It’s no secret that the world of annuities includes a complex array of terms. Understanding their meaning has been a challenge both to financial professionals and the consumers they’re trying to help.
Before long, the professional becomes comfortable with the jargon. But for the consumer wrestling with important decisions about protected income, the conventional language of annuities has been a constant deterrent to understanding. “Because annuities are partly investment and partly insurance, they involve contractual obligations, which means they’re written from a legal standpoint,” says Mike Harris, Educational Advisor to the Alliance for Lifetime Income. “Plus, we create them inside this world that we’re familiar with, so we get comfortable with a certain level of legalese or jargon. But John Q. Public doesn’t live in that world.”
Enter the Alliance’s latest project, the “Annuities Language Glossary: Speaking in the Language of Consumers.” It’s a collection of more than 45 terms for financial professionals to use with prospects and clients to help them clearly and quickly understand the key features and benefits of annuities.
The glossary project supports two of the Alliance’s commitments to make the language of annuities understandable:
“To simplify and clarify the complex language we use” and “To clearly illustrate the value and importance of annuities and protected lifetime income in providing retirement security to millions of unprotected Americans.”
Keeping it simple
The crux of the problem is that when consumers are confused and uncertain, they don’t act. They need clarity and confidence before they will be comfortable enough to buy any product, even one that industry insiders might feel is so good that it should sell itself.
Harris points to the word “rider” as a good example of the challenge. “What’s a rider?” asks Harris. “What does it ride on? It’s one of those terms that has typically gotten in the way.” Rider may seem innocuous and simple to industry insiders. Yet it typically means nothing to annuity prospects or clients.
“So, let’s think about what a rider does, Harris says. “It’s connected to your contract. You can take it or leave it, maybe add it now or remove it later. Essentially, it’s an optional benefit. So, let’s call it that—an optional benefit. That way, we don’t need to explain that it rides on the contracts. We don’t need to remove the term ‘rider’ from our internal discussions, but when explaining the concept to a client, let’s use a better, clearer way to describe what that rider is and what it does.”
How to solve this challenge? Listen to consumers
To make the language of annuities simple, easy to understand, and transparent to the general public, the Alliance conducted extensive research, including a nationwide survey and tested proposed terms with 1,000 consumers. The result: identification of problem words and phrases as well as better, clearer, more effective alternatives that resonate with the public.
“When we speak in language that people can understand, we not only make annuities more relatable and understandable, but we can also improve decision making, leading to better outcomes for tens of millions of Americans,” the Alliance explains in a discussion guide that accompanies the glossary.
Some alternatives to consider using
The glossary and accompanying discussion guide flag several commonly used terms and suggests alternatives that financial professionals can consider using instead. For example:
| Instead of | Say this | Here's Why |
|---|---|---|
| Financial Independence | Financial Security | Easier to understand |
| Market Volatility | Market ups and downs | Simple and straightforward |
| Guaranteed Income | Protected lifetime income | Stronger, more relevant, doesn't trigger disclosures |
Other examples include:
Rather than use the term “qualified deduction,” which means something to an industry insider, make it clearer by saying “funded with pre-tax dollars.”
Instead of referring to a “subaccount,” use the term “investment options.”
While “death benefit” might sound confusing and have a negative tone, “beneficiary benefit” puts a more positive spin on the product feature.
A “surrender charge” is classic industry jargon. But an “early withdrawal fee” tells consumers exactly what they can expect: If they make an early withdrawal, they’ll pay a fee.
Replace fear with trust
Replace fear-related phrases with trust-building terms that connect with client goals and positive aspirations. Consider messages such as: Create a comfortable retirement. Maintain your lifestyle. Make sure your family is taken care of when you die. Retire the way you want to.
“Once we see things from the perspective of the layperson, we can get out of our own way,” Harris said. “It’s like cleaning the windshield so you can see more clearly what you’re looking at and understand it better and more intuitively. Ultimately, our goal is to help consumers understand this better and make good decisions.”
See the whole glossary at the Alliance’s website: https://www.protectedincome.org/retirement-tools/annuities-language-glossary/
The extent to which Protected Lifetime Income is guaranteed will depend upon the claims-paying ability of the insurer that issues the annuity.
Product guarantees are subject to the claims-paying ability of the issuing insurance company. Annuities are long-term investments designed for retirement purposes. Partial withdrawals reduce the cash value and certain benefits, such as the death benefit amount. Early withdrawals may be subject to withdrawal charges. Earnings, when withdrawn, are subject to federal and/or state income tax, including a 10% tax penalty for withdrawals before age 59½.
Some income guarantees offered with annuities take the form of optional riders and carry charges in addition to the fees and charges associated with annuity products.
There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses. Investments in annuity contracts may not be suitable for all investors.
Northern Lights Distributors, LLC, a FINRA/SIPC member, has been retained to facilitate FINRA review of the material in order to meet certain requirements of its business partners. Northern lights Distributors, LLC is not affiliated with The Alliance for Lifetime Income.
Corebridge Financial is a founding member of the Board of Directors for the Alliance for Lifetime Income.