I Am Waving the White Flag Cuz I Want My Money Now

James Alden | May 30, 2020

I Am Waving the White Flag Cuz I Want My Money Now

James Alden | May 30, 2020

I Am Waving the White Flag Cuz I Want My Money Now

James Alden | May 30, 2020

Demystifying the surrender schedule in your annuity policy is as easy as reading the policy itself — which most people do not do.

The fact that most folks do not seem to read their policies is understandable, perhaps not excusable, but certainly comprehendible. Many policy owners purchased their contracts at the suggestion of a trusted advisor while they were in the midst of doing something else...like signing legal documents, or moving funds hither and fro, or simply running fast from a declining stock market environment. Maybe the advisor simply said "your principal is guaranteed", and you signed the policy just like that without giving it much thought.

But the reality is, your annuity contract has guarantees that exist for a period of time, and this period of time is called the Surrender Schedule. This schedule represents the length of time that your annuity contract runs for until there are no penalties if you wish to withdraw 100% of your funds. Annuity contracts can run for as short as 3 years to as long as 16 years. Typically there should be some significant bells and whistles (in terms of bonuses or interest guarantees) if you are willing to commit to the longer surrender schedules out there.

The subject of the Surrender Schedule in an annuity strikes fear in the heart of many insurance agents because the agent is often afraid that their prospect may be afraid to commit to the term of the annuity that the agent may be offering. The consequence of the agent's fear and silence on this matter is that a multitude of annuity policy holders are out there who are literally clueless as to how long the annuity runs for. This is really quite a phenomenon — and I have only seen it a million times!

The origins of this conundrum have to do with its inventor, the Russian immigrant and PhD. student Ivanever Soldan Nootie. Mr. Nootie's well documented academic credentials landed him a job at Acme Insurance Agency in 1888. He was hired to write the legal language in the annuity policies that Acme was selling. Perhaps the Civil War influenced him at the time.

Perhaps his overly academic understanding of the English language affected his ability to properly market what he was writing about. For if Ivan had had even a thimble-full of common capitalist "cents" he would not have chosen the term surrender which, Websters defines as "to cease resistance to an enemy or opponent and submit to their authority". I mean, really! What was he even thinking? Or was he thinking at all? No wonder annuities seem ambiguous!

The one industry that bills and prides itself as the royal custodian of safety for all matters financial at the same time prefers to dole out piecemeal petite tidbits of nourishment at arms length to the heathen masses as long as those masses grovel, whine and surrender themselves?

More soup please? I suppose it is possible that the bean counters at High and Mighty Insurance Company, headquartered out of Arrogant Falls, Minnesota could theoretically take delight in such medieval procedure. But this would only happen in the dreams of conspiracy theorists. The reality is, businesses that don't brand well, don't end well. Unfortunately, the surrender schedule is often discovered in more detail after the owner has purchased the policy. Come on people! Make something attractive even after you have sold it to them.

I think that my beloved industry might have an incongruence here - perhaps a case of passive aggression going on. Kind of like a church that does all the right things to get you in the door, then suddenly once you are in, slaps a multitude of rules and customs that are downright annoying and strange.

This inconruent terminology in the insurance industry would be the equivalent of the automobile industry changing the name of the "Service" department at the dealership to the "Broken Engine" department. Just doesn't instill a lot of warm fuzzies.

Why not use the term Protection Schedule to reference the length of time that the insurer guarantees your accumulated principal? — that took me 13 seconds to come up with.

The surrender schedule in your policy is typically denoted by one or two horizontal lines with numbers above and below. The numbers above are the year in order, (1,2,3,4 etc.) and the numbers below represent percentages which reference what the % charge will be for each penny that you withdraw over the penalty free amount (it's usually 10%).

It looks something like this:

1 2 3 4 5 6 7 8 9 10

10% 9% 8% 7% 6% 5% 4% 3% 2% 1%

Thus, if you withdrew $100 more than your penalty free amount in year 5, for example, it would cost you $6. Keep in mind, you never experience surrender charges if you never withdraw more than your penalty free amount.

Why do these surrender charges exist in the first place? A surrender charge (if it is ever levied at all), is composed of two costs borne by the insurer that must be recouped if the policy owner ever prematurely cancels the entire contract.

Your insurance agent makes a living by selling you the annuity you own. This, of course, is not a bad thing, assuming you trust your agent and you like the features of your annuity. In all fixed and fixed indexed annuities the commission is paid from the insurer to the insurance agent directly. So logically, one must ask oneself...if the insurer pays my agent directly and that commission does not come out of my original payment as the owner, how in the world does all this work?

Essentially the commission your agent received is already built into the overall pricing of the annuity policy. The insurance company will make their annual profit based on the spread between what they earn annually and what they pay policy holders annually. However, an insurer usually pays the agent his or her commissions up front from the time the sale is made, so it may take several years for the insurer to recoup these specific costs. As such, the agent commission is built into some, but not all, of the surrender charge. It is impossible to say how much of the surrender charge is represented by the commission as the overall pricing of the policy is more complex than mere commissions.

Ironically, if you as the policy owner do not prematurely cancel, it can be stated with transparence that you never did experience a direct sales commission deducted from your original premium payment.

Potential Surrender charges can be steep, expecially if the insurer has offered attractive incentives to sign up in the first place. For example, some annuity companies will offer sizable (10% plus) signing bonuses, that often continues for multiple years if you were to add money to the policy. Obviously, the insurer is digging deep here to incentivize buyers. This money must be recouped somehow from those owners who do not stay the course.

Also: above-market interest rates and above-market caps:

Similarly, much like a bank CD, if the insurer is offering higher than average interest rates, these costs must also be recouped for policy holders who depart early. Indexed Insurers also offer caps that limit the amount of stock market - indexed credits a policyholder may receive on an annual or monthly basis. If an insurer has a liberal cap, meaning a high one, sometimes that may be reflected in the size of the surrender charge. In other words, the insurer is giving up more of the earnings to you the policholder than is necessary or normal.

It is interesting to realize that the insurer bargains in your favor with the element of time. In other words, if you give an insurer the right to use your money for an extended period of time, in turn the insurer can offer some attractive interest, index credits and bonus opportunities. These opportunities normally do not exist in the realm of safe investing, but the insurer is able to accomplish it by the virtue (not the curse) of surrender charges and the long term nature of the contract. Not only do these potential surrender charges dissuade someone from prematurely cancelling the policy (and thus making it easier for the insurer to honor the promises it has guaranteed), but the surrender charges recouped from those who do cancel serve the same purpose.

Of course, my goal for you as an Ambiguous Annuitant would be that you would not need to do that — especially if we structured your annuity policies at varying maturities.

Are you stuck in an annuity that you want to get out of? I will be covering that topic shortly. Stay tuned!

One last thing. Ivanever, the Russian PhD immigrant I mentioned above, in case you did not figure this out by now — he never existed. If you read his name quickly you will understand what I was getting at.

Demystifying the surrender schedule in your annuity policy is as easy as reading the policy itself — which most people do not do.

But the reality is, your annuity contract has guarantees that exist for a period of time, and this period of time is called the Surrender Schedule. This schedule represents the length of time that your annuity contract runs for until there are no penalties if you wish to withdraw 100% of your funds. Annuity contracts can run for as short as 3 years to as long as 16 years. Typically there should be some significant bells and whistles (in terms of bonuses or interest guarantees) if you are willing to commit to the longer surrender schedules out there.

Perhaps his overly academic understanding of the English language affected his ability to properly market what he was writing about. For if Ivan had had even a thimble-full of common capitalist "cents" he would not have chosen the term surrender which, Websters defines as "to cease resistance to an enemy or opponent and submit to their authority".

I mean, really! What was he even thinking? Or was he thinking at all? No wonder annuities seem ambiguous! I mean, the one industry that bills and prides itself as the royal custodian of safety for all matters financial at the same time prefers to dole out piecemeal petite tidbits of nourishment at arms length to the heathen masses as long as those masses grovel, whine and surrender themselves?

Why not use the term Protection Schedule to reference the length of time that the insurer guarantees your accumulated principal? — that took me 13 seconds to come up with.

It looks something like this:

1 2 3 4 5 6 7 8 9 10

10% 9% 8% 7% 6% 5% 4% 3% 2% 1%

Also: above-market interest rates and above-market caps:

Of course, my goal for you as an Ambiguous Annuitant would be that you would not need to do that — especially if we structured your annuity policies at varying maturities.

Are you stuck in an annuity that you want to get out of? I will be covering that topic shortly. Stay tuned!

One last thing. Ivanever, the Russian PhD immigrant I mentioned above, in case you did not figure this out by now — he never existed. If you read his name quickly you will understand what I was getting at.

Demystifying the surrender schedule in your annuity policy is as easy as reading the policy itself — which most people do not do.

The fact that most folks do not seem to read their policies is understandable, perhaps not excusable, but certainly comprehendible.

Many policy owners purchased their contracts at the suggestion of a trusted advisor while they were in the midst of doing something else...like signing legal documents, or moving funds hither and fro, or simply running fast from a declining stock market environment. Maybe the advisor simply said "your principal is guaranteed", and you signed the policy just like that without giving it much thought.

But the reality is, your annuity contract has guarantees that exist for a period of time, and this period of time is called the surrender schedule.

The Surrender Schedule represents the length of time that your annuity contract runs for until there are no penalties if you wish to withdraw 100% of your funds. Annuity contracts can run for as short as 3 years to as long as 16 years. Typically there should be some significant bells and whistles (in terms of bonuses or interest guarantees) if you are willing to commit to the longer surrender schedules out there.

This is really quite a phenomenon — and I have only seen it a million times!

.....

Perhaps his overly academic understanding of the English language affected his ability to properly market what he was writing about. For if Ivan had had even a thimble-full of common capitalist "cents" he would not have chosen the term surrender which, Websters defines as "to cease resistance to an enemy or opponent and submit to their authority".

I mean, really! What was he even thinking? Or was he thinking at all? No wonder annuities seem ambiguous!

I mean, the one industry that bills and prides itself as the royal custodian of safety for all matters financial at the same time prefers to dole out piecemeal petite tidbits of nourishment at arms length to the heathen masses as long as those masses grovel, whine and surrender themselves?

But this would only happen in the dreams of conspiracy theorists. The reality is, businesses that don't brand well, don't end well.

Unfortunately, the surrender schedule is often discovered in more detail after the owner has purchased the policy. Come on people! Make something attractive even after you have sold it to them.

........

This incongruent terminology in the insurance industry would be the equivalent of the automobile industry changing the name of the "Service" department at the dealership to the "Broken Engine" department. Just doesn't instill a lot of warm fuzzies.

Why not use the term Protection Schedule to reference the length of time that the insurer guarantees your accumulated principal? — that took me 13 seconds to come up with.

It looks something like this:

1 2 3 4 5 6 7 8 9 10

10% 9% 8% 7% 6% 5% 4% 3% 2% 1%

1) Agent Commissions

Your insurance agent makes a living by selling you the annuity you own. This, of course, is not a bad thing, assuming you trust your agent and you like the features of your annuity. In all fixed and fixed indexed annuities the commission is paid from the insurer to the insurance agent directly. So logically, one must ask oneself...if the insurer pays my agent directly and that commission does not come out of my original payment as the owner, how in the world does all this work?

Essentially the commission your agent received is already built into the overall pricing of the annuity policy. The insurance company will make their annual profit based on the spread between what they earn annually and what they pay policy holders annually. However, an insurer usually pays the agent his or her commissions up front from the time the sale is made, so it may take several years for the insurer to recoup these specific costs. As such, the agent commission is built into some, but not all, of the surrender charge. It is impossible to say how much of the surrender charge is represented by the commission as the overall pricing of the policy is more complex than mere commissions.

Ironically, if you as the policy owner do not prematurely cancel, it can be stated with transparence that you never did experience a direct sales commission deducted from your original premium payment.
2) Insurance Company Internal Pricing

Potential Surrender charges can be steep, expecially if the insurer has offered attractive incentives to sign up in the first place. For example, some annuity companies will offer sizable (10% plus) signing bonuses, that often continues for multiple years if you were to add money to the policy. Obviously, the insurer is digging deep here to incentivize buyers. This money must be recouped somehow from those owners who do not stay the course.

Also: above-market interest rates and above-market caps.

Similarly, much like a bank CD, if the insurer is offering higher than average interest rates, these costs must also be recouped for policy holders who depart early. Indexed Insurers also offer caps that limit the amount of stock market - indexed credits a policyholder may receive on an annual or monthly basis. If an insurer has a liberal cap, meaning a high one, sometimes that may be reflected in the size of the surrender charge. In other words, the insurer is giving up more of the earnings to you the policholder than is necessary or normal.

It is interesting to realize that the insurer bargains in your favor with the element of time.

In other words, if you give an insurer the right to use your money for an extended period of time, in turn the insurer can offer some attractive interest, index credits and bonus opportunities. These opportunities normally do not exist in the realm of safe investing, but the insurer is able to accomplish it by the virtue (not the curse) of surrender charges and the long term nature of the contract.

Not only do these potential surrender charges dissuade someone from prematurely cancelling the policy (and thus making it easier for the insurer to honor the promises it has guaranteed), but the surrender charges recouped from those who do cancel serve the same purpose. Of course, my goal for you as an Ambiguous Annuitant would be that you would not need to do that — especially if we structured your annuity policies at varying maturities.

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Asterisk Free Annuities

By Jim Alden • June 18, 2020

It is always useful, in whatever industry employs you, to study the methods, the marketing and the message of your contemporaries, competitors and colleagues. (now that was a twister that was...) I was doing just that the other day, perusing various sites that purport to deliver annuities to consumers, most of which are vapid, cookie cutter sites that contain only a landing page along with the standard "free annuity guide" to download in exchange for your most coveted email address. But I noticed something on even some of the more detailed sites that actually contain videos, articles and other substantive information. In between the doublespeak I noticed a certain subtle keystroke more than once or twice. And it dawned on me that for some of these insurance purveyors, there is a part of the computer keyboard that their copywriters must find extremely useful in the marketing of their message. In fact, without this particular keystroke, the spirit of their message would have to adjust substantially. Surely you know what I am referencing !! Shift 8! The Almighty Asterisk! It's right above the "U" on my keyboard and it surely is one of the most coveted pieces of real estate on a copywriters keypad. With the Magic of "Shift 8", a copywriter can craft a tantalizing message, even promising the sun, the moon and the stars and with full legal immunity, merely by placing this little snowflake (and I am going to enlarge it for dramatic purposes) right here: * and what the big print just gaveth upstairs, the little print doth ripped right out of your hungry hands downstairs.... So, what is my problem with this entirely legal manouever, so commonly used in the marketing of soup to nuts? Well, I guess I just have a small problem with it in the business of annuities - and I am sorry in advance to all you loyal "Shift 8' ers" ! ( hmm, I guess I could be called a "Shift 8 er, Hater". - I like that!) Anyway, here is my beef: 1) Are you physically capable of reading the fine print? I mean, you're an annuity prospect, you are probably 50, or 60, or 70 years of age and your eyesight is not as good as the young chap who put that fine print in the brochure. Surely you are under your own responsibility to read the fine print.... but....can you even physically do it? I mean while you were reading the main message, everything was fine and you were getting the gist of it all, and then the writer suddenly suggested a really sizzling concept like an "8% lifetime return" and there was this little snowflake right beside the concept and... (at this point you could have just pressed "shift and the "+" sign" to enlarge the font in order to read the fine print a few inches below, but you were born before 1955 and you're not that tech savvy.. ) So instead you had to get up and go into the bedroom and get your special reading glasses in order to read the fine print but by the time you got to the bedroom the Mrs. reminded you about your appointment with Dr. McCracken, your chiropractor, to see him at 3:00 pm this afternoon, and since you had forgotten about the appointment you then decided to call Dr. McCracken's fine young secretary to tell her that you are going to be a little late since you had entirely forgotten about the appointment. Then after you get off the phone with Dr. McCracken's secretary (who is very friendly and flirtatious), you now have this lingering feeling that you had something else you were supposed to be doing, but for the life of you, (maybe you had too much coffee this morning) - you simply cannot remember what it was. Except there was this little seed planted, unbeknownst to you, in your cerebellum, about an 8% annuity rate, that is going to sprout - like an alfalfa sprout - at some (in) opportune time. And you may not know if it translates in your mind as true interest - or something else that the writer was talking about. 2) Did you remember to read the fine print? Now, even the most Ambiguous Annuitants amongst us can forget to scroll south from time to time. But, reading, by its very nature, is a linear process, and by that I mean that to fully understand a line of thought you must read from left to right, through the entire paragraph, like going from one end of a line to the other. Now, what often happens for many of us, is that by the time we have finished a certain paragraph, new "juices of thought" have already been stimulated so that we may forget the necessity of going back to the bottom of the page to read the respective * asterisk * that referenced a particular anecdote that was mentioned 3, 6, or 9 sentences earlier. I am sure you know what I am talking about, although I did not consult any social scientists for this piece.* I hope you appreciated the hypocrisy at the end of that last sentence. Anyway...in addition... 3) We are dealing with a pretty important subject here, your $$$, sometimes even the savings that physically represents the fruit of a lifetime of work and service. We are not: a) Selling automobiles and telling you the "miles per gallon" with a curious " * " at the end of the sentence. - or - b) Selling a weight loss formula with a 30 day money back guarantee that you will lose "X" amount of weight by such and such a date.... and then comes the good old " * " at the end of the sentence. etc, etc, etc.. after all this is America, where Capitalism is enshrined in everything we do... But, really, No, no, no..not in my business, please....it just does not seem good. We, us, and by us, I mean us insurance agents, we are offering something much more serious aren't we? I mean you are laying down your life for 40 years as a butcher, baker or candle stick maker, and then you just plop the fruit of all those years of butchering, baking and candlestick making onto the desk of the nicest looking young man with the shiniest of desks who has this beautiful glow about him emanating from above, ......and that wondrous glow is coming from the most glorious of white snowflakes above him, oh, hang on, it's that, oh my goodness, don't tell me, but it's another.... SHIFT 8! * ****************** Eee gads, there it is again! There is simply no escape! or..... I say, is there? Let's digress slightly... Wikipedia has a fascinating discussion on the asterisk and it's history and uses. http://en.wikipedia.org/wiki/Asterisk and it states that one of the labels computer scientists often informally use when referencing an asterisk is the word "splat". To prove my point here all I can say is - "how convenient." Ironically, I too have personally used this word, "splat", when referencing the past tense of "spit" as it rests on a blacktop playground, or sometimes I have used it for the past tense of what a bird may have jettisoned onto my windshield, or, come to think of it, countless other dishonorable functions of existence. And I might suggest you consider thinking about the * in the same manner, especially when it comes to the marketing of annuities (since this is the only industry I can speak on behalf of). In fact, if you follow my advice here, I would first recommend you purchase a spitoon..these fellows sell them: http://www.mudjug.com/ And when you see an * in an advertisement for annuities, promising 8% or 9% something or other, instantly launch away with the best sample you can muster into that shiny new spitoon, because if you don't, someday you're gonna wish you did. In fact, if you don't use the spitoon today, you're gonna use it tomorrow. Hmm, now there's a slogan for a sideways sales practice. So, that's why, I have vowed to make the Safe Money Singer an : "Asterisk - Free Zone" Kind of like those cities you drive into that say "Nuclear - Free Zone" "Yes siree, In these here parts pardner, we are Asterisk-Free, yes, siree! if you dare use one of them round here young city slicker, you're gonna have to leave!" Now if this means I get less annuity business, gosh darn it, I suppose I can live with that. And this should help with my Catholic guilt issue. A lifetime of the stuff can make one pretty nervous in fact. Even today, 40 years later, if my pinky should venture too close to the “shift 8" key, my hand tends to tremble slightly. So I'll just go ahead and make "Shift 8" pure contraband from this point. Now....a Major Caveat here! I am not slamming the efficacy and usefulness of the Annuity per se, OBVIOUSLY, since I make a living offering them to you! But I am commenting on how they are improperly marketed, of course. And, by the way, I could have said - what I just said above - by merely putting an asterisk somewhere.. But I can't! I am in an "Asterisk - Free Zone !" Oh, I have been set free! How liberating! Amazing Grace! Hallelujah ! So, in Conclusion, I am hoping you feel the same way. Signing off, Jim, The "Shift 8'er hater" ! "Asterisk - Free" Annuities - Built on Attraction, not Promotion

Rate the Raters: Is it the Rating Game or the Dating Game?

By James Alden • May 28, 2020

This article may shed some light on how the Rating Industry works in the insurance biz here in this country of ours. I know of 5 rating agencies for life insurance and annuity companies in the United States. Ambiguous Annuitants always study the rating services thoroughly.

Financial Dentistry & The Often Uncomfortable Process of Annuity Shopping (Part 2)

By James Alden • April 25, 2019

As a 20-year annuity agent, I began to recognize several years ago the uncanny parallel that the emotional process of shopping for an annuity, from your perspective as a consumer, is not all that much different than the psychological process of scheduling a trip to the dentist.

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