Selling Annuities For Life Insurance: Is It Possible?

Life insurance and annuities are both insurance products, but they differ in how they pay policyholders. Life insurance is primarily used to pay your beneficiaries when you pass away, while an annuity grows your savings and pays you an income while you’re still alive. However, some life insurance policies let you build savings while alive, and annuities can include a death benefit payment. Life insurance annuities are specifically for beneficiaries of a life insurance policy, delivering the policy's death benefit in instalments instead of a lump sum.

Life insurance annuities

Life insurance and annuities are both insurance products, but they differ in how they pay policyholders. Life insurance is primarily used to pay your beneficiaries when you pass away, while an annuity grows your savings and pays you an income while you’re still alive. That said, some life insurance policies let you build savings while you are alive, and annuities can include a death benefit payment.

Life Insurance Basics

Life insurance pays an individual's loved ones after they die. With life insurance, you usually have to apply for coverage, and your acceptance is often based on factors such as your age and health. The younger you are, the lower your premiums will be, but older people can still purchase a life insurance policy. Most life insurance policies pay out the insured's death benefit in a lump sum. However, some insurers provide beneficiaries with the option to receive their payout as an annuity, or in payments over time.

Annuity Basics

Annuities are a type of insurance contract designed to turn your money into future income payments. You can buy an annuity with either one lump sum payment or many payments over time. You can set up the annuity with a growth period, where it builds your savings. The return depends on the type of annuity. For example, a fixed annuity pays a guaranteed interest rate. A variable annuity lets you invest your savings in mutual funds.

Selling Annuities

Life and fixed/indexed annuities can be sold by licensed life insurance agents. Licensing is different in each state but usually requires passing educational courses and a licensure exam. If you decide to use an insurance agent, find one who is knowledgeable about annuities and has a reputation for excellent customer service.

Life annuities

There are different types of life annuities. A fixed annuity is one where the interest rate is known upfront and is set by the insurer. An indexed annuity is similar, but offers options on interest rates, meaning premiums may be lower, though subsequent payments will also be lower.

Annuity death benefits

Annuities are a type of insurance contract that helps individuals grow their assets and provides a guaranteed income. Some annuities include a death benefit provision, which guarantees a certain payment to beneficiaries when the annuitant passes away. The death benefit payment is typically either a specific pre-determined amount or the remaining value of the annuity contract.

The annuity contract should state exactly how the death benefit amount is calculated. In some cases, the death benefit may be a fixed amount, for example, equal to the original investment amount. In other cases, the death benefit amount may vary, for example, because it is based on the annuity's "present value" (the current value of future payments from the annuity) at the time of the annuitant's death. The type of annuity can also affect how the death benefit is calculated. Immediate income annuities start paying income right after purchase, while deferred income annuities allow for a build-up of funds before annuitization.

There are different options for annuity death benefits, including the standard death benefit, which pays the annuity's contract value to a beneficiary, and the return of premium option, which ensures that the principal investment is protected even if the annuitant passes away soon after annuitization.

While life insurance is primarily used to pay heirs when an individual passes away, annuities can also include a death benefit payment. Life insurance provides a lump-sum death benefit, while annuities typically pay benefits monthly over time. Life insurance is often purchased earlier in life to protect loved ones financially, while annuities are usually purchased later in life to provide additional income during retirement.

Variable annuities

The payout phase begins when the investor chooses to "annuitize" their contract and start receiving income payments at regular intervals. The investor may have a number of choices regarding the length of the payment stream, which is generally defined as a certain number of years or the lifetime of the annuitant. It's important to note that the longer the payment stream, the lower the payment amount.

Fixed annuities

With a fixed annuity, clients can contribute a lump-sum payment or move money into the account over a longer period, such as a career. They can then choose to take a payout immediately or defer payment until later. The annuity rate is how much the client earns during the accumulation phase of a fixed deferred annuity. Fixed annuities have both a current interest rate (that usually resets periodically) and a minimum guaranteed rate (that remains in force for the life of the contract). The rates are specified in the annuity contract.

There are several benefits to fixed annuities. They offer secure monthly income, tax-deferred gains, and a wide variety of benefits, including death benefits, survivor's benefits, and guaranteed minimum payouts. They also allow for unlimited contributions, unlike retirement plans such as a 401(k) or IRA.

However, there are also some drawbacks to consider. Fixed annuities can be complex, with lengthy and jargon-filled contracts that can be difficult to understand. They often come with high fees, including sales commissions, annual fees, and investment fees. There is also the risk of exposure to inflation, as the value of the payout may decrease over time. Additionally, fixed annuities typically have limited liquidity, with penalties for early withdrawal.

When choosing a fixed annuity, it is important to consider the annuity rates, fees, type of annuity (deferred or immediate), payment options, income options, and additional benefits.

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