Ways to Improve Purchasing Annuities

Buying annuities is often a confusing process, and insurance companies and other providers aren’t doing enough to educate the public on how annuities are acquired, or even how they work. This, in turn, makes it, so fewer people are purchasing annuities, which in turn makes it, so there are higher fees from advisors who work in this field, which then makes it so that the value of buying an annuity is much lower, which in turn makes them less of a sound investment. It’s a self-sustaining cycle that needs to be broken.

But all hope is not lost, and here I will be illustrating the various ways that purchasing an annuity can be improved upon.

First, let’s look at the vocabulary surrounding annuities.

A regular, immediate annuity can go by many names: income annuity, single premium immediate annuity, or the acronym SPIA. A deferred income annuity can be a reference to longevity insurance, but not necessarily, and to top it all off, longevity insurance is sometimes called longevity annuity, even though it’s not exactly an annuity itself. And this is just the tip of a large confusing iceberg of terminologies.

Standardization of terms across the industry would do much to clear up the confusion among not only people looking to purchase annuities, but also help those who work in the industry as well. Three things are necessary to know when purchasing an annuity, those being the type of product, the provider, and who else is providing said annuity. Blanket terms would do a lot to streamline this process.

A standardization of illustrations would also be beneficial to those looking to purchase annuities as well.

The housing industry has already done this by providing estimations for loans when people are looking to mortgage a home. In the case of annuities, we would start with the most basic annuity, life insurance, with no protection against inflation. From there, you show the additional things you can add on that are mandatory, and then to the optional features and how they would affect the cost to you as you combine different things in your attempt to craft the perfect plan for you. This would need to be the same illustration across all providers, like with our housing industry example above. This would also give those looking to enroll the ability to compare insurers and pricing.

While several apps are built to aid you with the application process, most of them are developed by the insurers themselves. This is not a good way to get unbiased information. Third-party app development would help with this, and the industry as a whole should be pushing for more of it. And not only would the information be provided in a bias-free manner, but it would all be organized and automated, making it easier for people to access the data immediately.

In addition to that, online portals where you could track your transactions in process would help keep people connected to their investments, as well as making sure they’re aware of anything that needs immediate attention. Filling out a policy doesn’t take a lot of time, but it often takes weeks for that policy to fully kick in. A place to track the progress of this would cut down on consumer frustrations, and make investing a more active process instead of a passive one.

1035 exchanges could also use streamlining. A 1035 exchange is the process of moving money between insurers. Different insurers have different requirements when doing a 1035 exchange, without much reason as to why they are different. A standard set of practices across all insurance companies would make such a process easier. This would help with frustration among people enrolled, and make it easier for insurers to make sure all requirements are fulfilled too.

Simplification of online accounts on the insurance end too would go a long way to helping policyholders manage their annuities. A portal where all contributions are aggregated, and you can view at a glance all your owned and potential policies. Some insurance agencies don’t even offer online services, and at this point history, that is pretty much unacceptable. The banking industry is very up to date with their online services. There’s no reason the insurance industry can’t follow suit.

Most of these changes will help not only people who already own annuities but the companies that provide them, as well as help,  ease new and curious parties into policies. With annuities becoming more and more commonplace, they can easily be the cornerstone of most future retirement plans. As it is, it can be a treacherous system to navigate. Going forward, something should be done to make the industry easier for all sides involved.


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