We would love to hear from you. Click on the ‘Contact Us’ link to the right and choose your favorite way to reach-out!

wscdsdc

media/speaking contact

Jamie Johnson

business contact

Victoria Peterson

Contact Us

855.ask.wink

Close [x]
pattern

Industry News

Categories

  • Industry Articles (21,155)
  • Industry Conferences (2)
  • Industry Job Openings (35)
  • Moore on the Market (414)
  • Negative Media (144)
  • Positive Media (73)
  • Sheryl's Articles (800)
  • Wink's Articles (353)
  • Wink's Inside Story (274)
  • Wink's Press Releases (123)
  • Blog Archives

  • March 2024
  • February 2024
  • January 2024
  • December 2023
  • November 2023
  • October 2023
  • September 2023
  • August 2023
  • July 2023
  • June 2023
  • May 2023
  • April 2023
  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • November 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • August 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • November 2008
  • September 2008
  • May 2008
  • February 2008
  • August 2006
  • Hey, Wall Street: You Can’t Handle the Truth

    February 22, 2011 by Sheryl J. Moore

    By Sheryl Moore
    AnnuityNews.com

    Feb.21, 2011 — For too long, indexed annuities have been the “red-headed stepchild” of the insurance industry. Scandals over surrender penalties, commissions and lawsuits have plagued this business since it existed.

    Much of the “scandal” has been misinformation or isolated incidents of agents behaving badly, which have been fueled by the media. Who runs financial services media in this country? Wall Street — and it is in their mutual fund advertisers’ best interests that indexed annuities come out smelling not-so-rosy. Well, Wall Street, I’m here to set the record straight. You may not be able to afford losing your clients to insurance agents, those who can protect them from loss in the event of market downturn, but you need to face the truth.

    Truth No.1

    Indexed annuities are not investments. Variable annuities are the only type of annuity that can be called an “investment,” as these products place the purchaser’s principal and gains at risk due to market volatility. Stocks, bonds and mutual funds are also investments. The Securities and Exchange Commission is responsible for the regulation of such investment products.

    Fixed and indexed annuities, by contrast, are insurance products — similar to term life, universal life and whole life. Insurance products are regulated by the 50 state insurance commissioners of the United States (collectively referred to as the National Association of Insurance Commissioners, or NAIC). Insurance products do not put the purchaser’s money at risk; they are “safe money products,” which preserve principal and gains. Investments, by contrast, can put a purchaser’s money at risk and are therefore appropriately classified as “risk money products;” they do not preserve principal. The NAIC does not permit the use of the word “investment” when referring to indexed annuities, as such.

    Truth No.2

    Indexed annuities used to be called “equity-indexed annuities” or “EIAs.” They aren’t anymore. They have not been called “equity-indexed annuities” or “EIAs” by those in the insurance industry since the late 1990s. The insurance industry has been careful to enforce a standard of referring to the products as merely “indexed annuities” or “fixed indexed annuities,” so as not to confuse consumers. This industry wants to make a clear distinction between these fixed insurance products and equity investments. The interest potential of these products is limited, unlike equities investments. In addition, it is the safety and guarantees of these products which appeal to consumers, particularly during times of market downturns and volatility. If everyone could stop using the word “equity” when referring to these products, it would help in avoiding any such confusion in the future.

    Truth No.3

    Indexed annuities don’t have “costs” or fees. Some optional benefits may have an annual charge, but the only “cost” that the client pays on an indexed annuity is time, via a surrender charge. The surrender charge on a fixed, indexed, or variable annuity is a promise by the consumer not to withdraw 100 percent of their money before the end of the surrender charge period. This allows the insurance company to make an informed decision on which conservative investments to use to make a return on the clients’ premium (i.e. seven-year grade “A” bonds for a seven-year surrender charge annuity or 10-year grade “A” bonds for a 10-year surrender charge annuity). Investing the consumer’s premium payment in appropriate investments allows the insurance company to be able to pay a competitive interest rate to the consumer on their annuity each year. In turn, it also protects the insurance company from a “run on the money” and allows them to maintain their ratings and financial strength.

    Truth No.4

    Dividends are never included in the index calculation of indexed annuities, for good reason. The insurance company never receives the benefit of the dividends on the index on an indexed annuity, because the client is never directly invested in the index. The insurance company invests the indexed annuity purchaser’s premium payment in the general account, which protects them from declines in the index. The premiums are never invested in a pass-through account, which would provide the benefit of the dividends, but also expose the client to risk should the market decline. For this reason, the dividends cannot be passed on to the consumer. By not directly investing in the index (which would pass on the dividends), the insurance company is protecting the purchaser from losses. So, you see — this is a benefit to the indexed annuity purchaser, not a disadvantage, folks. And while it is true that annuitants will not “benefit from dividends in an indexed annuity,” they also won’t risk losing their money as a result of market volatility.

    Truth No.5

    Indexed annuities are not intended to perform comparably to stocks, bonds, mutual funds or the S&P 500 because indexed annuities provide a minimum guarantee where investments do not.

     Indexed annuities are priced to return about 1 percent to 2 percent greater interest than traditional fixed annuities are crediting. In exchange for this greater potential, the indexed annuity has a slightly lesser minimum guarantee.

    So, if fixed annuities are earning 5 percent today, indexed annuities sold today should earn 6 percent to 7 percent over the life of the contract. Some years, the indexed annuity may return a double-digit gain and other years it may return zero interest. However, what is most likely to happen is something in between. Were the indexed interest not limited, the insurer could not afford to offer a minimum guarantee on the product, and that is a variable annuity, not an indexed annuity. On the other hand, the client is guaranteed to never receive less than zero interest (a proposition that millions of Americans are wishing they had during that period of March 2008 and March 2009!) and will receive a return of no less than 117 percent worst-case scenario on the average indexed annuity. In addition, no indexed annuity owner has ever lost a penny as a result of market downturn. This is a strong value proposition that cannot be offered by any securities product with unlimited gains.

    Truth No.6

    Companies like Met Life and New York Life do not sell indexed annuities and are not going to be able to offer credible information on the products. These companies sell variable annuities — lots of them. When the stock market declines, sales of variable annuities drop overnight.  Likewise, when the market declines, indexed annuity sales increase. I would hardly consider companies that compete against those selling indexed annuities to be a credible source of information on the products.

    Now that you have the truth — what will you do with it? My guess? Go out and buy an indexed annuity…

    Sheryl Moore is president and CEO of AnnuitySpecs.com, an indexed product resource in Des Moines. She has more than a decade of experience working with indexed products, and provides competitive intelligence, market research, product development, consulting services and insight to select financial services companies. She may be reached at sheryl.moore@annuityspecs.com.

    Originally Posted at InsuranceNewsNet on February 21, 2011 by Sheryl J. Moore.

    Categories: Sheryl's Articles
    currency