Replacing An Annuity | 7 Figure Annuity Sales Podcast | Ep. 292

On this week's episode, we're going to talk about replacing an annuity.

Hey, everyone. Welcome to this week's show. I'm Chad Owen. This is Caleb North. And I'm just going to leave it at that, but as you know, we are going to be talking about replacing annuity. And I don't know why, but this is going to be the third week in a row we are going to be talking about something that can be incredibly happy, but it can also raise my blood pressure because there are some replacements out there that are driving me nuts and I wish I could towel whip someone. Those people that replace those annuities.

I mean, I can't kill them. I don't know, man. I grew up in a family with five brothers and a sister. And my five brothers, we used to get in some towel whips that we could draw blood.

Like, I could still draw blood. I remember this one guy, I snapped his arm right in here and I ripped skin up and he bled.

That's wild.

That's actually pretty normal, especially if you get one of those hankies, the handkerchiefs.

Oh, like a bandana.

Yeah. And you, you put a little knot and then you hit. Oh, dude. You can cause serious skin damage.

I get to like. I'm getting the goosebumps, like, thinking about this.

Why don't you. On next week's episode, we're going to have Caleb hold his arm out and I'm going to towel snap him and show you this can happen. We will have a disclaimer ahead of time, though.

Yeah. No, Caleb was actually harmed in the making of this episode.

No Caleb will be harmed in the making of this episode.

There's not that disclaimer at all. I think I can handle your towel, so let's go. Might as well just pull the band aid, rip the hair off, because let's talk about replacing an annuity.

Well, I think one of the things that's important to bear in mind is that this is one of the most case by case things in annuity sales. What I mean by is there could be certain situations where from a replaceability standpoint, it's really on that line of replaceable or not, and you might want to push for it hard depending on what that client situation is and what they're trying to accomplish. And then on the flip side, there might be situations that could easily be replaced that it just doesn't make sense to do it. And so that's why I say it's one of the most case by case things. But I want to give you guys, a few things to consider when you're doing a replacement. The first one is, did you sell the original policy? That's a big deal because churning your.

Own policies, you two guys in New Braunfels that targets people who have had annuities that you sold and then you try and replace them even though they had income riders on them, and you disregard that because you're doing a 10% bonus that will outweigh the surrender value, but they get rid of the income account value. So to you guys in New Braunfels, I know who you are and I'm watching you closely.

But anyway, let's hope they're listeners.

I hope they're listeners because I'm telling you, I will turn something like that in. And I have documentation on all of them. I have letters they've sent out and I'm just building a nice little file. Don't let it happen again. Yes, well, I'll try to be less careless. I'm watching you. Always watching. Anyway, I hate when people beware, mess over clients and when they misrepresent our industry. I hate that I don't think, like I replace an annuity in the right situation is phenomenal. I've helped a lot of clients get out of really bad situations. But when you sell an annuity with an income rider and then you try and churn it, or another word they use is twisting. I'm trying to remember the exact one. Yeah, but you know, it's like you're just trying to get the commission and you're dropping off that income value and it just.

Or, or even not an income product, but just a, just a straight fixed index annuity or a MYGA or anything like that.

Those are a little clearer to do, though. I mean, if you have X number of dollars for surrender and you look at the different indices and what the option is, what the fixed rates are, you know, that's a little clearer.

It is, it's, it's, it's. It's easier to determine if something is replaceable, but I don't necessarily know that it makes it more.

Unless you were going from like a. And where I was actually going to get into this in a minute. Changing the type of product based on the purpose of the money.

Yeah. You know what I mean? An interesting statement because you said, if you have written the annuity, don't replace it. I can tell you in almost 19 years, in all fairness, let's just say 16 years, because I didn't really get into the annuity business till the third year I was in the industry and I have replaced one of my annuities ever. And it's because the company said that it was going to perform a particular way. They did some changes that.

I didn't agree with, didn't know about. And so the client on the sixth year said, is there something better? And I said, yes, there is. And it was very. I humbled myself greatly and I said, I apologize. This product did not perform how they said it was going to. They made changes after we already got into it. And I just said, I apologize, my mistake. I mean, I didn't. I couldn't. Would have never predicted this.

Sure you'd humble pie.

Thousands of clients I have, that's one that I've done that well.

And that's why I think in this particular, what I'm talking about here, you selling the original policy, it's a lesser statement about the replacement. I'm not saying it like you should hear this less as me saying don't replace your own policies and more me saying make sure the first policy you sell is the right thing for the client. That's really what you mean to do.

Your job in the first place?

Right?

That's.

And that goes deeper than just, you know, hey, Mr. Marketing Organization, Mrs. Marketing Organization, what's the best product for this client? Even though that's a big piece of my job and what I do, I want to make sure that the agents I'm working with as well know why we're recommending that particular thing as the best fit, not just blindly selling something.

And I'll tell you, that's why I told you this. You're in the top three marketers I've ever met in my life. Because you do that research. You. I mean, somebody has a case, I just haven't seen that. You don't just open up. I was going to say Rolodex. Yeah, that's old school, man. You don't open up your contact list or, you know, you. You know exactly who to call, what to do, but you know what products is going to be best for the situation. And often you don't even have to research it because you already know it.

So I've spent a lot of hours studying different products out there, and it's a. It's a blast. I really enjoy it. Another thing you got to consider is how long the policy has been in force. Minimum, like most carriers won't replace an annuity that hasn't been enforced for at least two years, and some will require.

Three or four and some you can do it within a year. It depends how bad the mess over is, especially if you have an mba. Well, that's. Yeah, you have an mba. I saw some surrender charges that the policy was six years old and the MVA was gone. The surrender charge was gone.

Yeah.

And so VA covered it. You know, it covered it. So it. And go back to. Even if it covered it, you still need to make sure you put them in a better situation.

Correct? Correct. Definitely. Consider what the surrender charge is. Okay.

Generally the higher the surrender charge, the more challenging it is going to be to replace it. That's partially because. And we're going to get to this in a second, but one of the things insurance companies want to see is the client made whole just about immediately. So typically you're dealing with some kind of bonus product. If you're dealing with a bonus product, the higher the surrender charge, the higher the bonus has to be to replace it. Well, the higher you get in your bonus, the fewer the products that are.

Available when you also have to be careful too. Allianz maxdex5 maxdex fan 10 years ago they would have a. Like the actual index itself did not do well. It was not much more than what the client put in. But the income value or the death benefit value was crazy high. I just ran into one last week or the week before. I can't remember exactly when that was, but the account value was 103,000. The income slash death benefit was over 290,000. So they were allowed. So someone sit there and say, you know what, we'll just have the money sent over and you know, we don't need to worry about that because you're never going to annuitize it. And here's the thing, you take any money out of annuity, no matter how it comes out, that is a surrender and a replacement if it's put into another annuity, period. There's no way around that. But I said, oh, I know how you do this one. This one, you can actually take that 293,000, draw it out over 10 years and you still get that money.

Right.

So that's what he's doing. Make sure you look at all the different values there, not just the account value.

That's exactly right. And that actually ties us into what is the purpose of the money. What I mean by that is, was the initial policy sold not in alignment with the client's needs and goals. And generally if the initial product sold was not in alignment with the client's needs and goals, it's Going to be a little bit easier to replace if somebody, an agent sold them, you know, a 10 year just straight fixed indexed annuity for accumulation, growth, protection, that you know, the standard thing there. But they actually need income.

How do you know if that's what's best for them?

Fact finding.

Oh my gosh, I feel a little sarcastic. I'm sorry guys, I really am. But once again we've had three weeks in a row where we keep talking about subjects that just are hot buttons for me because as you know, the reason why we created Retirement Realized Agents Academy and Retirement Realized Financials because we wanted to be a place where, as you know, I'm in the field just like you, running appointments just like you. So I run into clients consistently that are being misrepresented even from their own nephew.

Right.

And, or their own brother or their own best friend. I mean I just talked to a guy today where their best friend put them in a product that's not horrible, but it's definitely not in the top five. And you know, so now he's looking at putting some other money has away from his best friend. And I'm like, oh boy, that could make things very awkward. But I run into this. So if I was sitting in the back office or in a cubicle, you know, trying to train agents, I wouldn't have this passion like I do right now when I consistently see clients getting messed over because of replacements, because of misrepresentations.

So yeah, I agree, I agree. So if you're changing the purpose of the money or the money, the purpose of the money maybe isn't changing, but the product needs to change to address the purpose of the money. You're going to have a little bit easier time there. The challenge typically with that is that it's easier to go from a just a straight fixed indexed annuity, no income benefits except for annuitization, right. To an income product for sure. The challenge with that is that typically income products don't have account high account value bonuses on them. Most of the time they're going to be crediting some kind of bonus or roll up rate or something to the benefit base. So it can be harder to make that account value whole out of the gate. But if you try and go from an income annuity to just a straight indexed annuity with no rider, that's challenging too because now you have a whole income benefit that is being revoked and you're adding time to surrender. So it' and that's what you make.

Sure too, that in most insurance companies require you to have a comparison suitability form side by side with the annuity they have and the annuity you're replacing it with. And be sure and go through all the details, you know, what are the riders, what are the income, Is there any income benefits? Does it have to be annuitized? Actually, especially with variable annuities, we actually have a document that we, that we do for our people and in the academy and agents that are with us at exactly the questions you need to ask for a variable annuity, such as M and E fee, fund, fee, rider, fee, you know, does it need to be annuitized? And I can't tell you how many clients I've ran into that's had a variable annuity with an income rider and they found out that it had to be a single lifetime payout. It could not be a joint lifetime payout. And when you call the 800 number and you speak to that representative and that lady, which is usually the lady that has that, the wife finds out that she does not have guaranteed income for life, that will set them off. And as long as it's good, you can help them replace that. As long as it's suitable and it's more beneficial, you become the hero in that situation.

Absolutely. The last one that they're going to look for most of the time is, and I've mentioned it already, but did the client get made whole pretty much immediately. In other words, you, in the initial policy, you have an account value and you have a surrender value. What's being moved to the new annuity is the surrender value. But they're going to want something in that new annuity that brings that surrender value value in the account value up to the initial policies account value at the time of the surrender to be quote unquote, made whole.

That's why often when you have a replacement in the first couple few years, it's, it's, it's not possible.

Right.

I mean, I know some. What is our Highest right now? 10% in the account value is the highest right now.

As far as the bonus. Yeah, there's some that are higher than that, but.

Okay. Yeah, but then the index is going to be a dog.

Well, in Texas is challenging too. Yeah, definitely. So 100 pennies in every dollar. If they're giving it to you in the form of a bonus, they're probably not giving you great rates on index strategies.

And what you have like Texas, you have Florida, you have these states are like 10. Yeah, obviously. Well, that's true because other states you're going to be able to have a 15 or 16 year product.

In some of the states I've seen 14 year products with 20% surrender values.

In the first few years, which once again isn't bad. If that is the purpose of the money, it suits the purpose of money. And you do make sure they have plenty of emergency funds and savings and income. So I mean that's to me, surrender values mean nothing if it's the right fit for the client and they have enough emergency funds. Because you could look at that 20% surrender value, which of course brokers love to point out. You have a 10% surrender charge or you just lost them 15%.

Right.

If they need that money right now, that is a surrender charge. Now it's not technically it's called a loss, but if they want that money right now, that's what they're going to have to pay.

Well, and I can think of situations where a product with a 20% surrender charge that has a nursing home care waiver of surrender or a terminal illness waiver of surrender is actually still a better scenario than a product with a 10% surrender charge that has no waivers of surrender for those scenarios. Because if they end up in that scenario, guess what, they're free and clear in the one with the 20, but they're paying 10 on the others if they need that money.

Which you always a balancing statement, you know, I like doing that. Make sure you understand that if the account value is down to zero, you know, that benefit to the rider is not available. But the liquidity of the account value, there is no surrender charge on. So it's important to understand that. So if you have somebody in year five that has a 6% surrender charge and they need that money because of long term care, that surrender charge will not happen. So it's just important to understand that and how that works.

Absolutely. Like Chad already said, MVA plays a big role here. The quick way to explain MVA is it acts like a balance between the insurance company and the client. If interest rates go up, MVA goes down. If interest rates go down, MVA goes up. Essentially it creates this, this teeter totter to try to make both the client and the insurance company.

Say that again, just to be clear. Yeah.

If interest rates go down, the client's MVA will go up. Mva, as it increases, it can offset the surrender charges. Right.

So in other words, they'd make the surrender charge start to go away.

Exactly, exactly. So like imagine interest rates decrease. So the client's MVA has increased by say 5% well, if they have a 6% surrender charge, that's a net difference of 1%. The effective surrender charge at that point would be 1%.

And just to be clear, because we like to, because there's people that are brand new, MBA is market value adjustment. I think we already said that, but I just want to make sure it's clear market value adjustment.

So it's definitely something you want to consider when you're looking at replacing annuities. And then another thing that goes a long way with insurance companies is some kind of letter of explanation, cover letter, something like that, attached to the application.

Initially that the client signed.

Exactly. Signed and dated by both you and the client. This goes to show due diligence done on the front front end. It means more sending that in with the application than it would if you just submitted the application. And then later the insurance company asks for more clarity. You doing the due diligence on the front end and expressing that and how that the new product better suits the client. That goes further than trying to do it retroactively.

I can't recall the last time I ever, ever had a suitability rejected. Yeah, it's because I've just. Over the years, it's much better to just get everything accurate up front. And I've now, I have sent in the fact finder before. You know, it's rare, very rare. I don't even know if I've done that in the past two years. But if they have a question, go, hey, I got the fact finder. They're like, oh, really? Okay, send that in too. And it works perfect. Yeah, I think that's it. I appreciate your time. You guys have a great day and happy selling.

Sam.