Words Matter
April 7, 2014 by Scott Hinds
Many readers of Annuity Outlook Magazine and attendees at NAFA speaking events are aware that the Association’s mantra is – WORDS MATTER. 2013 was filled with examples of legislation, litigation and regulation where NAFA’s influence over the choice of words and conceptual framing positively impacted the fixed annuity marketplace and our mission to promote the awareness and understanding of our valuable product line. More than ever, the words you choose and what you say to your clients are some of the most critical parts of the prospecting and sales process.
Choosing the right words to represent annuity concepts and features is vital because individuals place different meanings and expectations on different words. Choosing the right word can mean the difference between a suitable and an unsuitable sale!
Here are NAFA’s top ten WORDS that MATTER:
1 Insurance
Fixed deferred annuities are NOT INVESTMENTS – they are insurance contracts which promise the money will always earn some minimum interest, but may also earn more interest either at a rate set by the insurer (declared rate or book value annuities) or a rate determined by changes in a market index (indexed annuities). Despite the fact that your clients might see any outlay of their income, savings or other assets as investing, it is essential that they understand that they are buying an insurance product FIRST with insured guarantees.
2 Interest
Fixed annuities earn interest. They do not earn “returns” or “gains.” Interest is credited to the policy by the insurance company as stipulated in the contract. Fixed annuity interest can be determined in advance and set by the insurance company based on its investment portfolio or, in the case of an indexed annuity, interest is determined using a formula that measures the performance of a market index. Your client is not participating in the gains market index. Both words – participation and gains – leave consumers with the idea that they are investing in the index, and NAFA recommends that annuity professionals NEVER use the words “participation” or “gains.”
3 No Investment Risk
Because annuities are insurance products FIRST and their basic guarantee is that their premium and prior interest are protected from negative financial and economic markets, they have NO INVESTMENT RISK. Do not say that the annuity participates in the market upsides with no downside.
4 Premium
The money your clients use to purchase their annuity is premium – just like life, home or fire insurance. Do not use “principal.” This is true even in cases of an exchange or surrender. No matter where the money comes from, the money paid into an annuity is called PREMIUM.
5 Two Types of Annuities
There are just two types of annuities – fixed and variable. NAFA worked hard to persuade others to agree to this basic foundation of our product line when working with industry and regulators on the New NAIC Annuity Buyer’s Guides. We are pleased that the Disclosure Model adopted by the NAIC in August of 2013 clearly demonstrates this foundation, and the NAIC has printed a fixed-only and a variable-only version. The fixed-only guide describes variable annuities in general and all fixed annuities specifically. The variable-only version describes fixed annuities in general and variable annuities specifically. For administrative ease, insurance companies with both product lines may choose a version that combines both specific guides.
6 Interest Calculation
Interest-crediting methods vary among fixed annuities, and customers may choose from a variety of declared or set-rate annuities and indexed annuities. Indexed annuities are a choice of fixed annuity that determines interest using a calculation of the performance of a market index. Indexed annuities are NOT a “hybrid” or are “in between” a fixed and a variable.
7 Certainty
A fixed annuity will provide your client with the certainty of a fixed interest rate that is determined by the performance of the market index or set and established by the insurance company’s own investment portfolio. Once the interest is credited, it is certain to be added to the annuity’s account value.
8 Safety
Fixed annuities provide safety from market volatility and economic crisis because a fixed annuity’s account value will never lose money during tough economic times. In addition, the minimum interest guarantee provides the SAFETY of knowing, at minimum, what interest your annuity will earn regardless whether additional interest is determined by the insurance company or the performance of a market index.
9 Protection
The biggest concern these days, as many people are living longer and/or retiring earlier, is outliving retirement savings. Fixed annuities can help provide financial protection against the risk of living too long (longevity risk) and running out of money.
10 Suitability
The Gold Standard of Suitability provides one of the strongest consumer protections by requiring that annuity professionals put their clients’ interests first by making suitable recommendations; and insurance companies must have a system to double-check each sale for suitability prior to issuing any annuity policy. Fixed annuities are among the highest-rated financial products in consumer satisfaction, with very low complaint rates. Fixed annuities may not be suitable for every individual or every financial plan, but using the WORDS THAT MATTER will help avoid confusion and promote awareness and understanding of their benefits and possibilities.
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