This is my favorite time of year! The summer solstice just passed and we experienced the longest day of the year. And we just celebrated Independence Day, which happens to be my favorite holiday! I love the red, white and blue banners, American flags flowing with pride, and the sting of summer on my skin. Does it get any better?
I spent a good portion of the holiday at the lake. As many of you know, I am a terrible golfer because I am an outstanding boater! It’s terribly difficult to work on your golf game while breaking waves on the hull of your cuddy. It’s a great time to spend with my family. We all enjoy the time together, and I personally enjoy the captive audience.
Be thankful that we are a nation of free men and women. You can go anywhere, doing anything, and be anyone you want to if you are willing to work for it.
How We Do Things Differently at AMZ
In previous editorials I’ve mentioned that we at AMZ have a passion for using insurance contracts (legally binding documents) to their fullest potential. Often, we end up using products for something other than what they were intended to be used for based on the carriers positioning. We try to take advantage of the contract features to meet client’s needs in the most efficient and effective way. Today I will share an example of how we actually approach design.
We are frequently contacted to help put together case designs for people who need to begin a regimen of income within the next 12 months. Since income riders are inefficient income producing tools in the early years, we like to use split annuity designs in place of them. However, period certain SPIA payouts have taken a beating due to the low interest rate environment. Multi-year guaranteed interest rates are better than CDs, but nothing to write home about. Therefore, we are using an insurance contract offered by one of the largest annuity carriers, and income riders from other carriers in combination to reach a client’s objective of making their dollar stretch further in terms of income now.
In order to illustrate how we might tackle this issue at AMZ, we’ll use a single, 65 yr old male, who wants to begin income 12 months from now. We’ll also assume that this person has $100,000 of capital to commit to generating a guaranteed supplemental income stream.
Typically recommended solutions from our industry might be as follows:
Life Only SPIA
- With this approach, we can guarantee this man an income of $7,320 per year for life (or and ROI of 7.320%). The drawback is that when he dies, so does the income. To ensure his deposit is returned to someone he cares about if he dies before distributing his deposit, we’d have to look at a payout based on Life and Period Certain of about 15 years. This would guarantee an income of about 6,768 per year (ROI of 6.768%). In either form, the income structure is rigid and there is no room for changes in the future.
- Average Agent Compensation = 3% of premium
Best Income Rider with income beginning one year after issue
- As of the crafting of this article, the best income generated from an income rider after one year based on this individual’s parameters would be $6,006 per year (ROI of 6.006%). How are we so certain that this is the best one? We use our income rider software to compare all of the riders instantly. Regardless of carrier or income rider, we can quickly determine who gives your client the most bang for their buck.
- Average Agent Compensation = 7% of premium
- With this approach we might select a Period Certain Annuity of 10 years followed by income from an income rider. The $100,000 must be allocated appropriately between the SPIA and the deferred annuity with an income rider. We can achieve a consistent income of approx. $6,100 per year with this strategy (ROI of 6.100%).
- Average Agent Compensation = 5.77% of premium
On the other hand, we can get creative and use a specific contract from a specific carrier in place of the 10 Year certain used in #3. By doing so, we can do a better job for the client than option #2 or #3. We can also get really close to #1, and provide more flexibility and more control over the funds for the client.
By using this specific product from a highly rated carrier in a fashion they most likely had never intended, we can achieve a realistic illustrated total income of $6,701 (ROI of 6.701%) based on the past 20 years of market movement. In addition, the income will grow going forward when the index is positive. We also guaranteed a minimum of $5,945 (ROI of 5.945). However, this outcome is extremely unlikely, because in order to achieve the minimum income from this solution we’d have to assume that there was absolutely no positive index movement for an entire 10-year period.
The average agent commission for this strategy is 7.81%. Although we never make recommendations for your clients based on commissions, this goes to show that doing the right thing doesn’t always mean taking a lower commission! Using insurance contracts to their fullest potential can achieve something special for your client and for you.
Many clients have liked our Mousetrap better than solution #1 (the Lifetime SPIA) because they have more control over the funds and they have potential for income increase over their lifetime. They also like this Mousetrap over solution #3, (the traditional split annuity) because they can secure more income and they have additional income potential (realistic additional potential) through indexing. Thirdly, many clients like this over solution #2, (a single income rider product approach), because their money is not all tied up with one carrier and the reality is that we can provide better income for them.
This is just one example out of hundreds of how AMZ looks outside the box for solutions for your client’s needs. The purpose of sharing this scenario is to reinforce the fact that AMZ works for you and your customer to read contracts from carriers and find unique ways to make the most of those contracts to enrich your clients’ lives. Each client is unique, and solutions we recommend are always tailored to that client. As products change and client needs change, so do our recommendations.
You will never see us promote only one carrier or only one product. We call that the “soup de jour” approach. If we did that we’d become product pushers and not problem solvers. I’ll exit the business before that ever happens.
AMZ’s mission is to be large enough to serve you and small enough to care. That means we will remain large enough to provide you with access to just about every carrier and product you could imagine, but remain small enough to be involved in each case design that you will allow us to.
Here’s a great article this week for you to review:I think it is worth reading, and hopefully you will think so too. It was written by the editor of Insurance News Net and the title is: Historically Bad Estate Planning. The article case studies bad decisions made by famous people. Rather than focusing solely on pop culture celebrities who have made bad planning decisions, the authors takes into consideration famous people who the public might revere as very intelligent. For example, an Illinois lawyer turned President of the United states named Abe Lincoln died without a will, even though he spent years practicing law. According to the article he was the only president to die without one. You are going to want to read this…
Thank you so much for your continue business and the opportunity to work with such a professional network of advisors.
Mark Triplett, President of Annuity Distribution