5 Year Index Annuities
The index annuities we sell today are very different from the ones we were using 10 years ago. The industry has evolved, and so have the annuities we sell. The change I want to focus on with you for this writing is the increase in sale of shorter term surrender periods.
Over the past two years we have seen a significant increase in the sale of 5 and 7 year index terms.
Well, there could be several reasons. Market confidence is much “shorter” today than it was 2 years ago—meaning that investor confidence has shifted to much shorter term investments in things like options. Then there is crypto currency, which is having all sorts of unexpected influences on a variety of market characteristics and metrics. And, even though volatility was significant 2 years ago, it is even worse today.
Carriers have helped increase the popularity of 5 & 7 year index annuities by decreasing the gap in crediting method power that used to exist when comparing these to 10 & 12 year annuities.
Some of the best selling 7 year policies have the EXACT same crediting rates that the 10 year version has.
The only real difference is the amount of commission. But, commission is where the real benefit to advisors lies. Even though the shorter term annuities pay a lower up-front commission, you will get the chance to earn another commission on that same money much sooner with a shorter term surrender period. For example ...
1. 10 Year index annuity: 6% commission
2. 5 Year index annuity: 4% commission
a. Sold twice in 10 years= 8% commission
Hit the Commission Trails
Another area to consider when making an annuity sale is the way we choose to take our commission payments. Did you know that most index annuities offer at least one commission option that pays out over many years (a.k.a. “trail commissions”)? They still offer a lump-sum commission that is paid in full at the time of policy issue, but we have the option to choose another payout plan that pays MORE total commission, just stretched out over several years. Example…
- Option A: Lump-sum 7%
- Option B: Lump-sum 2.25%, +1.0% for 10 yrs.= 12.25%
This can be a significant difference in the total amount of income received from each index annuity sale. Especially if you know which annuities have the most powerful trail options. For instance; North American and AIG pay trails for the entire life of the contract—not just for the surrender period. And, they pay quarterly!
Just imagine...you could be receiving quarterly income for as long as your clients hold on to their index annuities. In the long run you earn more, and it creates a perpetual revenue stream. And, you can even assign your commissions to continue to someone else, in the event that you were to die.
So, the next time you are filling out an index annuity application, take a moment to consider the options available. Give us a call and we can research how many trail options are available, and we can even do the long term calculations to show exactly how much more money you will earn. Just one more way we can help you make more money from the business you do.
Give us a call. We can help!
~ Greg Skogsberg