
annuity guy:

The subaccounts in the annuity that I use
produce returns that are superior to retail mutual funds, the indices,
and stocks. The only thing better is what YOU do for YOUR
clients. My clients are more interested in putting more money in their
pockets than what got them there.


I will concede, however, that many annuities suck. If you're gonna
use mutual fund subaccounts that underperform the market, an annuity
makes no sense. I've seen people sell the guarantees as the reason to
buy the annuities. In my opinion, the guarantees are a waste of money.





Gosh you'd think that such a great annuity would be known to somebody besides you--whose is it?



If the guarantees associated with an annuity is a waste of time what is the benefit?

Jul 17, 2005 5:07 pm
Put Trader:
annuity guy:

The subaccounts in the annuity that I use produce returns that are superior to retail mutual funds, the indices, and stocks. The only thing better is what YOU do for YOUR clients. My clients are more interested in putting more money in their pockets than what got them there.


I will concede, however, that many annuities suck. If you're gonna use mutual fund subaccounts that underperform the market, an annuity makes no sense. I've seen people sell the guarantees as the reason to buy the annuities. In my opinion, the guarantees are a waste of money.




Gosh you'd think that such a great annuity would be known to somebody besides you--whose is it?

If the guarantees associated with an annuity is a waste of time what is the benefit?


It's known to a lot of people. It was the best selling VA in 2004.


Read my last post, again, for the benefit.

Jul 17, 2005 5:11 pm

One more thing...you are boring me to death. I'm not interested in selling you on the idea of variable annuities. I love what I do and I make more money than I can spend. It doesn't get any better than that.  I'm done on this thread.

Jul 17, 2005 5:11 pm

Best selling where?  I have a feeling it's in the corners of your mind.



In any case, are you saying that the best selling VA had side funds that were exceptional performers?

Jul 17, 2005 5:27 pm

I put my clients into variable, fixed or equity indexed annuities when it may be appropriate.  I consider that the circumstances, needs and time horizon of each as an individual case.


For variable annuities the client needs to be very aware of the extra costs for the benefits and guarantees and wiegh the value of the benefits against the loss of performance of the subaccounts if they were held outside of the annuity.  Some benefits and downsides are:


Death guarantee: beneficary will recieve at least return of principle, or a step up in value to the highest quarterly or annual anniversary of the contrat, the current market value or a predetermined compounded rate (5 to 7%) whichever is greater.  May or may not be a benefit to the beneficary if the gain in the contract is too high and they are in a higher tax bracket.  If wealth transfer is the aim, then life insurance, if they can qualify, is a much better vehicle for that goal.


Living benefits: for those clients who plan to take an income stream from their annuity in the future and want to hedge their bets against poor market performance. For example if you hold the contract for 10 years and then annuitize over a 10 yr or longer period you will annuitize the lump sum of the greatest of those items listed in the death benefit.  So if the market goes to hell in a handbasket and you hold the contract for 10 years you can be guaranteed to have an amount to annuitize that is approximately twice your original deposit (rule of 72 at 7% guarantee)


Controlled payout:  clients with kids that are flakes, have untrustworthy spouses or have handicapped children like this benefit. You can predetermine that your beneficary will NOT get a lump sum, but rather an income stream for a predetermined period of time or life span.  Some people don't have trusts with formal trustees or other legal means of doing this.  Sometimes they do have a trust but it is one of those schlocky insurance scam trust mill pieces of crap that accomplish next to nothing.


Tax deferral: obviously this is not necessarily always a benefit, as the deferred capital gains (that are taxed at a lower rate now) are treated as ordinary income when distributed.  However for a high net worth client who has maximized his retirement plan caps and still wants to put large (note I said large) sums aside for future retirement income stream this can be a good tax strategy.


Some of the companies offer a bonus for deposits in the first few years, but you need to watch out for those and examine them closely because the internal costs (m&e and benefit charges) are higher and essentially negate the bonus effect.


Fixed annuities are a joke right now because the rates are so low. A client would be better off in a short term bond or even a cd at these rates.  Equity indexed annuities are really only good for those extremely risk adverse clients who want to take a chance on the upside of the index(s) without having risk of losses.  Frankly right now I don't think that they are a very good idea right now as the internal guaranteed rate of return is less than a bond or cd and they have extremely long surrender periods as a rule.  There are some exceptions to this, but then the participation in the market cap or gain is very much reduced.


Thanks for asking 

Jul 17, 2005 5:37 pm

Putsy, you are the millionaire Forex Gump found cutting the lawn at the
local college. He was the hero on the grid-iron, in the foxhole, and
leading the flock cross-crountry in search of their own smiley faith.
Maybe because you were gifted with a higher IQ, the irony of your story
turns out to be whom you chose to love. Forrest longed for his Jenny
and stayed the course. You chose a career and stayed the course. What
do you call the result of your tempestuous love affair with her? I am
hopeful that at some point you'll smile at the memories and wish others
well with their own.



I can share again with you something I noticed that struck me as
different between you and the Forrests of the world (this is the see
the tree opportunity): They don't judge themselves by what others
think. Sure they get their feelings hurt. Others will succomb to life's
axe. It's their capacity to measure themselves against the gift of the
moment that I admire. 



Putsy, you were dumb not to play the game with me. Don't be a fool and
assume that I expected you to take the bait. No hooks bubba, I brought
the shrimp traps for you.



I know your momma didn't raise no fool, so stop being so stupid with
your compulsions. As Forrest's momma said "Stupid is as stupid does."








Jul 17, 2005 5:38 pm
babbling looney:

Fixed annuities are a joke right now because the rates are so low. A client would be better off in a short term bond or even a cd at these rates.  


I'm putting new money into a Fixed Annuity crediting 5.38%, with top ratings (A++, Aa1, AAA).

Jul 17, 2005 5:47 pm

I'm putting new money into a Fixed Annuity crediting 5.38%, with top ratings (A++, Aa1, AAA


Name it.   I'll bet it is one with a bonus up front, and you are quoting the yield for the entire contract to term and not the actual crediting rate.  Also what is the surrender schedule?  If it is anything over 5 years, you have just locked your client into a subpar interest rate in a rising interest rate environment and no way for them to get out of the contract without surrender charges.


You will have some very angry clients in a few years when they can get 6% on a short term cd or quality bond and then they are stuck with a sucking 4.5% crediting rate with limited liquidity.  I know.  I had pissed of clients in the early 90's and I will never never fall into that trap again.  Sure it is easy to make the sale now because 5% looks good......now.


Never sell the rate.

Jul 17, 2005 5:54 pm

Note the four responses.



1. Annuity guy says annuties are best because it's what he can sell.



2. BabblingLooney makes a sales presentation of sorts, filled with good points--some debateable, but good nonetheless.



3. Mojo tells a story about Forrest Gump



4. picks up on BabblingLooney's point that fixed annuities are stupid, and announces that he sells fixed annuities.





Jul 17, 2005 6:05 pm
babbling looney:

Name it.  


If you really knew annuities, you'd know the company. 


Yes, there is a 1% premium credit, but that is NOT reflected in the current yield, which I stated. That current yield is credited to 101% of the premium paid in the first year.

Jul 17, 2005 6:07 pm

That current yield is credited to 101% of the premium paid in the first year.


Ah... I see... an equity indexed annuity.

Jul 17, 2005 6:11 pm
babbling looney:

Never sell the rate.


You're making another systematic error, because of your judgemental heuristics.


I always sell the rate. Current yield, yield to maturity at current rates, and yield to maturity at guaranteed rates, after intensive due diligence on historical crediting in comparison to the industry as a whole, and alternative investments in similar risk classes (i.e., CDs).


My firm's been in business since 1922. We've never had to apologize to a client, but several of the founders wrote the book on due diligence.


I've never had to apologize to a client personally for any fixed annuity I sold them (and I was selling them when current yields were in double digits....what were you doing then?).


Jul 17, 2005 6:13 pm
babbling looney:

Ah... I see... an equity indexed annuity.


Nope. Not even close. The design is much older than 36 years (the age of the oldest index linked annuity contract). This design has been around over 100 years. There weren't any indices back then, sugar.

Jul 17, 2005 6:26 pm

I try to avoid women who Cannot Understand Normal Thinking, but I do enjoy pulling the carpet out from under them.



She's more challenging than puttyndacrack, and she knows more than he ever has, she just doesn't know how much she doesn't know yet. It's a common characteristic of youth. He's just an old fossil that awaits his burial. The time fast approaches for him, I think. People with that much hatred in their heart rarely make it to life expectancy.