LESSON 3 OF 7
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Tax deferral
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If your clients are above 59 ½ years old, their tax-deferred status enables them to take advantage of compound growth.
Principal Protection
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The original deposit will not decline if the index performs negatively. Please keep in mind, though, that all guarantees are subject to the claims paying ability of the issuing insurance company. Cash values and principal amounts also may be affected by surrenders during the surrender period.
Lifetime Income
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A rider is often available for an additional cost to guarantee set payments regardless of how long your client and their spouse (if elected) live. Or they can get lifetime income through annuitization at no additional cost.
Earnings Credited
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At the end of each bucket term or segment, earnings are credited, if the index performance has been positive. Earnings can, however, be limited by the policy's spread or cap rates. Some carriers may offer a feature that allows clients to take advantage of index highs during a segment.
Spousal Opportunities
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Most companies offer spousal continuation only upon the first spouse’s death and don’t pay a death benefit out until the second spouse passes. However, some carriers do offer a joint option that may cover the death of either spouse upon the first passing.
Flexibility
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Growth potential can be achieved through the performance of the index or through a fixed interest rate earned on the fixed account — or a combination of the two. As the agent, you should help your clients to find the solution that is suitable for them. It's also important to let your clients know that a fixed indexed annuity is not an actual investment in an index. It's only based on the underlying index performance.
Beneficiary Protection
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01:58
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00:08
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Gains can be limited
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With this type of annuity, gains can be limited by elements such as participation rates, caps, and interest rates.
Complexity of plans
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The jargon for fixed indexed annuities can be tough to understand, so you need to be sure to clearly explain the terms with your clients. The following can help:
Caps: Most indexed annuities apply a cap to the annual earnings potential. For example, a particular product might limit the growth to 7%, even if the underlying index earns more.
Participation rates: The participation rate is how much of an index increase your clients will actually receive. The higher the participation rate, the more of an index performance your clients will receive. For example, a product may offer a 70% participation rate, which means if the underlying index returns 10%, the client would only receive 7%
Surrender Period
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Clients need to be aware that they usually must hold onto a fixed indexed annuity for several years to enjoy its full advantage. The surrender period is typically 8-12 years, and sometimes longer. Clients should be advised that this money is not as accessible to them as money that has been deposited in a money market or savings account. If they need to pull money out of an FIA soon after they sign the contract, there will be a fee called a surrender charge. It varies from annuity to annuity, but it can be in the vicinity of 9-12% of their principal. Also, the client may lose some or all of the index-linked interest that has already been accumulated on the portion they withdraw. However, most FIAs allow ten percent annual withdrawals with no penalty.
Agents should not recommend a client invest in an annuity if the client expects to take any money out before the end of the surrender period.
Tax Implications
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There is a 10% IRS penalty on withdrawals prior to the age of 59 ½. Make sure that you understand the IRS rules governing annuity taxation and access. You need to properly disclose them to your clients. Keep in mind that WFGIA agents are not tax advisors and do not provide tax advice. Clients should consult their tax advisor.
Fees
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Possible fees may include mortality expenses M&E, rider fees, administration costs, and surrender charges.
Return limits
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In years when your market index has a high return, the annuity company keeps a portion of the returns according to the terms of your contract.
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WFGIA generally does not approve annuity sales for those under the age of 30, or above the age of 89. People in these age ranges are generally not considered to benefit from an annuity as the fees and surrender periods may be too long. The purchase of a fixed annuity or fixed indexed annuity by an individual in these age groups should be evaluated through the use of the RightBRIDGE tool. WFGIA Suitability must review and grant an exception.
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Owners aged 30-89: Owners in this age group may only invest up to 50% of their liquid net worth into a Fixed or Fixed Indexed Annuity. Liquid assets are those that can be easily converted to cash immediately or within a few days. Any request to invest more than 50% of the owner’s liquid net worth is evaluated through the use of the RightBRIDGE tool. WFGIA Suitability must review and grant an exception if a request exceeds these parameters.
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An additional guideline for Replacement/1035 exchanges: Any surrender charge that is 4% or greater will be rejected back to the Producer.
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Surrender charges must be reflected accurately.
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A bonus cannot offset a surrender charge.
With a fixed indexed annuity, investors receive a minimum interest rate over a certain number of years. The contract defines all terms. This type of annuity’s returns are usually based on the performance of an underlying index like the S&P 500. Your clients can diversify their portfolios by purchasing a fixed indexed annuity. It also gives them the opportunity to capitalize on a wide section of the market.
Indexed annuities offer a minimum guaranteed interest rate combined with an interest rate tied to a broad stock market index, such as the S&P 500 or the Dow Jones Industrial Average. Even though the benchmark does follow the index, your clients are never truly exposed to the volatility of the stock market. This unique design can offer protection against stock market losses, as well as the potential to profit from the market’s gains.
Remember, this product comes with a long surrender period, so clients should not use this for any money that they will need in the short term. Also, while this is not exposed to market volatility, the returns will typically not be as high as the clients would experience in the stock market either. Finally, while this allows tax-deferred growth, clients who surrender money before they reach age 59 1/2 may have to pay an additional tax penalty.
LESSON 4 OF 8
There may be situations in which errors, disputes, or complaints may arise involving an agent’s business activities. Even agents that do everything right may still receive a client complaint, which is why it's important to know WFGIA's policies and procedures, follow good business practices, and maintain good client notes. It’s also imperative that you know the insurance regulations of the states in which you do business.
Clients may contact you for a variety of reasons that could include service requests, inquiries, questions, concerns, lack of understanding, or expressing a grievance. It’s important to listen to clients carefully and provide prompt and effective service.
If you receive or become aware of an insurance-related complaint, you must give it special handling. Under the insurance laws of most states, a complaint is defined as written or verbal communication primarily expressing a grievance. The written communication could be sent via text message, email, or letter. The client might send the complaint to you, to WFGIA, the insurance company, or file it directly with the State Insurance Department or other regulatory agency, or any combination of these. It might be sent or filed by the client, or by a representative or attorney for the client. In any of these cases, if the communication expresses a grievance, it’s considered a complaint.
If you receive a client complaint, you must inform the WFGIA Compliance Department and the insurance provider immediately, e.g., the same day you receive the complaint. Even if you don’t think that the complaint has merit, you still must inform the WFGIA Compliance Department and the insurance provider immediately. You should cooperate with the investigation and provide copies of any documents, explanations or statements requested. Additionally, while the complaint is being reviewed, you should not communicate with the client. The insurance provider and WFGIA, where applicable, will investigate the complaint and respond to the client.
Reminder: Respond in a timely manner to any requests received from the WFGIA Compliance or Supervisory Departments with any investigation or inquiry regarding a client complaint.
A customer complaint is any written or verbal grievance expressed by a customer, or an authorized party acting on behalf of a customer, alleging the mishandling of an account or transaction or improper conduct on behalf of an agent or other associated persons.
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Any federal or state insurance law violation
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Misrepresentation of a product or a service to a customer
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Failure to provide a suitable product for a customer
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Failure to disclose material information to a customer
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Failure to follow client instructions
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Failure to provide proper documentation to a client
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Forgery or impersonation
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Providing a client with false or misleading sales literature
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Problems regarding full/partial transfer of a client’s account
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Problems regarding receipt/disbursement of a client’s funds
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Contract/policy owner failed to receive statements or confirmations
If you receive a customer complaint, you must inform your SMD/upline leader, the WFGIA Compliance Department and the insurance provider immediately. Preferably, the same day you receive the complaint.
You should cooperate with the investigation and provide copies of any documents, explanations and/or statements requested.
You should never promise the customer a specific result. The insurance provider and WFGIA, where applicable, will investigate the complaint and resolve the matter with the client.
Agents who attempt to settle customer complaints directly with the customer, rather than according to established policies and procedures of WFGIA, may be subject to disciplinary action by WFGIA including, but not limited to, fines, suspension, or termination from WFGIA.
If there are any questions, please contact WFGIACompliance@transamerica.com