KISS the Fixed vs. Variable Annuity Conversation

By Wendy Swanson, Marketing Coordinator, Annuities

  • Originally published August 17, 2010 , last updated March 15, 2016
KISS the Fixed vs. Variable Annuity Conversation

One of the major hurdles standing in the way of many fixed indexed annuity sales is the perception on the part of the consumer that the products are too complex. Unfortunately, many agents feed into this perception by over-complicating their sales presentations.

We’ve all heard of the KISS (Keep It Simple, Simon) methodology, but not all of us are using it with our clients.

This is especially true when clients are comparing indexed annuities with variable annuities. The agent feels as though they need to have an overly extensive knowledge of SEC-driven products to have an intelligent conversation about alternative investment vehicles.

While doing my CE credits using WebCE, I stumbled upon a simple way to present the relative differences between fixed and variable annuities to your clients. By stripping the products down to their essence, you can get beyond the complexities and help your clients truly understand which is the better option for them.

Discussing Variable Annuities

WebCE describes Variable Annuities with the following:

“Unlike a fixed annuity in which the insurer bears the investment risk, contract owners of variable annuities bear the risk of loss of principal to the extent that the variable annuity premiums are allocated (by the contract owner) to the insurer’s separate account.” (bold added for emphasis)

It goes on to say:

“The fixed account is similar to a fixed annuity to the extent that the insurer guarantees both the principal and a minimum rate of interest and declares a current interest rate.”

Make sure they understand that if they have any of their money allocated to one of the sub-accounts, they bear the risk, not the insurer.

Differentiating Fixed Annuities

WebCE describes Fixed Annuities with the following:

“A fixed annuity is one under which the insurer, rather than the contract owner, bears the risk of loss of principal. The insurer guaranteed the contract owner that:

  • Principal will not be lost, regardless of the insurer’s investment performance; and
  • Interest at least equal to a stated minimum rate will be credited to the contract"

Example Conversation

When faced with clients who are considering variable annuity options in addition to fixed annuity you’re offering, try the following KISS conversation to help them understand which option is best for them.

“Mr. and Mrs. Jones, there are several types of annuities, some in which you bear the risk of investment loss and others where the insurer bears the weight of investment loss. At this stage of your life, which makes more sense to you: for you to bear the risk, or the insurer?”

If they are OK with themselves bearing the risk then you might pursue as follows:

“Mr. and Mrs. Jones, here is a list of fees that are common in variable annuities. I find that many clients I have are unaware of these fees that are assessed regardless of whether your account is up in value or down in value. Are you comfortable with bearing all the risk and paying these fees as well?”

There may be many different ways to dispense this information to your Mr. and Mrs. Jones, but the point is we need to keep our information simple and to the point. Perhaps by bringing out the foundational understanding of each annuity, we can educate our public towards a safe and secure future!