SPIA sales strategies

by Aaron Grady Annuity Sales Consultant

Annuities have been the focus of a great deal of attention and press over the past few years in particular. It appears that everyone wants to express their opinions about the pros and cons of variable and fixed annuities alike. With all of the products and features available, it can be difficult for consumers to understand which products have the ability to meet their retirement needs and overall financial objectives. That's where agents and advisors come in.

When looking to select a product for a particular client, one commonly overlooked annuity seems to be the SPIA (Single Premium Immediate Annuity). Financial and insurance professionals are well aware of this option in their product arsenal but may not understand just the right type of situation where the SPIA provides a fit for clients. A good understanding of how SPIAs work, along with knowledge of the features and benefits, can be beneficial for clients' retirement years as well as agents' overall sales.

Let's take a look at the SPIA in greater detail. As we all know, safety is generally a strong concern for individuals at or near retirement. In getting to the heart of this concern, individuals are more worried about whether or not they will have enough money to last them through their retirement years. A SPIA allows clients to deposit an initial lump sum premium and start receiving a regular guaranteed income for a certain period or even a lifetime, regardless of whether or not they live longer than their indicated life expectancy. Annuitants can choose to receive their payouts on a monthly, quarterly, semi-annual or annual basis based on their income needs and lifestyle.

Another great benefit is the SPIA's exclusion ratio feature. Because each payment from a SPIA is comprised of both principal and interest, for non-qualified money, the principal portion is excluded from taxation and received tax-free. With a life-contingent SPIA, if you live so long that you've been repaid all of your original principal, future payments from that point become fully subject to taxation. Nonetheless, the benefit is still that the SPIA payments continue for life. The risk of putting this money into a financial vehicle that might reward the client with a greater rate of return must be weighed against the desire for a fixed income that's guaranteed.

Some producers are hesitant to recommend a SPIA because the client is looking for both guaranteed lifetime income as well as principal protection or because of concerns about inflation. Although certain SPIA products do offer payouts for only the life period, there are options that include a money-back guarantee, protecting the initial principal value. There are also SPIAs offering inflation riders or increasing payment options through a cost of living adjustment (COLA) that protect against the risk of inflation deflating the annuitant's payments.

Mike Kerby, president and owner of Secure Retirement Planners Inc., shares a great summary of his reasons for using SPIA solutions in providing clients with an income plan. "In developing a 10-year plan, I've taken clients from a 25% tax bracket down to a 0% tax bracket due to the exclusion ratio feature offered on non-IRA money by SPIAs.

I particularly like using a SPIA in a laddered approach for my clients, combining a 5-year period certain SPIA with a tax-deferred asset. Clients have increased liquidity through SPIA income payouts for the first 5 years followed by income from annuitizing the paired asset when the SPIA payments stop. Additionally, they can get an increase in SPIA income based on rising inflation costs through available riders, all while protecting their principal."

A practice that is becoming more common is using SPIAs for funding life insurance policies. Agents can suggest that their clients select a SPIA to provide income which then, in turn, is used as premium payments for purchasing life insurance. By funding a life insurance policy, clients can generate a valuable legacy for their heirs provided to beneficiaries tax-free. Meanwhile, agents benefit from two sales.

In 2010, fixed immediate annuities represented only about 3.4% of total annuity sales.¹ With the information provided above, we hope you can find a number of viable options for incorporating SPIA sales into your business. Call your Annuity Sales Consultant and discover a great way to provide for an unfulfilled client need.

¹ LIMRA, U.S. Individual Annuities, 2010 4th Quarter.

FOR AGENT USE ONLY. NOT FOR USE WITH THE GENERAL PUBLIC. 11598 - 2011/3/16 | 17735 075141

Guarantees provided by annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. Guaranteed lifetime income available through annuitization or the purchase of an optional lifetime income rider, a benefit for which an annual premium is charged. Agents may not give tax, legal, accounting or investment advice. Individuals should consult with a professional specializing in these areas regarding the applicability of this information to his/her situation.