What is the Annuity P.I.L.L. Strategy?

Will an annuity P.I.L.L. cure what ails your portfolio?
Will an annuity P.I.L.L. cure what ails your portfolio?. Photo by: CSA Images/Vetta/Getty Images

An annuity should solve for your particular situation, and is not a growth product!

The annuity industry has somehow taken a very good product category and made it so confusing for the consumer, that many people throw their hands up in disgust when considering the purchase of an annuity. Variable and indexed annuities represent the majority of over $200 billion in annual annuity sales, and that’s where the product confusion lies.

Both of these product types are pitched by agents with the primary focus placed on market growth and non-guaranteed dream return scenarios. This is not only unfortunate, but tragic because this growth dream totally misses the point when it comes to annuities. I have developed a very simple and efficient way to see if an annuity fits your specific situation.

The acronym “PILL” is easy to remember and explains where annuities fit into any portfolio.

P = Principal Protection. Do you want to safeguard your principal?

Annuities can provide complete principal protection using fixed annuities.  There are different types of fixed annuities like Fixed Rate Annuities (MYGAs), Fixed Index Annuities (FIAs), and Traditional Fixed Annuities, which all fully protect your principal and contractually guarantee that safety. 

I = Income For Life. Are you looking for guaranteed income payments?

Annuities were developed to provide income and have been around since the Roman times.

  In fact, the word annuity comes from the Latin word “annua”, which means annual payments.  Income annuities have been offered and sold in the United States for over 200 years, and were the only annuity choice up until 1952.  That year spawned the first variable annuity offering by the company now known as TIAA-CREF.

Single Premium Immediate Annuities (SPIAs), Longevity Annuities (DIAS – Deferred Income Annuities, Income Riders, and annuitization options on deferred annuities can all provide lifetime income guarantees.  Income planning should be customized to your specific situation, and I sometimes use advanced annuity strategies to contractually guarantee income needs.

L = Legacy. Do you want to establish legacy payments and protections?

Annuities can also contractually solve for a guaranteed death benefit by attaching a contractual death benefit rider (i.e. attached benefit) at the time of application.  Pure life insurance is still the best legacy product available, but if you can’t pass the underwriting requirements, then a guaranteed annuity solution might be your only alternative.

Annuity death benefit strategies primarily involve riders that you can attach to the policy at the time of application that guarantees an annual percentage yield that can be used to leave money to your heirs.

L = Long Term Care. Do you need to supplement your traditional long-term care?

Long term care, or sometimes called confinement care, coverage can be solved for with some specific annuity types.  Even though the traditional long-term care product still provides the best coverage, annuities do offer an alternate choice if you are not healthy enough to qualify for the traditional product.

 

Long term care annuities come in two forms; simplified issue and guaranteed issue.  The simplified issue involves a phone interview with the issuing carrier to qualify for coverage, and guaranteed issue is self-explanatory. 

Remember! Annuities are not market growth products, they transfer the risk of outliving your money to the carriers.

It’s important to reiterate that the P.I.L.L. acronym does not have a “G” anywhere to be found.  “G” stands for growth, and annuities are not growth products even though that’s how most agent try to incorrectly frame them.  Annuities are transfer or risk solutions that should be owned for their contractual guarantees.  My saying is that you “Own annuities for what the WILL DO, not what they might do.”  Will do refers to the contractual guarantees of the policy.

  Never make a decision to own an annuity based on theoretical, hypothetical, projected, back tested, potential, or non-guaranteed return scenarios.  Get the point!  Always buy the contractual realities, not an annuity dream.

Use the P.I.L.L. to find out if an annuity might work for your specific situation.  In other words, swallow the P.I.L.L., not some agent sales pitch.