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Bridging the Gap in Annuity Knowledge and Perceptions

Peter Lynch, the legendary fund manager, once said about investing, “Know what you own and why you own it.”
The LIMRA Secure Retirement Institute tested that maxim with annuity owners, and they passed with flying colors. As part of a new report, “Annuities: Love Them When You Know Them, Hate Them When You Don’t,” 2,000 households with investible assets of $100,000 or more were quizzed about different features and benefits of annuities.

Among our findings from annuity owners:

» Eighty percent of annuity owners scored high (9 or more correct out of 12) or medium (5 to 8 correct) on the annuity quiz, better than on other segments. Around 40 percent of investors without an annuity knew very little or nothing about annuities. Most annuity owners know what they own.

» Annuity owners overwhelmingly (80 percent) believe that annuities are a good fit for their financial and retirement needs. This finding indicates that annuity owners know why they own them. Among investors, a strong correlation exists between how much is known about annuities and how annuities are perceived. The more knowledgeable investors are about annuities, the more likely they are to have a positive attitude about annuities, and they appear to be less disturbed by negative statements about them. Investors with low annuity knowledge seem to believe all things negative.

» Finally, 48 percent of households with strong or somewhat positive attitudes toward annuities own a deferred annuity. This percentage is six times greater than the percentage of households with negative attitudes toward, or unfamiliarity with, annuities (Figure 1). As a testimony to their satisfaction, 7 in 10 annuity owners are willing to recommend annuities to their friends or family members. The relationship between positive attitude and ownership holds true for all financial products, including immediate annuities, stocks, exchange traded funds, etc.  

So how should advisors use this information to grow their retirement practice with annuities?
Promote the benefits and features of annuities. Advisors, and particularly insurance companies, have a responsibility to clearly communicate the key benefits of annuities to investors, as well as to debunk some of the myths about annuities. Lack of knowledge keeps investors unaware of the benefits of annuities, and incorrect information perpetuates misconceptions of them.


Do more retirement income planning.  Advisors should be encouraged to do more retirement planning for their clients, such as budgeting for essential and discretionary expenses and income, guaranteeing spousal income, estimating how long the assets will last, etc. Such planning activities expose critical retirement risks and allow advisors to explain how annuities can help eliminate some of those risks.

Connect with investors’ emotional needs. Investors told us lifetime guaranteed income is important to them for two reasons: peace of mind and the security of a predictable retirement income. Annuities can be described in ways that appeal to the emotions. Familiar terms such as “a paycheck for life,” “creating your own pension” and “CD-like” can help investors make an emotional connection with annuities.

For better or worse, investors learn about annuities from a variety of sources:  family members, friends, websites, magazines, TV and social media. The industry can do more to promote the value of annuities. Knowledgeable advisors can reinforce their value by educating investors on when and how annuities should be used. When credible information on annuities is made available and accessible, both investors and advisors stand to benefit.


Jafor Iqbal is associate managing director, retirement research, for LIMRA Secure Retirement Institute. In this role, he is responsible for managing retirement income research projects. Jafor may be contacted at [email protected] .

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