Annuity Replacement Decline - a Way Around It?

Sep 27, 2015

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  1. honestabe
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    honestabe New Member

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    I recently placed an annuity application with a large carrier, with benefits FAR outweighing that of the client's current annuity. However, a hyper-sensitive underwriter/review team decided to decline the application, due to there being"no value to the customer" with the replacement, most notably, overcoming the surrender charge. The benefit is VERY clear, in terms of the client's objectives (don't want to get too specific, but even my FMO is befuddled.)

    The client is furious, and STILL wants the annuity. In fact, she has another direct rollover (old pension fund with no surrender charges) ready to roll to the same company, for the same product, one she really loves, and is unique to her situation and need. Here's my question...

    The client wants to surrender the annuity with their current insurance company, take the funds, and immediately write a new application with the funds. Will the same insurance company typically take and approve the NEW application, since it is technically no longer a surrender?

    It will occur within 60 days, so the client WON'T have to pay taxes.

    Thanks in advance for your help!
     
  2. Newby
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    Newby Guru

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    If it's within 60-days it's still a replacement and the company will likely look at it the same way again.
     
    Newby, Sep 27, 2015
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  3. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    Even a 60 day rollover is considered a replacement. So legally you would have to check yes for the replacement question and fill out the replacement form which asks about surrender charges. Which would likely result in the same UW decision without further explanation of the benefits.

    Instead of trying to get around the suitability guidelines. Address the issue of why they denied it.
    If it gives the client better benefits then what exactly are those benefits?
    If the client is taking a surrender charge, what are they getting in exchange for that?
    In what way does this product meet the clients goals that the existing product does not?

    Tell us about the situation and the two products/carriers and we might could give more guidance. What is the new product? What is the existing product? What are the surrender charges? What are the clients goals? What is the clients age? How do you see the new product meeting those goals better than the old product?
     
    scagnt83, Sep 27, 2015
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  4. Tahoe Ray
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    Tahoe Ray Guru

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    This is the type of case is where a carefully worded cover letter can do wonders...
     
  5. honestabe
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    honestabe New Member

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    Thank you all very much for your responses. I really appreciate it!

    My reputation with my FMO and the carrier is for well-worded, accurate, comprehensive cover letters, and this was certainly no exception.

    The benefit is specfically in a rider not offered with the current policy, and MUCH better guaranteed returns. We took time acknowledging the immediate loses (death benefit, surrender charge, etc.), but listed the proposed annuity's benefits, and how the annuity and rider fell *directly* into the client's plan.

    While it would be a *replacement* for tax purposes, it would no longer compare her "current" policy with the proposed one, as the funds would be sitting in her bank account. Her idea struck me as interesting, and it seems the proposed new company would be off the hook for matters of compliance.

    I am a rather experienced producer, with over a decade of annuity-writing experience, and was completely taken back by this decline, but the client is disgusted to be stuck with her current company outweighs my shock.

    ----------

    Sorry, but I really can't/don't want to elaborate on the specifics, but let's just say her current policy is shockingly bad. She was ***sold*** the policy based on insane promises by an NAA Agent (go figure, right?) who took at 10% commission, and perhaps my client's ability to seek an alternative because of a 14-year surrender!
     
  6. Tahoe Ray
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    It is still considered a replacement...as others have said.

    Also, the carriers suitability department would likely catch this, and if it takes them a while, you're going to be under huge pressure to get that money placed quickly to avoid a taxable distribution.

    How big was the surrender %? Some carriers (like American General) have very strict guidelines and very rarely bend.

    Any chance you can just find a new carrier? As you know, a lot of these riders are very similar.
     
  7. DHK
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    DHK "YOU CAN'T HANDLE THE TRUTH!"

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    honestabe,

    Welcome to California! The land where selling an annuity can get you arrested! Look up Glenn Neasham and Alan Lewis.

    I wouldn't try to replace an existing annuity with ANY surrender charges being incurred. Don't even try... in California.

    How old is the client? If the client is 65 or over, there's even more provisions to "protect the public". Go back through your Annuity CE booklet to get familiar with replacement tactics and considerations.

    The only other thing I could suggest, is a "switch letter". These are letters that broker/dealers have been using to justify any replacement or investment switch. Show what the client has now and show how the client is better off with the new product, and any additional considerations. Have the client sign it, and you sign it as the agent.
     
    DHK, Sep 27, 2015
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  8. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    Without specifics there is little advice that anyone can give you. Since you are posting anonymously, there is really no reason not to if you want more than blind guesses.

    As to the rollover idea. As I said before, LEGALLY you would be required to state on the app that it is a replacement. Because according to NAIC regs, a rollover is still legally considered a replacement.

    So if you followed the law the carrier would know it is a replacement. If you illegally fail to mark the case as a replacement on purpose, then there is a chance that they might not know. But they also would likely see her old case in their system and ask follow up questions about the source of funds. And of course this all would put your career at risk.

    Most carriers do not allow replacements based on Rider benefits since they are not actual liquid benefits. Especially if the funds represent a large percentage of the clients assets.

    As a side note, this is one of the worst times in our economic history to lock a client into an interest rate for life. jmo
     
    scagnt83, Sep 27, 2015
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  9. honestabe
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    honestabe New Member

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    Of course, no one is looking to lie, break the law, etc. Yes, it would still be a replacement, BUT there would be no comparison, as the surrendered policy would be just that... surrendered.

    Current policy has no income rider, and still has seven years left. Client desires lifetime income benefit, especially the options with this rider (Simplified Income III with Allianz) offers. HATES to-date performance of an annuity that has a FOURTEEN YEAR surrender.

    Short of the client begging for the new policy, I am curious what else can be done. Great client. Has referred me three other people already. Now, I fear like I appear to be the fool.
     
  10. Tahoe Ray
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    Tahoe Ray Guru

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    Are they taking immediate income? How old?

    That product/rider is nothing exceptional...you should have plenty of options to move it.
     
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