How to Sell Annuities to Benefit Your ClientsMay 11, 2023 | 9 MIN READ
So, you’re an independent insurance agent looking for a way to increase your sales by offering something other than life insurance. One financial product you may want to consider offering would be annuities. Knowing how to sell annuities to your clients can help you help them meet their financial goals and increase their financial security.
What’s the trick to selling annuities? Who among your clients would be a good fit for an annuity product? What kinds of annuities are best for specific client needs and goals? Let’s go over some basic tips for how to sell an annuity.
Note for any annuity shoppers looking to buy an annuity product:
This article is written primarily for the benefit of insurance agents looking to become sellers of annuity products. If you’re in the market to buy an annuity, be sure to check the agent’s qualifications to sell annuities and that they’re licensed with both FINRA and your state’s licensing board. Contacting these organizations can be useful for protecting yourself. Also, FINRA has an Ask and Check Help Article that outlines some steps for verifying an agent’s qualifications.
Who Should You Sell an Annuity To?
Not every client is going to be the best fit for an annuity product. Some clients might see more value from purchasing an annuity than others. Also, some clients might be better served with one type of annuity vs another depending on their financial situation and their goals.
With that in mind, who is the ideal annuity buyer? Here are some prime candidates for selling annuities:
- Clients who have experienced a major recent windfall of liquid assets—such as a lottery winner, the victorious plaintiff of a high-value lawsuit, or someone with a large inheritance from a major estate.
- High-income clients who have already maxed out their yearly contributions towards other tax-advantaged retirement investments such as IRAs or 401(k) plans. This can help them fund their retirement plans and live their best life after work.
- Clients who are worried about how high-value assets might keep them from qualifying for Medicaid coverage. Selling Medicaid-compliant annuities can help you help these clients meet their retirement health needs.
These are the top candidates for buying annuities as they will benefit the most from this type of financial product.
Who Shouldn’t You Sell Annuities To?
It’s just as important to who you should avoid promoting annuities to as it is to know who to pursue. Selling the wrong financial products to the wrong client can actually have a negative impact on their financial well-being (or that of their beneficiaries).
Some clients to avoid recommending annuities to might include:
- Clients with large amounts of high-interest debt. These clients may see more financial benefits by clearing their debts before investing in an annuity or other financial product.
- Clients who have not made any contributions to their IRAs or 401(k) plans. These tax-advantaged plans may help clients lower their immediate tax burden more than a post-tax annuity contribution. However, some clients may prefer to pay the taxes on their income now so they only pay taxes on their annuity’s earnings later.
- Clients who are at high risk of dying before the annuitization phase begins. If a client is interested in an annuity despite this, you may need to verify that the annuity product has terms that make it easy to transfer the value of the annuity to the annuitant’s chosen beneficiaries.
Types of Annuities You Could Sell
There are countless annuity products on the market that you can recommend to your clients. The one that best fits your client’s needs will depend on their current financial situation and future goals.
When selling annuities, you can offer “deferred” or “immediate” annuities, and annuities that are either “fixed” or “variable.” Odds are that you’re already at least somewhat familiar with these concepts, but here are a couple of quick, if simplistic, explanations that you can share with your clients to help them understand the distinction.
Deferred Annuities vs Immediate Annuities
For your clients, the major distinction between deferred annuities and immediate annuities is when the annuity starts making payments.
- Deferred Annuities. As the name implies, deferred annuities have a built-in delay between when they’re purchased and when they start making payments—whether that’s a year, five years, or ten or more years into the future. While the annuity is in its accumulation phase, it can grow in value over time—helping fund the annuity and potentially increasing payment amounts or making the annuity last for longer depending on contract terms.
- Immediate Annuities. These annuities go into effect immediately to turn a large, liquid asset (typically a large amount of money) into a steady income stream over a specified period of time.
For clients who have experienced a sudden windfall, immediate annuities are a popular option to help them control their spending to avoid the fate of Lottery winners that lost it all after spending their winnings recklessly (or getting defrauded by scammers).
Meanwhile, deferred annuities are a great product for clients who are looking to plan for their future needs. For example, you could recommend a deferred annuity to a client that wants to be able to retire early and time the annuitization phase to cover their living expenses between when their target retirement date and the start of their Social Security benefit, 401(k), IRA, and other regular retirement payouts.
Fixed Annuities vs Variable Annuities
Aside from choosing between immediate and deferred annuities, your clients can also choose to invest in fixed or variable rate annuities. The major difference here for your customers is that a fixed-rate annuity will grow by a set percentage for each interest growth period while a variable-rate annuity provides a return that fluctuates based on the investment portfolio the money is invested in.
The major thing to emphasize to clients when offering variable annuities is that they have an inherent element of risk. Because these annuities scale based on an investment portfolio’s performance, there is a risk that, if the portfolio underperforms, they could actually lose some of the money spent on it. It’s very important to be clear about this risk so that clients understand it.
When selling annuities to clients, the choice between a variable and a fixed annuity will largely depend on their risk tolerance. For clients who are relying on that extra income for retirement, their risk tolerance will likely be lower—making the guaranteed growth of the fixed annuity more attractive.
For clients who aren’t as risk-averse, the potential benefits of variable annuities that can grow faster if the investment portfolio of the annuity fund performs well can far outweigh the risks. Alternatively, you could offer fixed index annuities, which are annuities where the rate can never go below a set amount (such as zero percent). This helps ensure that the annuitant doesn’t lose money—the worst that can happen is that their money doesn’t grow if the index doesn’t perform well.
How to Sell Annuities
You’ve found a few clients who have either expressed an interest in setting up an annuity or that you think would be a really good fit for an annuity product. Now what? Following a few simple best practices can help you successfully sell annuities to your clients so they can meet their financial goals:
1. Make Sure You Have the Right Qualifications to Sell Annuities
When preparing to sell annuities, the first step is getting licensed in your state. Guidelines will vary from one state to the next, so it’s important to check with your state’s financial licensing board.
In Florida, you would want to contact the Florida Office of Financial Regulation to get clarification on the required licenses and to apply for a financial services license. When applying for a license, it’s also important to check which specific licenses you need to sell different kinds of annuity products, as there may be both federal- and state-level licenses to apply for.
For example, variable annuities may require you to have a license to sell securities in many states because they are an investment product. This, in turn, requires passing a FINRA Series 6 — Investment Company and Variable Contracts Products Representative Exam. However, further qualifications may be needed from the individual state you’re applying for a license in.
It is very important to sort out your licensing requirements prior to selling an annuity product—if you haven’t already completed them during the course of becoming licensed to sell life insurance products.
2. Learn the Client’s Needs
Before recommending a specific annuity product, be sure to ask your client what their financial goals are and what their current financial situation is like. The more you know about your client’s needs and goals, the better equipped you’ll be to sell them the best financial product to match.
For example, say you have a client that is simply looking for another method of growing potential income after maxing out their tax-advantaged retirement fund contributions and isn’t averse to some risk. In this case, offering them a deferred variable-rate annuity may be a good choice since they’re looking to maximize potential income, but aren’t relying on the funds to make ends meet.
On the other hand, say you have a client who is specifically worried about losing their investment and needs a guaranteed return on investment because the money is critical to their plans. Here, it may be better to recommend a fixed annuity or a fixed index annuity product that minimizes the risk of loss.
3. Learn the Ins and Outs of the Products Your Insurance Partners Offer
When selling annuities, it’s important to be as familiar with each product as reasonably possible before recommending it to clients. This doesn’t just help you identify the best annuities to match their needs—it can help you better sell the positives of each product to your clients to overcome common objections to annuities.
For example, say you have a client who is on the proverbial fence about acquiring a deferred annuity. They want to start saving for retirement, but they don’t want to tie up too much money in case they have an emergency in the 5-10 years between now and when they plan to start collecting annuity payments.
At a base level, you’d already know that with most deferred annuities, annuitants can make early withdrawals at a cost. However, if you’re very familiar with the products offered by an insurance company, you can outline the specific situations and costs for early withdrawals for that annuity—helping you put the client at ease and letting them walk into the investment with both eyes open and minimal surprises.
You could also review several similar products based on this issue and help your client find the one with the most generous terms for early withdrawals. This could help keep them funded in case of an emergency without overly compromising their retirement planning.
So, be sure to reach out to your insurance partners and get documents on the annuity products they offer. Take some time to review their annuity contracts and contact them to ask specific questions about their annuities for clarification on terms and their potential impacts for your clients. A great partner will be happy to help you better understand their products so you can be a more effective advocate for them.
4. Practice Presenting Options to Clients
When you’re first starting out with annuities, it can help to practice a bit before contacting your first annuity client. Consider joining a group of other independent life insurance agents to meet with other people who have experience selling annuities in your area and getting some pointers from them.
Prepare a “sales script” for different types of clients with different needs and rehearse lines with your community group to iron out rough spots and get comfortable with what you plan to say. Some annuity and life insurance plan partners, like ELCO Mutual, can help you find a community of other agents they work with to get you started.
Are you ready to get started on expanding the financial products you can offer to clients? Become and ELCO Mutual partner and take the next step!
Disclaimer: This blog is intended for informative purposes. Before applying for a license to sell annuities, please check with your state’s financial regulatory and licensing authorities to verify qualification requirements. ELCO Mutual cannot guarantee that every agent will be able to sell annuities after becoming an ELCO partner.