Criss Crombie – the Life and Financial expert here at Empower Brokerage – introduces some of our in-house agents to the Multi-Year Guaranteed Annuity, covering a multitude of topics like suitability, etc. Watch the video below!
This is a good introductory tool for you to be able to use with your clients. It’s easy to understand; it’s easy to explain, and you get paid quickly on it. Another thing, when you’re talking with your clients and they like this idea and they want to put some of their money into it, typically you’re going to be limited to about 40% of their investible assets to put towards a Multi-Year Guaranteed Annuity (MYGA). There’s suitability requirements for these types of products, unlike with life insurance. Suitability means that the insurance company has a division – a suitability department – that looks at your recommendation, the client’s overall assets, and what the client is trying to accomplish with those assets to determine whether your recommendation is suitable for the client. So, that’s the suitability department. Based on my experience, typically you don’t want to move more than about 40% of their assets into something like this because they’re going to need liquidity. The number one reason for using assets during retirement years is going to be healthcare concerns because while Medicare and Medicare Supplement will cover a lot their needs they’re still going to have long-term care expenses that Medicare does not pay for. So having some kind of long-term care assets like MYGA, which is safe money, is what they will typically turn to once they’ve exhausted the family [other income/assets] and the other kinds of stuff. All right, let’s talk about MYGA; they are similar to a CD, but they usually have a much higher interest rate. Again, CDs may only pay an interest rate of three-quarters of a percent and maybe up to one and quarter percent. Typically, with MYGA, the longer you leave money in there, the more you’re going to get paid on it (or more interest will accrue on it), and they’re usually paying anywhere from two and a half to three and a quarter and maybe even up to three and a half. Now the interest typically compounds, meaning the net-effective yield at the end of the guaranteed period will be higher than the APR that’s advertised. To give you an example, if you’ve got a five-year annuity that pays 3.1% your net-effective yield will be closer to 3.4% because it’s compounding year after year. Make sense?