Is the best rate always the best deal?
When shopping for annuities, consumers often focus on one number: the rate. And itās no wonderĀ ā interest rates are plastered across brochures and emphasized in ads promising growth and security.
But for agents working in the real world with real people, the truth is more nuanced. Although a higher rate will most certainly catch a prospectās eye, itās not always the best long-term solution when a product doesnāt match a customerās true needs.
Annuities are like ducks
Annuities, like ducks, are simple on the surface but complex underneath.
At their core, annuities are financial contracts issued by insurance companies and designed to provide guaranteed income. Annuities include a growth component, depending on the type of product. Depending on the type ā fixed, indexed or variable ā annuities can serve different goals:Ā
Ā» Guaranteed lifetime income
Ā» Market-linked growth with downside protection
Ā» Tax-deferred accumulation paired with guaranteed growth when an income rider is leveraged
On the surface, rates are an easy component to compare. Higher is better, right? And why not, since most clients have had an accumulation mindset their entire lives.Ā
Now we are talking about preservation. Fast-forward to a prospectās golden years. We as agents should help direct the discussion toĀ assetĀ preservation. For some folks, that level of reframing doesnāt happen overnight. One of the biggest concerns in retirement is living too long and running out of money. Clients want peace of mind. They want predictability, and annuities can be a great option.
But annuity rates arenāt always what they seem. Some are fixed and declared by the insurer. Others are tied to index performance with participation caps or spreads. Many come with bonuses, roll-up rates or complex formulas that only apply to the income rider base, not the cash value.Ā
The key for agents is to help clients understand what those rates actually do, and whether they align with the clientās financial goals. What is your customer guaranteed to receive with any product they are considering?
Here are three examples that can help you illustrate why chasing the highest rate can lead to the wrong product, and show you how to help your clients navigate the information to a decision point around the solution that best fits their needs.
Myra: Age 63, approaching retirement, focused on income
With retirement time nearing, Myra wants to turn a portion of her 401(k) into guaranteed income starting in six months. A fixed indexed annuity catches her attention with a 6.25% roll-up rate on the income base. But a friend tells her about another product at a 7.5% rate, and now she wonders whether sheās leaving money on the table.
Hereās where you step in. You explain that 7.5% is a roll-up rate on a hypothetical income base, not a guaranteed return on her money. More importantly, the higher-rate product requires deferring income for at least three years and uses a less favorable payout factor. When you show side-by-side income projections for her intended start date, Myra sees that the ālower-rateā annuity actually delivers more income starting in six months.
Agent takeaway: This is a prime example of rate versus result. You need to take the time to help your clients look past the brochure sticker price and focus on actual payout math for their timeline. They are expecting you to do this because you are the subject matter expert.
John: Age 52, still working, wants safe growth
John has 15 years until retirement and he recently inherited $100,000. Heās drawn to an FIA that touts a 9.0% first-year bonus and strong āillustratedā growth. Heās thinking: āWhy wouldnāt I take the bigger boost?ā
You help John dig deeper. That 9.0% bonus looks great, but itās tied to the income base only and not his actual cash value. Pair that with an aggressive 12-year surrender schedule, caps on growth and higher internal fees, and ā all of a sudden ā itās not as attractive. When you compare it with another FIA with a lower bonus but stronger index participation and a seven-year surrender period, the long-term growth projections are actually better, with more flexibility along the way.
Agent takeaway: Bonuses are only one piece of the puzzle, and annuities should never be sold on the basis of premium bonuses. Teach clients to weigh surrender terms, participation rates and fee drag just as heavily. Identify whether clients need their money now or later, and if itās now, does that mean tomorrow or 16 months from now?
Debbie and Ron: Ages 70 and 74, retired and planning their legacy
This retired couple isnāt looking for income. They want to preserve cash and leave something meaningful for their grandchildren. Their advisor shows them a seven-year multiyear guaranteed annuity offering 5.5%, which certainly grabs their attention.Ā
However, after you talk through their real goals ā keeping access to funds in case of medical needs and ensuring a simple, tax-efficient transfer to their heirs ā you uncover some concerns about liquidity and legacy.
You introduce a second MYGA at 5.1%. Itās a slightly lower rate, but it includes return of premium and an enhanced death benefit. For Debbie and Ron, that peace of mind outweighs the small bump in interest the other product offers.
Agent takeaway: When the objective is legacy or flexibility, contract features often matter more than fractions of a percentage. Itās not your job to give them the highest growth; itās your job to fact-find and bring clients solutions that meet their needs, even if it requires a less-than-
comfortable conversation.
Help clients see the full picture
Consumers are conditioned to shop by rate. That makes sense in many areas of finance. But with annuities, itās your job to slow down the conversation and translate those numbers into real outcomes that impact real, unique life needs.
Show real-life scenarios. And never assume clients understand the difference between a roll-up rate, a crediting rate and a guaranteed rate. Thatās the real value that you can bring as their trusted subject matter expert.
Whether itās income, growth or legacy, the best rate isnāt always the best fit.Ā
Drew Gurley is a licensed life insurance expert with nearly 15 years of experience. During his career as both a licensed life insurance agent and industry executive he has helped thousands of clients with their life insurance needs through his work at Redbird Advisors and Senior Market Advisors.
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