by John D. Darer CLU ChFC MSSC RSP
9.46% annual cash flow said the email blast. Clicking on the link, led to a website which featured the following advertisement for a single premium immediate annuity (also known as a "SPIA")
The solicitation clearly targeted to seniors seeking lifetime income. Having sold to seniors and taken mandatory courses about marketing that are required of insurance agents and brokers, I couldn't help but contemplating whether or not such an ad is a fair sales approach. In my opinion the asterisked disclaimer is insufficient.
- A single premium immediate annuity generates the return of principal and interest on what the senior invests.
- A single premium income annuity is a way to provide stable secure income and address longevity risk.
- The annual cash flow is calculated assuming the senior lives to life expectancy. Under the product being sold in the ad, there is no disclaimer that clearly states that the annuity stops on the senior's death. In the above example, the actual rate of return is zero if the senior dies before they have received $100,000 in payments!
- The "annual cash flow" is a sales gimmick. It is not a rate of return! It has the potential to be misleading when used with seniors to compare to another investment as it appears to be used in the ad. The actual rate of return, as measured by an the fairer Internal Rate of Return (IRR) is less than what is stated.
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