"Index Annuities: A Suitable Approach", by John L. Olsen, CLU®, ChFC®, AEP® & Jack Marrion, D.M.
Index annuities can be - and often are - very complicated. This book, first published in 2010, attempts to explain these beasts in plain English. It proceeds from the premise that an index annuity is not inherently "good" or "bad", but is merely a tool. For some jobs, it can be the right tool. For others, it won't be. Whether it is or not will depend upon how well the benefits and costs of the policy match up with the goals and needs of the buyer.
Dr. Jack Marrion, my co-author, is one of America's premier experts in index annuities. He's been writing about them since they first appeared and consults with many insurance companies. The analytics in this book are almost entirely Jack's and the descriptions and comparisons of the various interest crediting methods reflect his deep understanding and insights.
Chapter 1 - Annuity Basics
Chapter 2 - Annuity Interest
Chapter 3 - Crediting Methods
Chapter 4 - Crediting Method Truths
Chapter 5 - Hypothetical and Real Returns
Chapter 6 - Rider Revolution
Chapter 7 - Tax Traps in Annuity Planning
Chapter 8 - Suitability
Chapter 9 - When is an Index Annuity (or any annuity) Appropriate?
Chapter 10 - Case Studies
"This book provides an in-depth and comprehensive discussion of Fixed Index Annuities (FIAs). It is aimed at professional investment advisors and insurance agents licensed to sell annuities. Ideally (in my opinion) no advisor or agent should recommend an FIA to a client without first becoming thoroughly familiar with this book's material.
If you are reading this review, you are doubtlessly aware of the extremely polarized opinions that exist (pro and con) on the topic of FIAs. This book represents the carefully balanced, realistic middle ground. Rather than the all too common extremes that many articles and books on FIA espouse, here you'll find enough detailed discussion to understand why sometimes FIAs aren't suitable and why sometimes they are.
WHAT I LIKED BEST (in no particular order): very thorough discussion of the types of FIA crediting options. How insurance companies use index options to back up FIAs, and how bond interest rates interact with the index option markets to control the crediting limitations that FIA issuers must use to protect themselves financially. The detailed discussion of FIA suitability along with many Case Studies where these ideas are applied to typical client situations.
WHAT I LIKED LEAST (in no particular order): some chapters tried to cover too many topics and should have been subdivided for ease of future reference. The book index is not as complete as I would have liked (after all this IS a reference book). I would have liked to have seen more frequent reminders to the reader that the "S&P 500" plotted in many of the figures is the Price Index (ex-dividends), and is LESS that the corresponding index mutual fund value that a client might invest into as an alternative to FIAs.
What this book doesn't cover at all are the more advanced mathematical techniques that insurance companies use to design FIAs. You'll need to search the internet to find this kind of information (hope you understand Stochastic Calculus or Monte Carlo simulation!) Ultimately a mathematically-based recommendation to purchase an FIA versus it's securities market alternative (roughly 75% bonds + 25% index stock fund) requires a greater level of insight than this book supplies. But this book WILL give you a qualitative feel for the factors involved , provided that you carefully follow the discussion on options in Chapter 4.
Finally, let me say that I purchased this book with a rather negative prejudice against Fixed Index Annuities. I have read too many books that promote them as "stock market alternatives without the risk of loss." But I found the discussion presented here to be realistic in this regard. The authors clearly point out that FIAs should be viewed as "alternatives to the risk of stock investments for those consumers who want the potential to earn more than they would likely get from fixed investments such as fixed-rate annuities and bonds" (page 129). Note the word "potential" in this quote is relative to fixed income investment options, not stocks! I could cite many similar quotes in the book."
Arthur R. Prunier, Jr.
A Review (on Amazon) from a Critical and Savvy Reader
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