Annuity app declined

Mar 10, 2019

  1. obewan
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    obewan New Member

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    I wrote an annuity app a few years ago for a family member but it was declined because they couldn't show a source of income. He was relocating to another state to live with his daughter and son in law and was planning on finding a job after he relocated. He wanted to take his retirement money from the company he had worked for and transfer it to an annuity but was declined because he had no source of income.
    I have another situation similar. My nephew left his place of employment to go to barber school and has set enough money aside to live on till he graduates. He wants to convert his retirement into an annuity. Am I looking at another decline ? What are my options if any ?
     
    obewan, Mar 10, 2019
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  2. DHK
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    DHK "YOU CAN'T HANDLE THE TRUTH!"

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    https://www.naic.org/documents/committees_a_suitability_reg_guidance.pdf

     
    DHK, Mar 10, 2019
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  3. VolAgent
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    VolAgent Guru

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    How are these transactions remotely suitable? You are locking up there money while they have no other source of income. You are begging for complaints when they are unable to find a job and want to tap into their savings. Suddenly then will be the first time they heard about any penalties.
     
    VolAgent, Mar 11, 2019
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  4. pfg1
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    pfg1 Guru

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    First of all, why are you submitting a case that will most likely be a decline? I think you need some overall annuity training, and especially in suitability. If the client doesn't have adequate liquidity, most companies won't take it.

    Why are they wanting to do an annuity? Is it because you are selling them on it?
    Annuities are great tools...but only for people in the right position. Just because someone leaves a job and has $... doesn't automatically mean an annuity is the right choice.
     
    pfg1, Mar 11, 2019
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  5. somarco
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    somarco That Medicare Expert Guy

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    Passbook savings, money market, maybe short term CD, invest in lottery tickets . . . .
     
    somarco, Mar 11, 2019
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  6. pfg1
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    pfg1 Guru

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    I'm assuming this person is young? Why would he want to convert his retirement money to an annuity? That is a terrible option for a young person. He needs to roll it into an IRA, possibly convert to a Roth (if its not already)... and invest fairly aggressively, imo.
     
    pfg1, Mar 11, 2019
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  7. DHK
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    DHK "YOU CAN'T HANDLE THE TRUTH!"

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    Unless... there's a great lifetime income benefit rider that can do step-ups indefinitely longer than 10 years... say for 20 - 30 years... it *could* be a great long-term option as you're essentially securing a pension-type income benefit.

    But there needs to be current income, other savings, and other liquidity provisions made before I'd recommend something like that.


    This is just ONE reason why annuities should not be done by novices. Most other insurance products don't have REAL suitability issues and rules - other than financial and medical underwriting. Annuities have the outlined suitability considerations that must be proven and documented in the annuity application. And even then, to know when it's appropriate and when it isn't. Age, income, and liquidity are big deals for annuity sales.
     
    DHK, Mar 11, 2019
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  8. VolAgent
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    VolAgent Guru

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    Some people simply don't have the stomach for it, regardless of how right it is. A fixed or fixed indexed annuity without a rider could be a good fit for someone that would otherwise be putting it into a savings account or CD, regardless of age. I saw without a rider, because we will have plenty of positive years, and this way you don't have the drag of a rider, nor do you have to worry about being underwater in regards to the rider if there are better options later.

    Also, it could be inside a tax advantaged account, we don't know.

    That said, while I think it could be a viable alternative to CDs or a savings account, I know full well you invite critcism just like this from compliance, regulators and peers.

    I do not agree with locking up someone's savings when they don't have a job. The surrender fees from an annuity could be severe, and then if there are penalties for taking it from a tax-advantage account, and they may see half the money eaten up in penalties and taxes.
     
    VolAgent, Mar 11, 2019
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  9. obewan
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    obewan New Member

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    I don't really don't do annuity business. That's why I asked because I don't know. I figured thats why the forum was here. Of course you have to accept all the other comments people throw at you that doesn't have anything to do with the question but that's ok. I appreciate the input and pretty much got my answer to the question.
     
    obewan, Mar 11, 2019
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  10. Allen Trent
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    Allen Trent Guru

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    Keep in mind, a couple of issues you need to consider in addition to the liquidity issue that others have mentioned for suitability. when moving someone's employer retirement money (IE; 401k) to an IRA( I assume you meant IRA rollover annuity, not a NQ Annuity to be bought if the person cashed out their retirement account & paid taxes & IRS early distribution penalties):

    1. IRAs have an IRS 10% early distribution penalty if money taken out before age 59 1/2 whereas leaving it in a 401k plan or rolling it to his next employers 401k plan would only have IRS 10% penalties before age 55.

    2. 401k plans permit loans to be taken if it is with your current employer, but IRAs do not. So, rolling to an IRA can shut the door to the person being able to take a temporary loan & pay it back.

    3. Employer 401k plans have greater creditor protection than an IRA for bankruptcy,lawsuits, etc. The average person likely doesn't need to worry about this one as many states also provide $1M of creditor protection to IRAs.

    Basically, the reasons for the Annuity IRA like lifetime income need to outweigh these items above in addition to tying the money up in an annuity that would likely come with a 5-15 year surrender charge schedule.
     
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