Insurance agents limit themselves when they work with just an insurance license, especially if they sell life insurance. Though a life insurance license entitles agents to sell fixed and fixed-indexed annuities, they need a securities license to sell variable annuities.
Many of their clients are interested in variable annuities because they are willing to accept more risk in exchange for higher returns. Insurance agents with a Series 6 can offer their clients the full suite of annuity options that provide big returns and lucrative commissions.
The benefits of annuities
Life insurance agents work to protect their clients from financial harm if the unexpected happens. Most people think this protection is limited to providing a death benefit, so it’s incumbent on life insurance agents to make their clients understand that both fixed and variable annuities provide protection from other types of financial disasters.
When agents show their clients the benefits of annuities, they provide a higher level of service while building a stronger business model.
Annuities are designed to protect clients against:
- Running out of money during retirement
- Sequence risk
- Market volatility
- Economic recession/depression
- Inability to qualify for life insurance
- Nursing home expenses
- Premature death protection for dependents
As a general rule, investing in the stock and bond markets yields higher returns than annuities, though market volatility and economic shocks can cause devastating losses. Fixed annuities guarantee that, regardless of what occurs in the markets, the investor’s principal and income streams remain intact.
Though variable annuities are subject to market risk, investors can elect variable annuity products with a floor that guarantees that the initial investment remains protected.
Annuities, both fixed and variable, offer protection from sequence risk. Sequence risk occurs shortly before and shortly after retirement. It refers to the risk that the sequence of returns will work against the investor.
If the sequence of returns involves a large market downturn just before or just after retirement, the investor starts taking distributions when the principal has been severely diminished. As a result, he or she magnifies the losses, which makes it even more difficult for the retirement fund’s balance to recover.
Shifting money into annuities during the years leading up to retirement manages this risk. Financial experts recommend purchasing a fixed annuity that at least covers basic living expenses several years prior to retirement.
Additional monies can be invested in a variable annuity with principal protection. This provides principal protection while participating in market gains. Either type of annuity can provide immediate of deferred payments, depending on the client’s needs.
As a bonus, insurance agents can offer a long-term care rider along with the income protection of annuities. These are especially helpful if long term care premiums are unaffordable. The rider stipulates that if the annuitant enters a nursing home, the annuity payments are doubled for five years, after which they return to the regular amount.
Retirees need a steady income and can ill afford stock and bond market declines, so fixed annuities are appropriate. To gain some exposure to equities without risking large amounts of capital, some retirees may elect to invest a percentage of their nest eggs in an immediate variable annuity. Payments for immediate variable annuities fluctuate with the market, providing the opportunity for increased future payments.
The public has the misconception that annuities are about building wealth more than protecting it. Annuities are a hybrid of conservative investment products and insurance against unaffordable financial costs, such as long-term nursing home care.
Obtaining a securities license
Qualifying to sell variable annuity products requires both Series 6 and Series 63 licenses. A Series 6 license is a limited securities license. It allows the selling of packaged investment products that include mutual funds, variable annuities and unit investment trusts.
Series 63 licenses authorize the holder to sell securities products in a particular state. All states require a Series 63.
Earning a Series 6 also requires taking the co-requisite Securities Industry Essentials Exam (SIE) credential. The SIE covers basic securities industry knowledge. Though the exams can be taken in any order, life insurance agents who have not worked in the securities industry benefit from taking the SIE first.
Securities Training Corporation prepares financial professionals for securities and insurance exams with interactive courses that are available both on-site and online. Most importantly, Securities Training Corporation’s preparation courses are taught by instructors who interact with students and help them not only pass the test but use the knowledge gained to further their professional work and reputations.
If you are interested in becoming licensed to help your clients achieve financial security through annuity sales, contact Securities Training Corporation.