How Annuities Are Classified | 7 Figure Annuity Sales Podcast | Ep. 244

On this week's episode, we're going to.

Talk about how annuities are classified.

Hello, everyone. This is Chad Owen, the annuity sales coach, owner of Retirement Realize Financial and Retirement Realized Agents Academy. Which I haven't said that for a while, and I just felt like I'd make my shameless plug.

You deserve it.

If you want to buy weapons, go.

To heavensarmy.com where we sell guns and weapons.

That's amazing.

I. I told you this is a few episodes ago.

I don't like the word diversification when it comes to stocks, bonds, mutual funds, but I do like the word diversification with income streams. And one of the things you'll find that I've been able to do is because I've done well in the annuity world, it's allowed me to branch out and into businesses I really like as well.

Right.

And actually have people employed that I care about, which I don't know how you snuck in, but anyway.

By the skin of my teeth.

Okay, wait a second. We gotta add, because we've had some comments coming about me bullying Caleb. Okay, first of all, this dude has the thickest skin you ever meet in your life.

Okay?

Virtually unoffendable.

That's a lie. But he is definitely got some super thick skin. And I love this guy.

Like, he's my own son. That's why I call him my son in love.

If I didn't like him a lot, I wouldn't say son in love. I may say son, and maybe sometimes, you know, but no, I love him like crazy. I think a lot of them he's awesome, so stop bullying me about bullying him.

But anyway, you just make them like me more.

Well, that's actually not that difficult to do. So you don't have this right here.

I don't have the scowl.

The scowl. People are like, why are you angry?

I'm not angry.

I'm happy inside. You know, my kids kind of messed with me one time. We're in Disney World, and they put.

They did this on Instagram or Tick Tock or something back. It would have been Instagram. Tick Tock wasn't around, and they said, the happiest place on Earth, and they.

Scrolled into my face when I had this crinkle and I'm like, I'm happy, man. I'm in Disney World.

This is incredible. Okay, anyway, enough with my rant now. I do love him. I think he's all right.

But no, I'm not bullying him.

We did. We forgot the towel snapping, though we do need to do that.

We do. We do not.

Stop feeling sorry for him.

If you knew what he. You know what?

When I was growing up, I had a little brother. Okay, I had older brothers, too, but my old. My brother right above me was five years my natural brother. I don't count my stepbrother. I mean, he's my brother, but my natural brother, my little brother, he used to be the biggest pain in the rump you'd ever seen your life.

I hope he hears this.

And. Oh, please.

And he would literally do things that just nag me like a mosquito.

And he would hit me or pinch me or so whatever. And then he would take off running to my parents. Well, I would just walk up in front of my parents. I just clock them, you know, it's.

Like right in front of him. I would always get caught.

So why was I going down this road?

I was just letting you go.

I was going in a rabbit trail. But anyway, so, yeah, Caleb's out little.

Oh, yeah.

So Caleb's that guy that looks all nice and everything on camera, but then.

Behind the scenes, he's a troublemaker.

I know how to. The buttons are.

You do. Very easy to push, and you love pushing people's buttons. That's kind of your thing. Okay, so let's get to some more important things.

All right. How annuities are classified. This one's fun because there are so many different types of annuities that accomplish so many different things. I had a conversation. One of the places in town that I like to go sit at and enjoy a beverage with friends, that's Meridian.

If you're in Buda, Texas.

You'Re loading.

Them up with these showers, and we're.

Not paid by them, but we're going to be next episode.

But I sitting there having a conversation with a buddy. This was last week, and this older couple came and sat down and they started asking us, you know, what do we do? And I told them, I said, well, I basically help make sure people's retirements last as long as they do. And they said, well, you know, tell us about that. I could tell, you know, they're in retirement. So I kind of start talking to them about annuities and insurance and this type of thing. And the gentleman goes, oh, I. I love annuities, which is an interesting thing. You don't typically hear that. And I said, I said, you mean.

You know, so did you pull out.

Your phone right there and start doing a fact finding?

Right?

Yeah, I said, you mean, you know, protection from the downside, participation in the Upside and guaranteed lifetime income that you can never outlive. And he goes, exactly. And I had this light bulb moment where I was like, man. When people's perceptions of annuities are that of fixed indexed annuities or MyGas, they typically don't have negative associations with them.

Agree.

If their perception of the term annuities is tied to variable annuities or spias or diaz or something like that. Oftentimes that's where their perception of annuities is negative. And when their perception of annuities is more in line with variable annuities or SPIAs or DIAs, they typically have some kind of negative association or perception about.

Them that's a single premium immediate annuity. Dia. Deferred immediate income annuity.

Deferred immediate. Deferred immediate.

That's why I is smart.

Cold hot dog.

Can you imagine, Tony?

It's a deferred immediate annuity. What?

That's funny.

That's why they looked at me that way. Deferred income annuity.

But it's true. It's like when their perception is about fixed indexed annuities or MyGas, they tend to be positive perceptions. So this is why I talk with agents all the time. They're like, oh, I don't know if I want to mention the word annuity. I don't know if I should be in my title. Like, don't hide behind it. Use it as an opportunity to actually reconstruct perceptions.

I can't tell you how many appointments I've gotten because they say I don't like annuities. Well, why? Well, they have high fees. There's nine different types of annuities. We've talked about this before. There's really only two, but there's nine. A whole nother thing, a whole deal. But when you say, oh, that's only the variable annuity. Well, my grandmother had annuity and she took and died three years later and the money was gone. Well, that must have been an immediate annuity with a single life. So, you know, you just have to. It opens up. You just have to be very clear and quick with the response because you.

Have to know the different types.

You do. And you know what, you can get into bad annuity, especially if it's not suited for your situation. So, I mean, I. Even as much as I love fixed indexed annuities and fixed indexed annuities with income riders, I can definitely say there's clients I've met where it is not good for them.

I mean, it's a very normal thing.

Every Single week where I tell someone that calls in or I get a lead, I say, I'm sorry, this is not the right product for, for you. Yep. And so you gotta, you gotta just be open and honest with them. On that, I agree.

I think sometimes agents hear clients say, oh, I hate annuities, or I don't like annuities, or so and so said annuities are bad. And it makes them nervous because they're assuming that the client's perception of annuities is the type of annuities that they're positioning, when often it's not. So if you use that as an opportunity to ask, okay, well, what, what do you hate about annuities? And then they tell you and you help them understand, that's a totally different type.

You know my, my response when someone says, I hate annuities. And I'll say, which of the nine do you not like? And I'll just try and say it. So let's try and do this. We have a spia, we have a myga. We have a variable annuity. We have a fixed indexed annuity. We have a hybrid annuity. We have a QLAC qualified longevity annuity contract. We have a dia, we have a.

Charitable remainder trust annuity. We have a. What one am I missing? There's nine total. I went through this and I mean, yeah, a hybrid annuity is technically any annuity with an income rider. I mean, if you look at the definition, because even that definition is, I called a marketing term. And so it really is. Yeah. The main ones are the myga, the multiple year guarantee annuity, the fixed annuity, the variable annuity, and the fixed fixed indexed annuity. Those are the main ones. But, you know, say which of the nine do you not like? And it always gets a response. I thought there was only one.

Yeah, well, and that's the challenge is anything that can be annuitized gets classified as an annuity. Does that make sense? So anything that can be annuities.

Some annuities, though, that you cannot annuitize.

Like what?

There have been cases where I've called and it always surprises me, but there are some annuities that you have a walkway option. That's it. There's no annuitization option.

Really?

And if you think about that, it might make more sense that they can maybe do a little bit higher of a rate because they know they're never on hold or liable for the income for life.

Even annuitization I've never seen, I've only ever seen even deferred Annuities with a.

Maturity date, I'll remember yet. Well, that's different because that's exactly what they're designed to. You're deferred. But yeah, it's happened quite a few times with some variable annuities, with some mygas, with some interesting. I'll try and remember those companies.

Yeah, I would be fascinated to see that because that the way that my brain is always classified, it is. If it can be annuitized, it gets classified as an annuity. That's just the way my brain, it.

Always shocks me too, because it's like when you call 401k company and they're over 59 and a half and they can't roll it over. That's so rare. I'm like, what?

Right.

And so then when I hear that, actually both times I can think. In the near recent. When I say near in the past year, I actually called back a second time to make sure it wasn't the representative they got getting it right. And no, they said that's how it's written.

Well, from, from the idea of an annuity, there's generally three different kind of sub classifications to kind of explain how they work. So the first is when would annuitization take place? Right. And that's where you have your immediate versus deferred. If it's an immediate, it's going to be annuitized. I'm not talking income rider activation, I'm talking annuitization within the first year of the policy. Deferred is anything after that first year, then you have is the account value subject to loss due to volatility? If it's not, it's fixed. If it is. If it can go backwards due to volatility, it's a variable. And then really the third kind of tertiary classification is how are things going to tertiary?

I've never heard that word before.

That's a real English word.

Is it?

Yeah.

Okay, please explain. Tertiary.

Tertiary is like the third layer.

Wow.

Yeah.

You are smarter than me.

No. All right, I'll just accept it.

Well, I was.

You know what?

In all fairness, I did most of my schooling in Hawaii, which don't slam Hawaii education system. I'm not saying that, but I learned more about American history and Hawaiian history. Excuse me. More about American Hawaiian history than I did American history or world history. And most of my English teachers had a very heavy pidgin accent and it was. Yeah, the pronunciation was challenging. You know, saying a word is particular way and finding out I was different. So. Tertiary, Tertiary, Tertiary, tertiary. So I Learned something today. There you go.

So that, the kind of that third tertiary layer of classification.

I'm sorry, back up again. You just said third tertiary.

It's redundant. It's like you saying artificial AI.

Then why did you just say that?

Just what my brain was saying.

Okay, well that's a dangerous realm.

Yeah, bully. But it's how, it's how interest is credited. So one thing to bear in mind is that the term fixed often gets used to, to describe two things. Number one, is it a fixed rate of interest like on a myga or a fixed annuity? It's a, it's fixed, but it's also describing an annuity that's not going to lose value due to volatility. I like to use the word guaranteed. Like in a myga multi year guaranteed annuity, it's referring to a set rate of interest that's determined at the policy issue. So that's one way. Then you have index and then with variable annuities you have sub accounts. Like you know, they put sub account into mutual funds, you know, stocks, bond funds, all kinds of different things within even money markets there. But those are really kind of the three. Sure, but those are kind of the three ways that things get classified. So then when you get into the four most common types of annuities that Chad already talked about, when you have your fixed indexed annuity, that is a deferred annuity. So it's not going to annuitize immediately.

Which I find funny though because you can have a fixed indexed annuity that you can draw income from right away.

Right. And so that's the difference between an income rider and annuitization is there are deferred annuities that allow you to activate your income rider after 30 days.

And you wonder why people get confused.

Oh, I know. This is part of what I've got. Like that you were telling you this was months ago about my blog that I wrote trying to explain like because I feel like terms and classifications are some of the most.

The blog you still have not posted yet.

That's true. I have not. I'm still in process. I, I'm currently in the section about how can insurance companies do this? And I gave the like the preliminary answer of they have money that you and I don't have. They can tie it up for longer than you and I can. So they can create products that you and I can't create that ultimately generate guarantees that you and I can't guarantee. It's like that same concept that's the easy way before I've heard that from.

You, I heard it from me.

That's the easy way. But now I'm in like describing how like actually it occurs.

So here's what's going to happen. I'm going to open up Chat GTP and I'm going to come up with this way quicker than your five month scenario here. You're doing. Yeah, I have that blog down 20 pages. Yeah.

So FIA fixed indexed annuity Again, it's a deferred annuity. It is fixed, so it's not going to lose value due to market volatility. It's an indexed annuity. So it's crediting interest based on some kind of market index.

MyGas. It's similar to a fixed indexed annuity, except the difference is how interest is credited. It's guaranteed. So it's just a set interest rate that's credited. But it is still a deferred annuity and it is still fixed by definition.

You have me going through flashbacks. I just had to do my continuing education and man, the way they word those questions between an FIA and a myga, I'm just going, you just said the same thing in both of those answers, but one is more right than the other.

I've seen questions and some continuing education stuff that have wrong answers.

100%.

Yep, I did that.

I had some. I'm going, I know that was the right answer. And so I go and look at the chapter and I'm like, that was. I had the right answer. Yeah. That's funny you say that.

SPIA Single Premium Immediate Annuity. It's not going to lose account value because you're converting the. This is annuitization right away. An annuitization is a conversion of a lump sum into a stream of income. Well, if you annuitize right away, you have no account value, so there is no interest crediting there. So it's technically not fixed or variable. It's just an immediate just conversion of those funds into a stream of income.

You know, I haven't seen any spas lately that have a, a real.

Inflation protection on it. They say they do some, but they're never. They don't. I don't know, generally, because when you tie to the CPI index, you're naturally not going to have true inflation. It's just like the inflation they're talking about right now. It's not real inflation.

Sure.

I mean, I remember when gas was $1.99 and then it bumped up over $4, but then they said, oh, there's only been an 8% increase in inflation. I'm like, no, that's not true at all.

So, yeah, that's interesting. I mean, generally the SPIAs, they'll pay out a little bit more. Just as a general rule of thumb when you annuitize, regardless of what it Is, specifically with SPIAs, they'll generally pay out a little bit more in guaranteed income than a fixed indexed annuity with an income rider. But the benefit that you give up.

To have that, it's like I've done four.

Immediate annuities. Ever. Yeah, ever. And it was very unusual circumstances. Two of the people were under 59 and a half and the other two were above the age of 80. That literally, one, we had to squeeze every little penny out we could and still leave them.

Savings and emergency funds.

Right.

And then the other one, his goal, he flat out said, I have kids and I want them to have nothing. So what is the only way I can die broke? And that grieved me, man. That one really grieved me. And I looking back on it now, this was probably 15 years ago nowadays. I would not have written that. Yeah, I would not have written that. Just like when you're that bitter and I'm literally destroying an inheritance because of your bitterness, I don't want to be a part of that. So I would have, I would not do that.

There have been a couple of cases I've seen spias be needed. There was one where we were dealing with an inherited ira. And it was funny enough, the timing of everything made the inherited IRA fall under the 10 year distribution rule. But the typical fixed indexed annuity product that I use was an eight year surrender. And this particular client had to. The time frame of everything had to be distributed out in the next seven years. So we had to use a SPIA with a period certain. And at that point, I mean, kind of the mentality that I, that I have about it. If you're forced, based on the situation to try and use a spia, a good way to think about it is imagine the clients giving a loan to the insurance company and then the insurance company is repaying that loan plus interest in the form of income payments. I mean, that's about as simple as you can describe it. And those are SPIAs. And then you've got a couple less common ones that we, we talked about. Diaz Deferred Income Annuity. Imagine functionally a spia. It's just instead of income right now, you're taking income, later, you're looking at value.

They've lost control, they've lost it.

Yeah, they've. They've already given up that control. And then you've got QLACs, qualified longevity annuity contracts, often used in, you know, with Diaz, but just kind of designed to defer rmd.

Still have never written one of those.

The idea they let you defer RMDs until like age 80. And my thought process is for what purpose?

Well, what. What's your health? What are you. What's your situation going to be like at age 85? What if you could enjoy that now and paid a little bit of extra taxes, but you got to enjoy it now? I mean it's just different.

It's very, very. Those would be pretty unique scenarios where you would need to use those for sure. But yeah, that's. I mean those are annuities classified.

Well now they get it another one down for the day. So of course, as always, appreciate your time. Appreciate you listening to us. I appreciate you tolerating Caleb. Oh yeah.

Hard to tolerate. It is real challenging guy.

And you have a great day and happy selling.

Sam.