additional cost, that allows the policyholder to access the death benefit to
pay for long-term care expenses.
Index annuity products offer tax-deferred accumulation, a guaranteed
minimum interest rate for the fixed crediting strategies, the potential for
greater growth through index crediting strategies and, like all annuities,
the ability to create a guaranteed lifetime income stream. Many fixed index annuities offer clients an optional rider, usually for an additional cost,
that guarantees a minimum guaranteed lifetime withdrawal benefit. For
clients who are close to retirement and want to take some market risk
out of their retirement portfolio, they may be able to move a portion of
their funds from a 401(k) into an individual retirement arrangement that
includes a vehicle like a fixed index annuity (FIA).
In response to producers’ requests for more educational resources about
index products, Genworth recently launched The Index Institute, a virtual
learning community for producers that contains index life insurance and
index annuity training, market insights, presentations, product information and cutting-edge
nancial educator. While some clients have a
firm grip on FIAs and index UL, others may
only think they understand, and many are in
the dark. In fact, a recent study found that
55 percent1 of consumers do not know that
UL accumulates cash value against which
they can borrow. The same study revealed
that 69 percent of consumers do not know
that life insurance benefits are income tax-free. Further, with so many different types
of annuities — from fixed to index to variable — it’s easy to understand why clients
may be confused.
With this in mind, it’s important to remember that every client meeting is an opportunity to educate. You can help demystify index products by explaining that they
offer potentially greater policy or contract
value than other fixed insurance products
and protection from downturns in the market, as well as other benefits.
Index UL, for example, provides a death
benefit for heirs that is generally income
tax-free, and with sufficient policy values,
clients can take policy loans and withdrawals to supplement their income. 2 Some
index UL products also offer a rider, at an
LIS: Why should advisors recommend index products now?
Gipple: There are three compelling reasons to recommend index products today: demand, market opportunity and the current economic environment. Advisors who seize opportunities to educate consumers about index products see significant demand and are reaping the benefits. 2012 marked the fifth consecutive year of record-breaking sales for FIAs3,
which topped $33.9 billion for the year4. What’s more, 47 percent of all fixed annuities
are fixed index annuities4. Index UL has seen similar success; sales increased 42 percent
between 2011 and 20125. Since 2006, the product has had a compounded growth rate of
roughly 30 percent each year5.
You might be concerned that the steady growth in sales suggests saturation. However,
the reality is advisors have been primarily targeting the mass affluent, leaving Main Street
underserved. Consumers making between $50,000 and $250,000 annually also have retirement income needs and other expenses to meet down the line. For example, a client
with index UL would be able to more easily make contributions to her grandchild’s college
education by drawing from the growing cash value of her policy. Additionally, with an accelerated benefit rider, available for an additional cost, policyholders can access their death
benefit to pay for long-term care expenses.
The current economic climate is the perfect time to introduce clients to this type of product. It is the perfect storm for index products. FIAs, for example, are the answer many consumers are looking for but don’t know exist. They are capable of doing what fixed annuities
and variable annuities can’t, given such low interest rates today: provide opportunity for
growth while eliminating the losses associated with uncertain financial markets. If a client
purchases an index annuity in 2013 and the S&P 500 is down in 2014, the client’s annuity
will not lose value; it will simply earn zero interest that year. While past performance is not
indicative of future results, considering the market is typically down one out of three years,
FIAs are an incredibly attractive option for consumers.
LIS: What role should these products play in a larger retirement/financial plan?
Gipple: There is a shift occurring today, with many people expecting the bond market to
remain soft at best. There is a concern about what rising interest rates will do to bond prices