how annuities work and when they might be the correct solution for your clients. There are many different types of annuities, but they all have one thing in common. Annuities are financial products issued and underwritten by an Insurance company. They are not insured by the FDIC as are bank savings and cd accounts, rather they are backed by the claims-paying ability of the underlying Insurance Carrier. At Wealth Watch Partners, we work with dozens of Carriers and each of them have multiple annuity solutions. The good news is that you can rely on our experienced Annuity marketing professionals to help you choose the best annuity solution for your client. We spend the time researching and evaluating the top products so that you don’t have to.
Annuities can play a
critical part in the
financial planning process, yet they are often downplayed by many of the “talking heads” on radio and tv. Below are some excellent resources to increase your knowledge of these important financial solutions. Feel free to use this information to educate yourself and your clients on the truth about annuities.
In order to provide the best solutions for your clients, it is critical to understand the difference between many types of annuities.
Fixed-Indexed Annuity (FIA)
A type of tax-deferred insurance contract whose credited interest is linked to an equity index – typically the S&P 500 or other indices. This contract protects against a loss of principal due to market downturns, and it guarantees a minimum interest rate when held to the end of the surrender term. The insurance company that administers the annuity backs the contractual guarantees.
Multi-Year Guarantee Annuity (MYGA)
A fixed annuity that protects against a loss of principal and guarantees a declared rate of return over the life of the contract. MYGAs are conceptually similar to bank CDs in that they offer a fixed rate of return over a specified time period, typically between 1 and 10 years. The insurance company that administers the annuity backs the contractual guarantees.
Single Premium Immediate Annuity (SPIA)
An insurance policy that, in exchange for a single premium sum of money, guarantees the issuer will make a series of payments to the contract owner. These payments may either be level or increasing periodic payments for a fixed term of months and years, or for the life of the insured.
Variable Annuity (VA)
A Variable Annuity is an insurance contract that provides clients with growth or income potential based on how the annuity’s underlying securities perform. Typically the investments within a Variable Annuity are mutual funds, and therefore they are subject to gains or losses. VA’s often contain many fees such as M&E (Mortality & Expense), Administration Costs, and Sub-Account fees. Additionally, there may be fees for optional Income Benefits or Death Benefits.
*Keep in mind that our focus at Wealth Watch Partners is on FIA’s, MYGA’s and SPIA’s. In order to sell VA’s an agent must obtain the appropriate licensing, as the sub-accounts within a VA are market-based and therefore subject to market risk.