The Suitability Process is very nuanced and important when it comes to your contract being issued and approved.
Here are the 12 biggest factors that go into an underwriter’s decision on whether the annuity is suitable for the client or not!
Lets Get Into It
AGE. The age of the buyer of an annuity is an extremely important factor in any determination of whether that annuity should be suitable. Many insurers will not issue a deferred annuity contract if the proposed annuitant is older than a certain age
ANNUAL INCOME. Annual income is one of the most important factors when it comes to the suitability of an annuity contract, as it helps paint a clear picture of what the client is able to afford annually.
FINANCIAL NEEDS. An annuity is a tool designed to meet specific financial needs; the nature and extent of those needs are relevant to the suitability to do the job. The source of funds is of particular concern when securities are involved.
FINANCIAL EXPERIENCE. How well does the client understand finances, are they rather well versed? Do they understand how their contract works and what it can do for them? The more complicated an annuity is, the more important it is to make sure the client understands what they’re purchasing.
FINANCIAL GOALS. It is important for everyone involved in the sale to understand what the client’s financial objectives are to justify the purchase. A thorough documentation of why the annuity is the right tool for the job can be invaluable to the defendant in litigation alleging a bad sale. It can also prevent litigation by ensuring that the consumer buys the right product and understands as much as possible.
INTENDED USE. Along with financial goals, the intended use of the annuity should ultimately be to help your client achieve their goals. Having an open conversation with the clients about what they want can help you discern if the annuity is the correct tool for the job.
TIME HORIZON. it informs how you need to be saving or investing to reach a certain goal. It will also inform how long the contract will be held or how much longer until distributions will be needed.
ASSETS. Existing assets are important for assessing a client’s financial situation and suitability, as they determine the extent to which financial objectives are likely to be met.
LIQUIDITY NEEDS. Many carriers have a minimum number of liquid assets the client must have before it can be deemed suitable. Liquidity is important for emergency expenses, and for this reason it is KEY to suitability. The Minimum amount for liquidity can range between 5-20 thousand depending on the product and carrier.
LIQUID NET WORTH. Another very important consideration that goes hand in hand with liquidity needs, if the liquid net worth of a client does not align with their liquidity needs, it may not be suitable for the client.
RISK TOLERANCE. Risk tolerance is an essential factor in the determination of the suitability of an annuity, but it is often misunderstood and misapplied by financial advisors and regulators. Risk tolerance when filling out an application, whether it be moderate or aggressive, should be informed by the other considerations in this list.
TAX STATUS. The tax status of the applicant for an annuity is obviously important because annuities receive special tax treatment. The benefit of such tax deferral is much greater for applicants in high tax brackets than for applicants in very low brackets, for whom the benefit may be outweighed by its cost.
Stay in the know on suitability and you can issue business faster than ever before!
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