As a financial advisor, you’re no stranger to the changing tides of the market, and right now we’re in what many are calling a “perfect storm” for annuity refinancing. With interest rates much higher than just a few years ago, surging market values, and evolving product features, there has never been a better time to help your clients review and potentially replace their existing annuities. Here’s why this market shift presents such a timely opportunity—and how you can leverage it to the benefit of both your clients and your business.
KEY TAKEAWAYS
- Higher interest rate environment creates competitive annuity products.
- Record high markets can become volatile. It could be time to protect gains.
- If interest rates fall, insurers may scale back their offerings.
- An annuity refinancing strategy can help assure your client’s long-term success.
HIGHER INTEREST RATES = More Competitive Annuity Products
Over the last few years, interest rates have been steadily increasing, providing a unique advantage for the insurance industry. Annuities, particularly Fixed Index Annuities (FIAs), have seen significant enhancements. Insurers are now offering higher cap and participation rates, enabling clients to capture more growth from market upswings. Additionally, with higher rates, annuities structured today can provide better guaranteed income than products purchased in the low-rate environment of 5-8 years ago.
Higher rates also mean insurers can design more flexible and innovative solutions for clients, including improved income riders, enhanced healthcare benefits, and more customizable features. This allows advisors like you to offer clients a broader range of options tailored to their retirement income needs. With these advancements, your clients can lock in higher growth potential and greater stability, which might not be available if rates decline.
“Rising interest rates have allowed insurance companies to add more value to annuity offerings”
-Todd Giesing, Assistant Vice President, LIMRA Annuity Research
RECORD HIGH MARKETS: An Opportunity to Maximize Existing Value
While today’s market highs are attractive, they come with a caveat: gains can be volatile and vulnerable to correction. Sequence of returns risk is very real. Many clients with Variable Annuities (VAs) have seen strong growth over the past decade, but these gains could quickly evaporate in a downturn. According to Morningstar, 2022 saw VAs experience a 22% decline in contract value, highlighting the risk of market-dependent income.
This is where annuity refinancing, or replacing a VA with a more secure option like an FIA, becomes critical. FIAs offer a principal protection feature, ensuring that clients’ accumulated value is shielded from market losses while still allowing for potential upside linked to market indices. This balance of growth potential and protection makes FIAs an attractive alternative in today’s uncertain market.
The increased demand for fixed indexed annuities comes as clients seek growth opportunities with downside protection in today’s volatile markets.
– Sheryl Moore, CEO of Wink, Inc.
THE CASE FOR URGENCY: Locking in Today’s Advantages
One key reason annuity refinancing is timely right now is the unpredictability of interest rates and market trends. While current products are rich with benefits, there’s no guarantee these features will be available in the future. If interest rates fall, insurers may scale back their offerings, resulting in lower cap rates, reduced participation rates, and less attractive income guarantees.
Similarly, if the market were to correct, the current high market values of portfolios and VA contracts could drop, erasing a significant portion of a client’s gains. By acting now, you can help clients lock in today’s stronger rates and more robust features before market conditions shift again.
HOW REFINANCING ENHANCES CLIENT OUTCOMES
Incorporating an annuity refinancing strategy not only protects your clients from market volatility, but it can also position their retirement portfolios for greater long-term success. Refinancing can result in:
– Guaranteed lifetime income through improved income riders.
– Healthcare benefits, including options for long-term care or home healthcare coverage.
– Enhanced accumulation potential, particularly in a rising interest rate environment.
This strategy allows you to deliver a tailored solution that offers both growth and protection, aligning with the retirement goals of your clients.
NEXT STEPS FOR ADVISORS
If you’ve been waiting for the right moment to introduce annuity refinancing to your clients, that time is now. Take action to review their current annuities and evaluate how rising rates and market highs impact their portfolios. By acting proactively, you can help clients avoid the potential pitfalls of market downturns while securing enhanced income guarantees and protection from volatility.
Advisors proactive in this environment stand to benefit from increased client loyalty and potential growth in their practice. Offering a refinancing solution allows you to differentiate yourself by demonstrating a commitment to maximizing value and protecting retirement income.
In conclusion, the current economic landscape presents an unprecedented opportunity for annuity refinancing. With interest rates still high and the market nearing record highs, the advantages of today’s FIAs offer attractive growth potential and protection for your clients. By helping them act now, you’re ensuring they lock in the best possible benefits before the market environment shifts again.
Sources:
Morningstar, “2022 Variable Annuity Performance”
LIMRA, “Annuity Sales Benefit from Rising Interest Rates”
“The Importance of Annuity Refinancing” by InsuranceNewsNet
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Erick Lindewall
VP of Annuity Sales
Erick Lindewall is an industry veteran with 30 years of experience, including over 20 years as an External Variable Annuity Wholesaler. He works with financial advisors in all major distribution channels. Erick has been recognized as a sales and relationship management leader multiple times during his wholesaling career.
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