7 years, 10 years, 17 years - YIKES!

I look at it differently. I love surrender penalties because they provide me with lots of future prospects and clients. How can that be?

It is the exclusion ratio. The exclusion ratio has made more annuity sales for me that anything I can ever think of. The exclusion ratio is a benefit we should all make certain our clients and prospects are aware of. Explain it this way:

If you convert accumulated funds in an annuity to an income stream you can access the exclusion ratio. The exclusion ratio is the percentage of income that is excluded from tax liability.

I like this example

• A $50,000 deposit has grown to a value of $100,000.

If the annuitant takes any funds from this account it is 100% taxable at ordinary income tax rates.

In our example let's pretend that the annuitant selects a 10 year payout and we will round off the calculations for the sake of illustration.

• $100,000 will provide an annual payment of $10,000 for 10 years.
• $5,000 basis and not taxable, $5,000 interest and taxable.

The $5,000 basis is the exclusion ratio.

Because we have accessed the exclusion ratio we can "spread out" the tax liability over the selected time period which in our example is 10 years. This means that only 50% of the income received is taxable. By spreading out the payment we have spread out the tax liability!

An annual payment of $10,000 will only have 50% tax liability. Mrs. Prospect, this allows you to completely manage your annual tax liability and to take advantage of the "Exclusion Ratio." How about selling the exclusion ratio to the client for the beneficiary?

Mrs. Prospect did you know that when your daughter receives these funds as your beneficiary she can also access the exclusion ratio?"

Your beneficiary can accept the funds out over a fixed period of time and spread the tax liability over the payout period.

When a prospect asks me about surrender period I always say this:

"Mrs. Prospect, you cannot enjoy the benefits of this contract unless you allow the insurance company to hold your funds. There are many benefits you can enjoy with this product, have you ever heard of the exclusion ratio?"

I use the power of the contract and the exclusion ratio to explain the need for surrender period. Easy to explain and makes for very happy clients. This is especially good when someone comes to me with an existing annuity. Often times they are not happy and did not understand the time period for the surrender penalties. I would say this..

"Mrs. Prospect, unfortunately your agent did not really understand your contract well enough. It is really not his fault; he probably did not have access to the training that I have had. Let me explain a terrific benefit of your contract, the exclusion ratio."

Once I am able to explain this powerful benefit it is easy to sell another annuity to her. The benefits of the contact sell the annuity for me.