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More Insurance Myths Debunked….

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ProtectionI recently read an excerpt from an article expounding the concerns associated with index annuities. Whoever had these concerns is unclear, so I had to smile to myself, but as a passionate believer in index annuities as part of a comprehensive and diversified portfolio, and out of the belief I hold that, like myself, many of my colleagues truly wish to help businesses and individuals understand the many retirement options open to them, I felt compelled to address some of these concerns:

 #1        “They are going to sell you!

As a nation built on competition, free enterprise and freedom of choice, I’m not quite sure why this should be a concern. Anyone offering a product or service is “selling” something, including anyone offering a 401(k) plan. Admittedly, there are bad – even awful – sales people, but the true value of a sales person is one that offers all the options, the pros and cons, educates and allows the consumer to choose what’s best for that consumer. To imply that anyone offering index annuities will force the consumer to make a choice that would ultimately not be in their best interests does little more than engender mistrust.

 #2        “Informative lunches that are really veiled sales pitches”

Who has ever accepted an invitation for a free “weekend for two” to some resort and not understood that part of the deal is a sales pitch for a timeshare? Potential attendees to these lunches are not fools. A great presentation is about informing, educating, and earning trust, and most individuals want to do business with people they know, like and trust.

 #3        “Surrender fees — as high as 20% — imposed on buyers who want to cash out before 10 or more years have passed.”

 Perhaps there is an insurance company out there that does indeed have such draconian surrender charges. However, the vast majority of customers who purchase index annuity products do so for the GUARANTEED INCOME they will derive – at which point surrender fees become a non-issue.  If the customer is looking to make a short term investment, then they should NOT be looking at index annuities as an option.  Surrender charges are meant to dissuade customers from using index annuities as short term investments and the right insurance consultant would advise their clients against doing so.

 #4        “Offers of “bonuses” that aren’t worth as much as they seem and that some people never actually collect.”

A company that offers an annuity buyer an 8% bonus gives that buyer an 8% bump not only on their deposit but also on any riders that may have been included. When income is requested, the principal amount plus the 8% bonus is calculated. Why would this not be attractive to a potential client?

 #5        “Products so complex that buyers — retirees who are at their most financially vulnerable — can’t tell whether they’re getting a good deal or are just getting taken. “

 A recent survey of 401(k) participants showed that 71% were unaware that fees were charged by their plan providers to maintain their account.  When told of these fees, 63% could not determine the amount of these fees.  This is a clear indicator that the financial industry as a whole needs to do a better job educating the public on the complexities of all finance related products.

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To have people entrust to you the safety of their hard-earned income is a privilege, so on a final note, I’d like to quote Albert Einstein:

“Whoever is careless with the truth in small matters cannot be trusted with important matters”


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