The Future Looks Good for QLACs

QLACs are a product set to take the annuity industry by storm.

The QLAC ruling was approved by the IRS and the Treasury Department on July 1st, 2014, and it sent a silent and unobserved shock wave through the annuity industry. Most uninformed agents either didn’t notice or didn’t care. Most likely few understand the significance and the changes that QLACs will bring to the industry.

QLACs are structured as a Longevity Annuity, not as an indexed or variable product.

When the Qualified Longevity Annuity Contract (QLAC) Ruling came down, guess which product types were left out of the QLAC party?

You got it, indexed and variable annuities. Only the longevity annuity (the “LA” of QLAC) was chosen as the preferred and only delivery system for the QLAC strategy. You could think that there was a celebration for longevity annuities, but you would be wrong. Always follow the money to gauge reactions. The annuity industry’s reaction is a reflection of the fact that QLACs pay a low commission and there is no “soft money” as compared to a variable and indexed annuities. This is a good thing for the consumer when it comes to QLACs.

Strange that indexed and variable annuities pay such high commissions.

To understand the future, you need to take a look at the past. The annuity industry is still the wild wild west of the financial world. To qualify to sell an indexed annuity, you need to take a 4-day class, and then a test. That’s it. Talk about a low bar! The variable annuity side is no better, simply because it is one of the last products a broker can get paid a high commission to sell.

With over 15 different types of annuities, variable and indexed annuities represent over 75% of all annuities sold every year. It’s not only tragic, but unfortunate. I’m not saying that these 2 products are all bad, but they are not the one size fits all solutions that agents pitch. Predictably, indexed and variable annuities also pay the highest commissions.

Surprised? QLAC commissions are lower. It's simple as that.

The QLAC chant will soon be “We’re #1” because of its consumer-friendly price and structure.

Remember the chant….”We’re #1”….”We’re #1”?  My prediction is that it will be the QLAC chant in 5 years. Yes, I am saying that an annuity with currently zero market share will be the #1 owned annuity in the country around 2020. One of the main reasons this prediction will come true is because a QLAC can be used inside of a Traditional IRA. Income can start when needed, but you have the option to defer the QLAC dollar amount to as far out as age 85 before income starts. Thus, the QLAC can also potentially decrease your Required Minimum Distribution (RMD) taxes as well. It is a big deal when you can legally lessen your RMD taxes. How’s my prediction sounding now?

There is a shift toward annuity simplicity, and a movement away from hard to understand products.

The key point to focus on is currently the annuity industry is dominated by complex products like variable and indexed annuities. Many agents who primarily push those products can’t even explain them properly. What the arrival of the QLAC does is to shift the conversation to simple, transparent, and easy to understand income strategies.

Thank goodness!

Steer clear of annuity products you don't understand well enough to explain!

It should be a stipulation when buying an annuity that it should be explained to a 9-year-old, and fully understood. If you find an annuity so complex that you can’t explain it to someone, then why would you ever buy it? Didn’t a guy from Nebraska named Warren say something similar? He’s done pretty well, so his simplistic approach to investing should probably be applied to annuities as well. The QLAC is right up Warren’s simplistic ally.

Qualified Longevity Annuity Contracts (QLACs) are the game changer for the annuity industry.

This is a turning point for the annuity consumer as well, and the QLAC shift to simplistic and transparent annuity solutions is truly positive for the annuity industry.