Offering Indexed Products in a Down Market
January 9, 2010 by Sheryl J. Moore
- By Sheryl Moore
Published 2/1/2009
So, the market is continually tanking, and you’re having problems making appointments. Every sale seems to be a tough one as your clients hold on to every last penny they have, in perpetual fear of a prolonged recession. Indexed products — both annuities and life insurance — can be used to protect 100 percent of their principal from market losses and potentially credit them interest in the double digits a year from now.
Index-linked insurance products work especially well for moderately risk-averse consumers in need of insurance benefits. The ideal candidates are clients who want the safety of guarantees and no principal risk from market fluctuations, particularly if they want the opportunity to earn 1 to 2 percent greater interest than traditional savings vehicles such as CDs or fixed annuities. Indexed products also offer the “power of zero” — in other words, zero-interest crediting in the midst of a market downturn. That’s an especially attractive proposition for millions of consumers who are watching their 401(k)s dwindle away. They’re just like fixed products, but with a different way of crediting interest.
Indexed annuities (IAs) offer a guaranteed return of principal, plus interest over the contract term. The typical minimum guaranteed surrender value (MGSV) on an IA is 87.5 percent of premiums credited at
3 percent interest. This provides for a return of the premiums paid in year five of the contract, and a return of 17.5 percent on the average IA sold. So, even if the market keeps bottoming out for a decade, your client could receive $117,592.68 after depositing $100,000 today.
If your client needs the protection of life insurance, they can receive an annual guarantee of as much as 2 percent. Indexed life insurance products not only offer the protection of life insurance, they provide cash accumulation for retirement income and an annual guaranteed interest rate. Plus, indexed universal life (IUL) companies have been scrambling to re-price their products to comply with 2001 CSO tables, granting an opportunity for agents to get more competitive. Many IUL products have more aggressive no-lapse guarantees than traditional universal life products. So, if your clients value the safety of guarantees but still want cash accumulation, indexed life is a logical choice.
Nearly all indexed life and annuity products measure the performance of an index (such as the S&P 500 stock index) over a one-year period. An annual point-to-point crediting method can be especially advantageous in measuring the growth of an index in an upward-trending market. Right now, caps on many of these products are still in the double digits, resulting in a very attractive yet limited interest potential. These products can provide downside guarantees with the opportunity for upside interest crediting in excess of 6 percent. Compound that with the tax deferral aspect that annuities offer and the tax-free death benefit of life insurance, and remember to highlight the generous liquidity provisions.
If you haven’t explored indexed annuities or life insurance, now is the best time to do so. In a down economy, it can help open up new markets, exponentially increase your sales, and result in increased leads due to supreme satisfaction.
Sheryl Moore is president and CEO of AnnuitySpecs.com and LifeSpecs.com, an indexed product resource in Des Moines, IA. She can be reached at sheryl.moore@annuityspecs.com.
