Thoughts on Annuities, Part 1

I had never given a whole lot of thought to the idea of annuities in the past. I remember studying them for life insurance exam a few years ago, but never really looked at them in-depth.

That is until last week when I had a client interested in moving some qualified retirement funds into one. I received a crash-course on annuities as a result!

Specifically this post will reference Single Premium Deferred Annuities (SPDA). Not all of these thoughts will apply to all annuity products.

That said…

An SPDA is an anuity that you make a single, lump sum deposit into for the purpose (generally) of drawing out a guaranteed stream of income at some point in the future.

Essentially what happens is, 1) you give the insurance company your money, 2) they use it to earn more money for both themselves, as well as you (for when you begin taking payments.

As we found out, the ideal is to have the flexibility to wait for a number of years before you intend to draw money from the annuity.

We also found that the products offered varying incentives to purchse, ranging from large, up-front bonuses (Anywhere from 5% to 25% of the deposit), to higher than average interest rates for specific periods of time (5%-8%, typically for 10 years).

While these incentives seem enticing, one must read very carefully the fine print in the contracts. If you intend to do anything other than take the Guaranteed Lifetime Income, these bonuses and interest rates magically disappear.

If you intend to annuitize early or take percentage withdrawals (above which penalties may apply), you are left with only your initial premium. In certain cases, you may only be allowed a percentage of that.

The bottom line is that, while these SPDAs can be good products given the right situation, they are absolutely not for everyone. It is important that you understand very clearly what it is you want to accomplish with the annuity and you understand all the details of the specific product you are purchasing. Bonuses and high interest rate accumulations look shiny and great, but remember:

TNSTAAFL (There’s No Such Thing As A Free Lunch).

Insurance companies are out to make money just like everyone else. While they have a duty not to swindle the consumer, consumers also have a duty to educate themselves (either alone if they are confident, or with an agent or advisor they trust).

In my next post, I’ll discuss specifically why we looked at these annuities and who else might potentially benefit from them.

Thanks!

On Being An Independent Insurance Agent

For my first real post I want to speak write a bit about being an independent insurance agent.

This is a topic near and dear to my heart, as I started my insurance career as what’s known as a captive employee of a large, national insurance company.

To put it mildly, I was displeased with the business model. Don’t get me wrong, I got licensed and got some excellent training and sales experience, but in the end it just wasn’t for me. However, I just had this thought in the back of my mind that it wasn’t insurance that was wrong for me, but the particular system of the company I was with.

But I digress, my point is not to complain about the past, but rather to explain why I believe the independent agency model is superior.

1) I do not exclusively represent any individual companies.
Since I am not an employee of a company, I am not beholden to any of them. They all get equal opportunities to provide the best combination of coverage and price for the individual customer. In other words,

My first obligation is to my client, not the insurance company.

This means I pair you with a company that represents the best value for you (usually, but not always the cheapest). I am not required to insure you with any specific companies as a condition of my employment.

2) Choices, choices, choices.
No single insurance company represents the best option for every individual client. Some companies handle clients with awful less than stellar driving records better than others. Some companies are better for families with teenage drivers. Some companies offer much more robust coverage for your home at better prices than others.

All companies underwrite risk and structure their prices differently. We can check several companies to find the one that fits you best.

Additionally, if for some reason a particular company no longer works for you we can find a new one. This allows you to remain with the familiar faces at The Fuller Agency (of course this is only a benefit if you like us!!).

These are just a couple of benefits to working with an independent insurance agent. I’ll likely post again on this topic in the future. Until then, thanks!

The Purpose of My New Blog

Welcome to the very first post on my new insurance blog!

This is just one phase in my attempt to construct a comprehensive web presence for The Fuller Agency. That being said, for the sake of accountibility I’ll cop to a couple of goals for this particular site:

1) Blog at least once a week. Twice if the Spirit moves me or I have something worth writing about.
2) Blog on topics that will be relevant primarily to consumers of insurance.

If you have ideas for topics, feel free to comment or shoot an email to: mattie@thefulleragency.com. Also, pass this along to your friends, relatives, and anyone else who might be interested.

Thanks and welcome!