The Issues With Annuities Part 2

In the previous post we discussed Fixed Indexed Annuities (FIA's) and how they work. The basic concept behind them is that you give the insurance company a lump sum of money and after a set number of years, usually 5, 7 or 10, the annuity will start giving you an income stream, typically 5% of the accrued value. Sounds good until you crunch the numbers as we did.

In this low interest rate environment, the caps (the most your annuity can earn) are very low as well. As I mentioned, there are people that this plan can still work for, but at this point I rarely make that recommendation to clients.

Why do so many other agents like selling annuities then? In a word, commissions. I'm not trying to throw any agents under the bus, but for example, if an agent moves $100k from a CD in a bank to an annuity, they can make anywhere from $5000 to $8000 in commissions. Not bad for basically doing some paperwork. And there are no health underwriting questions like life insurance.

Locally we have an agent who loves to sell annuities, mostly to seniors. I've seen his presentation and he weighs heavily on doom and gloom, telling his audience that the world is falling apart (which at the time of this post very well could be) and selling the "safety" of his annuities. At one point he brings out a miniature toilet and says something like, "Here's the sound of the economy!" while flushing it. In case you're wondering, he did this when the economy was booming as well.

And how does he get his audience? He invites them to a nice steak dinner, that's how. And while he's talking and scaring the crowd with his gloomy forecast his assistant walks around the room setting appointments for him. The prospects are told to bring any investment statements with them to the appointment and that's where the real fun begins.

A friend of mine worked down the hall from the agent's office and could overhear the conversations. My friend said that the clients, mostly retired, were told that their current investments were bad and that someone had "ripped them off". Of course the only cure for their problem was an annuity.

Among my peers and colleagues this kind of sales is frowned upon to say the least. High pressure of any sort, and especially to our seniors, makes our industry look bad. Luckily, the vast majority of agents know the difference between working for a client and sticking it to them. But a few bad apples...

In general terms, when should you NOT buy an annuity. Here are a few examples:

• If you are under 50. The IRS will assess a 10% penalty if you access the funds before 59 1/2. 
• If you are over 70. Given that the contracts can take anywhere between 5 and 12 years, do you want to tie your money up when you may need it?
• If you are going to need that money soon. Again, these products are illiquid and have a lot of surrender charges.
• If you are a risk taker or an aggressive investor. Annuities are for very conservative clients.

As I say, there is a place for all insurance products, but not every product is for everyone. If you have questions, please leave them in the comments section. Stay healthy and remember at Surf Financial Brokers, we only do #nopressureinsurance.

Chris Castanes is the president of Surf Financial Brokers, as well as a professional speaker helping sales people be more productive and efficient.

The Issues With Annuities Part 1

There's a lot of concern regarding the stock market right now. As the Coronavirus has slowed down production lines and factories, as well as the workers in those factories getting ill, the demand for services has come to a standstill. And if you watch commercials on the TV for different investment firms, you can easily get mixed messages on retirement products, especially annuities.

Since annuities are sold my insurance companies I thought I'd throw in my two cents on the matter. First and foremost, I want to say that there are hundreds of different insurance products out there, and each one has a need somewhere. With that said, annuities can be a good fit for some people, but to assume that everyone needs one is completely wrong.

Before I get into the weeds here we need to discuss the types of annuities.

• Fixed annuity - Much like a CD at a bank, they tell what kind of return you can get based on interest rates. You know what you're getting.
• Variable annuity -Sold by financial advisors, it has market risk and is much like a mutual fund. There are riders that can be added through some carriers, and those can cost extra.
• Fixed indexed annuity (FIA) - The most common type of annuity, the growth is based on an "index" of the market, usually based off of the S&P 500, but others are available. There's usually a "cap", which is the maximum return you can earn. The floor is zero, so if the stock market drops, you stay at zero instead of going negative.

Sticking with FIA's for this post, there are some points that need to be discussed.

• In this low interest rate environment, the caps on annuities are low, in the 6-8% range at the time of this post. If someone tells you that they have a 15% cap or higher, be very wary.
• These products are illiquid. Cashing them out can incur penalties and charges from the insurance company. 
• There is a tax penalty of 10% if you use the money before age 59 1/2. 

I knew an agent who would want to put every dime someone had in the bank in an annuity. Why? For the commission, of course! But if you want an annuity, I recommend committing no more than half of your retirement funds.

Let's look at an example using round numbers. Assuming that you are 50 years old and have $100,000 in a CD at the bank, we're going to see how long it takes to double your money as well as your distributions. There actually is a formula that shows how long it takes to double your money given an interest rate. This Rule of 72 says that if our cap is 6%  and the markets do well enough to return that each year, it would take 12 years to double your money to $200k.

At this point you are 62 years old. Now you can receive your distributions, which are 5%, so you're now receiving $10,000 each year. In 10 years, at age 72, you're going to break even. And that's if every goes just right. It took 22 years to get your money back. (Of course, there's inflation risk, but I'm trying to keep it simple)

As you can see, I'm not a huge fan. If and when interest rates go up, maybe the caps will improve, but for now, the only people I can see purchasing these products are going to be very conservative and risk adverse.

In the next post, I'll go over how some of these products are sold and why agents love to sell them.

In the meantime, stay healthy and feel free to let us know if you have questions.


Chris Castanes is the president of Surf Financial Brokers, as well as a professional speaker helping sales people be more productive and efficient.

Should You Buy From a Captive Agent or an Independent Agent? 2023

Did you know that there are different kinds of life and health agents? The differences lie in the type of company your agent represents and their pay structures, but these factors end up resulting in the type of insurance you buy, whether it's the best product for your needs or not.

Imagine a shoe store that only sells even number sizes. Unfortunately, you wear a size 9. The salesperson, who may or may not be honest, will try to tell you that they have something "close enough" for what you need. You try on the shoes and they are either too big or too small. The salesperson is limited in what he or she can sell, so they are going to try to get you to purchase what they have on hand.

In the insurance world, we have captive and independent agents. Captive agents typically are contracted to work with one company (unless that company has an agreement with another carrier) and are not allowed to shop around with other carriers. Typically, these are companies that carry your home and auto, but not always.

Why would an agent want to be captive? One reason is that you only need to learn one set of products, so you don't get spread too thin. Also, the company will normally provide supplies, office space and other perks, like training meetings and coaching. Sometimes they will even offer a salary or a draw for the first few months. This is great for a new agent trying to get their feet wet in the business. The downside is that the commissions are lower. A lot lower.

On the other hand, an independent agent works on their own, paying for their own overhead and making larger commissions. But the offerings to the client are much more expansive, as these agents can shop around literally hundreds of companies to find the "shoe" that fits the clients precise needs.

I knew a couple of agents years ago that ran a captive office. They loved to talk trash about whole life insurance, mainly because their company didn't carry it. I'm not a huge fan of whole life, but there are times when it fits the bill, so I make sure I have a couple of good carriers at my disposal when I need it. These two didn't have that luxury, as they only sold term and universal life. 

Don't get me wrong, some of my favorite people do well as captive agents. And when I show them what I can offer my clients they usually look surprised. Few of them offer indexed universal life, so when I explain to them how it works I get mixed reactions, from slight envy ("I wish we offered that") to outrage ("This is obviously a horrible product or we would sell it!").

An older agent once summed it up as follows. "Captive agents work for a company that can fire them. Independent agents work for the client and can fire the company if they don't treat the client well."

As you can see, we at Surf Financial Brokers are independent agents. We don't have a sales manager whispering in our ears about hitting sales quotas or any obligation to any of our carriers. Simply put,we enjoy having he resources to get the right size shoe on the foot in a comfortable and affordable way.

Stay healthy and let us know if you need anything.

Chris Castanes is the president of Surf Financial Brokers, as well as a professional speaker helping sales people be more productive and efficient.

Avoiding Long Term Care Facilities During the Virus Crisis

During the Coronavirus crisis in our country there have been countless stories in the news about infections running rampant in nursing homes and assisted living facilities. Our seniors are in the cross hairs of the virus as it works its way through these facilities, not just making the residents ill, but also the nurses and other staff members. As this happens, the family members of the residents are not able to visit their loved ones. It's a terribly tragic situation all around.

Is there a way to avoid this scenario? Not always, as some residents may need to be in a facility for various reasons. Their families may not live in the area, or they may have no family at all. Of course, nearly every person who lives in a facility would rather live in their own home, or with their adult children. For some, the adult children are working and unable to take care of their parents (or grandparents) and it can be cost prohibitive.

Home health care can be very expensive. Using the example of my father, the price of his home health care was nearly double that of a facility. The reason is simple, in that a small staff can keep an eye on dozens of people at once, whereas he had one caregiver staying with him. And home healthcare workers generally cook and do some "light housekeeping".

As I mentioned several weeks ago, my father was dipping into his home equity line to pay for his caregivers, which were in excess of $70,000 a year. He obviously didn't have that kind of money but was determined not to go to a nursing facility. When he passed away he was indebted to the tune of over $100,000.

I can only imagine how horrible it must feel to know that a loved one is in a facility during these times. But if you could keep your mother, father or grandparent at home with a caregiver, would you do it? What if you could find a way to afford it? What if the shoe were on the other foot and your family was having to decide what to do as you became chronically ill or mentally incapacitated?

Luckily, we now have something called Short Term Home Health Care (STHHC) policies that can alleviate the cost issues related to home care. Typically they cover the insured for 365 days for in-home care only. And the 365 days don't have to be consecutive, as some people receive care 3 or 4 days of the week.

It may not be the fully encompassing solution to keeping a loved one from a facility, but STHHC can save a family tens of thousands of dollars while preventing your older family members from getting sick and stuck in a nursing home or assisted living facility, which can be fatal during this pandemic.

And while a large majority of people who show an interest in the program are Medicare aged, we are also seeing interest from their adult children who have seen the costs associated with being ill or cognitively impaired.

To see a short video of how STHHC works, click here. This plan isn't available in all states, so let us know where you live and we'll check. In the meantime, stay healthy and check out our website below.


Chris Castanes is the president of Surf Financial Brokers, as well as a professional speaker helping sales people be more productive and efficient. 

How Your Disability Insurance Can Help You Now Part 2

When I talk to groups about various coverages we offer, I mention the Holy Trinity of insurance, which is their major medical, their life insurance and their disability (DI) coverage. That's how important I think it is. In the previous post we went over the basic premise of disability income insurance  and why you may want to enroll in it. Let's take a look at a few other aspects of this part of your financial game plan.

One of the important things to consider when purchasing DI is the elimination period, which is the number of days before the benefits actually begin. For instance, let's assume that you get sick on January 1, but your elimination period is 7 days. Your benefits won't be "triggered" until January 8. Think of it as a deductible, but in time instead of dollars. And just like any other deductible, the longer the deductible, the lower the premium.

So the question to ask yourself is how long you can "self-insure" before the benefits kick in. If you have an ample number of sick days at your disposal then you can use those first and can stretch out that elimination period, thus lowering the cost of the insurance to you.

And some policies will have different elimination periods for sickness and injuries. Many group policies will have a "0,7" which means it will begin paying on the first day after an accident, but on the 8th day after a sickness. Be aware that if you have group coverage, maternity may be covered, but as a sickness (even though it may have been an "accident" lol). Individual policies will have longer elimination periods, like 30 or 60 days.

As I mentioned previously, your income will be looked at in the underwriting process. Some companies will want to see tax returns when you apply, but there are also carriers who look at this at the time of the claim. And if you are self-employed your income can vary from year to year. This was a huge concern for my realtor friends, so I picked up the phone and spoke to a claims specialist for one of the companies I represent. Her response was that incomes that weren't steady were already figured in to the equation and that "we just want to make sure they had a job when they became disabled". Makes sense.

Remember that your DI plan will generally cover a maximum of 60-70% of your income. To deter against insurance fraud (and we would never do that), you are allowed only one policy at a time. If you do have more than one, the companies will subrogate, or coordinate with each other to pay your claim. In other words, if you're paying more than one premium you will still be getting the same amount of benefits. As my mentor told me when I first got into the insurance business, "We don't want people making more when they're out of work than when they were working."

And yes, if you have a policy and contract the Coronavirus, you should expect to receive benefits for being out of work. However, be aware that just like any other pre-existing condition, if you've got the virus and apply after, you may be declined.

If you're interested in pricing for a policy, click on the "Get a quote here" box in the upper right side of this page. There's no obligation to purchase and you can get a decent ballpark on rates.

And please, stay healthy and let us know if you have any questions.

Chris Castanes is the president of Surf Financial Brokers, as well as a professional speaker helping sales people be more productive and efficient. 

How Your Disability Insurance Can Help You Now Part 1

As we are in the midst of the Coronavirus pandemic I thought now was a good time to post a bit on Disability Income insurance (DI). As the name implies, DI insures your income. And that income pays your bills.

Ask yourself what your biggest asset is. Is it your home, your car or the money in your bank account? Actually, none of those is correct for the vast number of Americans. Your number one asset is your ability to earn a living. And if you are sick or hurt and can't work, what happens to the bills? They just keep coming.

If you have a group DI plan through work, that's fantastic! Most of these are voluntary, so if you enrolled in a plan, you may be paying for it through deductions from your paycheck. Sometimes, the employer pays for it. And sometimes, there's a mix of the two. For example, you may be paying for a short term policy that covers you for 3 or 6 months, and the employer pays for the long term plan that begins after the short term plan stops paying benefits.

Be aware that your benefits are typically tax free with two exceptions. If your company is paying for the coverage or if you've decided to pre-tax your premium. A good insurance agent will discourage the latter. If you're out of work due to a sickness or injury, and you go on claim, you'll be getting about 65% of your salary, only to have it taxed. Ouch!

Many business owners, self-employed and contract employees aren't eligible for a DI plan through work. For those people, individual DI plans are available. They may be structured differently but generally do the same thing, which is protect your income. However, you may be subject to underwriting.

And speaking of underwriting, know that your health AND your income are going to be looked at. Smoking, your age and other factors, including pre-existing conditions will be considered. Many times the insurance carrier will ask for your medical records. And they may want to take a look at your recent tax returns. Since the benefit is based off of your income, they want to make sure you earn what you say you earn. Makes sense.

Another factor is your occupation. The safer your job is the less expensive the rate. A welder or a roofer will be charged more than the person who sits in a cubicle. And some occupations are difficult to insure (or aren't considered). Take professional athletes, for example. I tried to insure a young lady a few years ago who was a professional golfer on a smaller circuit. No company would even consider her.

In the next post, we'll discuss elimination periods other items to consider when purchasing a DI plan. In the meantime, stay healthy and of course let us know if we can help answer your questions.

Chris Castanes is the president of Surf Financial Brokers, as well as a professional speaker helping sales people be more productive and efficient. 

Do You Have Any Insurance That Covers Coronavirus?

Lately a lot of people have me, as well as the rest of the insurance industry, if there are any policies that cover the Covid-19 or Coronavirus. The answer is of course, yes. We can quickly cover a few:

• Major medical - As with all ailments, your major medical has few exceptions, and the virus is not one of them. As usual, you'll still on the hook for co-pays and deductibles, but that is insignificant if you're in the hospital for a few days or longer.
• Hospital Indemnity - Speaking of hospital stays, a hospital indemnity (HI) plan is usually offered through work, but Surf Financial Brokers has started carrying an HI plan that can be offered on an individual basis. 
• Disability Income - A traditional DI plan will cover you and your paycheck if you are out of work due to the virus, or any other illness. There may be an elimination period (the time before your benefits actually begin) of between 0-30 days, so check your policy. 
• Life insurance - If you have life insurance and die from the Coronavirus, your beneficiaries shouldn't have to worry about the company not paying the claim. First of all, legally the carrier has to pay under the terms of the policy, which is a legal contract. Secondly, it would be a public relations nightmare if the insurance company arbitrarily decided to not pay. 

Any or all of the above policies should pay a claim if you were to get sick from the Covid-19 virus, but be aware that the life, HI and DI plans may pre-existing conditions exclusions. In other words, don't expect to get a policy issued if you just had the virus.

For a list of policies offered by Surf Financial Brokers, click here. Some even have interesting videos.

Most importantly, please stay well, healthy and practice social distancing as much as possible.



Chris Castanes is the president of Surf Financial Brokers, as well as a professional speaker helping sales people be more productive and efficient.