Will the situation in Russia increase life and annuity sales?
By Nick Paleveda MBA J.D. LL.M
National Pension Partners
Crisis in Ukraine
Every time the USA faces a crisis, real or imagined, the stock market stumbles. We saw one take place in 2001 during the 9/11 attacks on the World Trade Center. It happened again with the invasion of Iraq and Afghanistan. Last year, the stock market expanded at a rate in excess of our GDP. This year, we may be due for a correction; however, uncertainty appears to doom the market, which now appears to be the case with the situation in Ukraine. When the market is perceived to be unstable, there is a flight to safety — such as gold, money markets, treasury bonds, and life and annuity products.
Russia decided to expand their control over Crimea. The area has historically been in Russian control, and most of the population is Russian. But this does not matter. The West responds — perhaps with economic sanctions which could lead to another recession. Once again, the market responds, and drops. Investors look for safety: annuity and life products.
The market responds
Of course the market drops each time there is discussion on invasion, economic sanctions and the crisis in the Ukraine. Until this situation is resolved, look for instability in the market.
Annuity and life products respond
Historically annuity products return about 100 basis points over CDs and treasury bonds. This makes the annuity an ideal place to park funds. Life insurance may even produce a better result if held for a long period of time and if the policy is max funded. This is due to the higher interest rates normally associated with life insurance policies and the tax efficient nature of the policy.
Most of the states have a state insurance guarantee fund. The fund will generally guarantee up to $100,000 per account. In New York and Washington, it is $500,000. This adds another layer of security on placing funds with a domestic life insurance company.
Reallocate, before it is too late
No one knows the future, but given the current instability in the world, it may be wise to reallocate some of the gains due to the 30 percent increase in the market last year into safer investments. No one ever lost money by taking profits. However, this will be up to each client and their financial professional to make this move.