Annuity Case Study: The 4 Benefits of Annuity Ownership on Display With Astonishing Results

By Chris McDonald, Vice President, Director, Annuity and Institutional Sales

  • Originally published February 16, 2011 , last updated April 27, 2021
  • Annexus

Sometimes we get so wrapped up in the business side of things that we forget that the solutions we offer truly make a difference in the lives of our clients.

The following is a true situation that occurred last month to an advisor that I work with.

Imagine this situation: You have a 76-year-old client, Mr. Jones, who has two IRAs totaling $713,000. You, the thorough advisor that you are, find out that the client needs $35,000 per year in income, and he wants to leave as much as possible to his wife as a death benefit.

So which income rider are you going to offer in this situation?

Let’s be honest…most producers simply take the easy way out and default to whatever rider has the highest “roll-up” rate at the time. Their rationale: 8% is bigger than 6% so it must be better, right? If that particular client needs the maximum income their annuity can buy, it might make sense to focus solely on roll-up rate, but, honestly, how many of your clients actually need max income? This one doesn’t.

And, if your client really does need max income and that’s all they’re looking for, why not sell them a SPIA? Many advisors fail to explain to the client that if they really did take max income, it would annihilate their actual accumulation value on the annuity, leaving them with no principle and no death benefit for their beneficiaries — sounds kind of like a SPIA, doesn’t it?

In reality, virtually all of your clients need more from their annuity than just income. Generally, they’re looking for four things:

  1. Principal Protection
  2. Accumulation
  3. Wealth Transfer
  4. Income

By focusing only on an income rider roll-up rate, you’re only addressing one of the four layers of protection an annuity should offer. Think your clients are okay with that?

Fast-forward 21 months. You receive a call from Mrs. Jones. After battling cancer for over a year, Mr. Jones has passed away. A few days later, you attend the funeral and grieve with the family. When the time is right, you set up a meeting to discuss Mrs. Jones’ financial situation.

As you prepare for the meeting, you wonder how much Mrs. Jones is going to receive. Of course they bought a product with principal guarantees, but did they make any money? That would be unlikely, considering that they were taking out $35,000, or 5%+, per year.

Your assumption would be correct — if you had taken the easy way out and sold them a product simply because it had the highest rollup — even though they didn’t need it. Fortunately for you, and for Mrs. Jones, you took the time to explain why another product would take care of their income needs, while also offering greater benefits in the other three areas they were looking for: accumulation, death benefit, principal protection.

You set up a meeting with Mrs. Jones; her kids will be present too.

Instead of giving Mrs. Jones a check for $690,000, which would have been one year (no, not 2 years) of 7% growth (product with a 7% cap) minus their withdrawals, you hand her a check for $840,000. Yes, a $150,000 difference!

How is that possible?

Three Reasons:

  1. You recommended a product with no cap on the upside.
  2. You recommended a product with a minimum 4% accumulation on the death benefit.
  3. And, most importantly, you recommended a product — the only product — that tracks the values on a daily basis, therefore capturing the interest that had accrued TO THE DAY of Mr. Jones’ death.

You see, Mr. Jones would have been severely penalized if he were in any other product, just because he couldn’t time his death to be on the anniversary date of his policy. So because of the ability to track the values daily, Mrs. Jones received $150,000 more death benefit.

Did I mention that their kids want to do business with you now too? They do. Additionally, Mrs. Jones liked the solution that you gave her husband so much, she decided she wanted the same thing for her and her beneficiaries. So, she handed the check back over to you, filled out some paperwork, and you were able to receive full commission on the $840,000 application. Not a bad situation for the clients, their beneficiaries (who are now clients), and you as the advisor.

The Annexus Group calls this concept of looking beyond just a rate and focusing on all four benefits of owning an annuity “Total Benefits of Ownership” or TBO. To learn more about this concept, and how you can use it to close more sales, call a marketing consultant at 1-877-645-4939.