Question: Stan, I have met and talked to a few agents to see if an annuity is right for me and they all keep using the word “HYBRID” to explain their recommendation. Is a hybrid annuity new? Jim from North Carolina
Answer: Thanks for a very timely question, Jim. I recently addressed this “hybrid hype” issue in my weekly MarketWatch.com column (click here). I encourage you to take a look.
The short answer to your question is NO. The word hybrid associated with the word annuity is not new, and is the current “one size fits all” word being used and hyped by agents across the country and on the internet to convince you to “buy the dream.”
All annuities offer multiple contractual benefits, and therefore, can be considered “hybrid”…..which means doing more than one thing. This “hybrid hype” is the latest in a long line of unsuitable sales practices and sizzle points that annuity agents use to part you from your money.
Most “hybrid pitches” you are going to hear involve fixed indexed annuities. These are somewhat complicated products that do work well when placed properly (fully explained) within a portfolio and when matched to meet a specific goal. They are NOT the best things since sliced bread, even though it will sound that way when the agent tells you about it. Remember, if it sounds too good to be true, it is….no exceptions.
The following statement correctly describes a fixed indexed annuity. The upside is that there is no downside, but the downside is that there is very-very limited upside. For people that want to protect their principal and possibly get a little bit of growth, then it might fit. Unfortunately, that’s not how it is sold in most cases.
Also, with a fixed indexed “hybrid” annuity, you can also attach what’s called an income rider for future income planning needs. An income rider is an attached benefit that offers a seemingly high annual % growth guarantee that can ONLY be used for income. You CANNOT get to that high % growth amount in a lump sum format. That’s the catch.
Another “hybrid” benefit typically offered within a fixed indexed annuity is contractually built in confinement care, but sold as long term care coverage… which it is not. This benefit should NOT replace traditional long term care, and should only be recommended as a potential supplement coverage.
Don’t buy the dream, buy reality. Always own an annuity for what it WILL DO (contractual guarantees), not what it MIGHT DO (hypothetical or projected returns). If you follow these rules, then you can make a rational and informed decision if a “hybrid” (i.e. multiple benefit) annuity could compliment your current situation.
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