The Irrational Annuity & Life Insurance Buyer Dr. Jack Marrion Advantage Compendium, Ltd.

1. The Irrational Annuity & Life Insurance Buyer Dr. Jack Marrion Advantage Compendium, Ltd.

2. How We Think Decisions Are Made Rational Brain Logically Presented Facts Decision To Buy

3. How Decisions Really Happen Rational Brain Emotions Biases Logically Presented Facts Decision To Buy

4. A True Story The Situation: 39 year old man, triple bypass a year ago, three young daughters, no life insurance “Good news, I can get you life insurance and you’ll pay the standard premium.” Said the Agent The suddenly non-anxious prospect responded, “That’s good to know, I’ll get back to you if I decide to do anything.” What went wrong?

5. Initial Frame My family is in danger, but This won’t happen No one will sell me insurance Reframing The solution was quick (so it must have been easy) “I can get you life insurance” “you’ll pay the standard premium.” End Frame I can buy insurance at anytime I’m not sure I need to buy it Everyone will sell me insurance

6. “I’m not very optimistic about your chances, but what would you do if I found a carrier willing to sell you life insurance?” Initial Frame My family is in imminent danger This won’t happen No one will sell me insurance Reframing It took 3 days and a lot of work Company Z may take you if we apply today “If they accept you be happy you get to pay a premium.” End Frame My family is protected I was lucky to get insurance My agent is a miracle worker

7. Life Insurance - Narrow Framing

8. Narrow Framing – Choose One Answer In Each Would you prefer Win $200 20% chance to win $1000 and 80% to get nothing A) or B) Most people pick A & D And would you prefer Lose $800 80% chance to lose $1000 and 20% to lose nothing C) or D)

9. Narrow Framing – Choose One Answer In Each Would you prefer (assumes $200 life insurance premium) Win $200 1% chance to win $10,000 and 99% to get nothing A) or B) Life insurance forces people to pick B & C And would you prefer Lose $200 1% chance to lose $10,000 and 99% to lose nothing C) or D)

10. Narrow Framing – Choose One Answer In Each Would you prefer (assumes $200 life insurance premium) Insurance says don’t keep the $200, instead gamble it on a slim chance that there will be a payoff (insurance forces people to be risk-seeking when they have a gain) 1% chance to win $10,000 and 99% to get nothing B) And would you prefer Insurance says spend $200 on a slim chance that there will be a payoff (insurance forces people to be risk-averse when there is a low perception that the risk is a real risk (at least during the near term) Lose $200 C)

11. Narrow Framing – Change the loss frame Would you prefer (assumes $200 life insurance premium) Win 50 Cafe Lattes 1% chance to win $10,000 A) or B) Life insurance provides a better reward so pick B & C And would you prefer Lose 50 Cafe Lattes Lose a chance to win $10,000 C) or D)

12. Narrow Framing – Change the perception of risk Here’s a list of people that died at your age...Would you prefer (assumes $200 life insurance premium) Win $200 Chance to win $10,000 A) or B) The perception that Life insurance will payoff creates risk aversion And would you prefer Lose $200 Lose a chance to win $10,000 C) or D)

13. Narrow Framing – Change the perception of reward Which pay-off would you rather have? 1 to 1 chance to win $10,000 A) or B) The reality that Life insurance offers a unique potential payback Or would you prefer 50 to 1 Keep the $200 C) or D)

14. Narrow Framing – Change the frame: Annuity/Life $50,000 CD @ 0.5% = $250 $50,000 Annuity @ 1% = $500 - $200 LI = $300 Net Win $250 (CD) 1% chance to win $10,000 and 100% to get $300 A) or B) By combining an annuity sale with a life insurance sale people pick B & C And would you prefer Make $50 more and 1% chance to win $10,000 Make $50 less (CD) C) or D)

15. Narrow Framing – Change the reward: Annuity/Life $50,000 CD @ 0.5% = $250 $50,000 Annuity @ 1% = $500 - $200 LI = $300 Net Win $250 (CD) $500 Annuity -200 Life Insurance $300 Net Interest Or would you prefer Win $300 (Annuity) and 1% chance to win $10,000 +

16. Narrow Framing – The Insurance Frame A decision to buy life insurance is contrary to the way most people make decisions, so the frame of the decision needs to be changed • Change the loss frame (coffee not dollars) • Change the perception of risk (people your age die) • Change the reward: Annuity/Life (cash + a lottery) • Change the perception of reward (50 to 1 return)

17. Narrow Framing – Fear Of Underwriting A LIMRA survey found a quarter of non-buyers said the buying process was too difficult. Younger Buyers accustomed to internet buying find the process tedious Older buyers may be forced to confront health issues that they’d rather deny and privacy is violated. Reframe Underwriting As A Discount From Full Price First, admit it is a hassle. Then frame this extra hassle as really being a discount from full price. It would be presented as “Yes, I can offer you life insurance that doesn’t require a physical exam or phone interview and it costs $800 a year. However, if you agree to do the interview/ physical I might be able to get you a 25% discount off that regular price.” Basically, you’re presenting the underwriting hassle as the cost of the “coupon” that reduces the retail price (this also makes them feel like smart shoppers).

18. Narrow Framing – Fear Of Underwriting 1) Admit it is a hassle. 2) Tell them they can have the hassle-free experience, but.. 2) Explain underwriting can be big discount off the full price 3) Show why it is worth the hassle (the coupon) 4) Smart shoppers use coupons The Underwriting process may result in a big reward

19. Narrow Framing – Focus On Different Reward

20. Narrow Framing – Focus On Different Reward

21. Objection Preemption – The Process 1. Anticipate the objections (not why they should buy but why they don’t buy) 2. Come up with answers that make sense to the consumer 3. Frame the objections and answer before the consumer asks

22. Objection Preemption – Life Insurance Process 1. Anticipate the objections (not why they should buy but why they don’t buy) - Life Insurance Objections: Too expensive, Don’t need it 2. Come up with answers that make sense to the consumer - Why would someone need life insurance? To create a lump sum of money or a stream of income. Why would you need the money? Replace a pension ended by a death, pay estate taxes, replace assets/asset growth or income that goes away upon a death. 3. Frame the objections and answer before the consumer asks

23. Objection Preemption – Life Insurance You need to replace $10,000 income upon the death How? 1. Become Wal-Mart greeter 2. Eat a lot less 3. Use, say, $120,000 to buy an income annuity How to get an extra $120,000? 1. Take $15,000 to Vegas and bet it all on red thrice at the roulette wheel. 2. Find $2,000 a year and buy life insurance.

24. Objection Preemption – The Process How to find $2,000 a year? Move $100,000 from 0.5% bank CD to 2.5% fixed annuity. And if you can’t find all the money needed for the 1st solution find another solution If you could move $32,000 into an life-only immediate annuity this might pay the $2000 life insurance premiums and your current bank interest income only drops by $160/year to preserve $10k.

25. Objection Preemption – Insurance: The Result “Do you have any income that stops if (spouse) dies? How would you offset the loss (loss aversion) of that income? Many people use life insurance to replace an income that goes away upon a death. Life insurance isn’t cheap but most folks prefer owning it to having their (spouse) spend retirement saying “thank you for shopping at Wal-Mart.” “Before we figure out what this might cost why don’t we see if you have any other assets that aren’t pulling their financial weight (fairness), because an adjustment (part of their current journey) may be all you need to protect that income and (spouse).”

26. Objection Preemption – The Annuity Process 1. Anticipate the objections (not why they should buy but why they don’t buy) 2. Come up with answers that make sense to the consumer 3. Frame the objections and answer before the consumer asks Key Annuity Objections: Safety, Liquidity, Returns

27. Annuity Objections: Safety, Liquidity, Returns FDIC fund only has $x Billion...Over 400 banks have failed since 2000...Annuity reserves are higher than bank reserves. Do you know anyone that has lost money in a fixed annuity?

28. Annuity Objections: Safety, Liquidity, Returns Surrender Charge Wrong Frame: “This annuity has a 10 year surrender charge that starts at 10%” Better Frame: “What if you could be guaranteed that you would get back at least 90% of what you put in, with the additional guarantee that you would be made whole if you waited out the bad times? Although this annuity has a 10 year surrender charge...”

29. Annuity Objections: Safety, Liquidity, Returns “Annuities have penalties. Of course you will always have free access to 10% a year of the annuity value and the entire value is available if you enter a nursing home. With that in mind what additional liquidity might you need from the annuity that would not be met by your other assets?”

30. Annuity Objections: Safety, Liquidity, Returns The cap on this annuity is x% a year based on...index...European option strategy...a fixed rate derived from the insurer’s net investment return less. “I noticed that your bank is renewing your one year CD at 0.5%, this annuity will credit 2.5% interest next year (or, this annuity gives you the potential to make up to 4% interest next year because it may benefit from increases in an index calculation). What are your goals for these annuity dollars?”

31. Objection Preemption – The Annuity Result “I’d like to talk with you about fixed annuities. Many people have found fixed annuities are an appropriate place for a part of their money and a big reason for this is safety. Do you know anyone that has lost money in a fixed annuity? It’s not surprising that you’d don’t. Annuities are designed for your serious money and as such have penalties. Of course, you will always have free access to [10%] a year of the annuity value and the entire value is available if you enter a nursing home. With that in mind what additional liquidity might you need from the annuity that would not be met by your other assets? I noticed that your bank is renewing your one year CD at 0.5%, this annuity will credit 2.5% interest next year (or, this annuity gives you the potential to make up to 4% interest next year because it may benefit from increases in an index calculation). What are your goals for these annuity dollars?”

32. Framing: Positives In Big Numbers, Negatives In Small The MYGA Locks In 2.5% Yield for 84 months You could earn 800% more interest with the FIA next year than with a CD The Premium bonus is 500 basis points The Surrender Charge is for 7 Years The competitor’s interest cap is only 1% higher The initial Surrender Charge is a tenth of the Premium and them declines to zero

36. Framing: When Zero May Not Be A Hero 1. Zero is your herosuccinctly shows the annual reset concept and why getting a zero return may not be a bad thing. 2. However, we have a tough time with the concept of nothing. A 4% cap and a 0% possibility mentally causes us to equate this as a 50/50 gamble between earning 4% or 0%. 3. Show relative differences A 1% CD yield versus an index annuity with a 4% cap means the upside is 3%, the downside is 1%, 3 is bigger than 1, so the annuity is a better choice. Use relative returns to show the choice is between bigger-smaller not all-or-nothing

37. Framing Always Present the Fully loaded Product Version Wrong Frame: “The fee on this GLWB rider is 0.75%, or 1% if it’s joint life. The death benefit rider is an additional .35% and you can increase the bonus from 5% to 10% for another 0.5%” Better Frame: “If you go with all the options the cost is 1.85%/year, but if you go with a 5% bonus instead of a 10% the cost drops to 1.35% and if you don’t need the optional death benefit the fee drops to 1%.”

38. Mental Accounting: Sunk Cost 1. Assure the consumer that the old decision was right when they made it, 2. But circumstances have changed 3. And now the your solution is the right decision for today. 4. If they still resist ask them if they did not own the 78 Plymouth would they buy it today?

39. Nudges: Preset the lever to buy: Client gets nervous when value of investment drops and says he’ll buy a annuity as soon as he recovers his losses. But after the investment’s even, he still won’t buy the annuity until he has "just a little more". Instead, at that initial meeting, when the consumer says he wants to wait, fill out the annuity application, fill in owner information, the index choices, the beneficiaries, the amount of premium and have him sign it. Treat it as if he has already bought the annuity; all you're waiting for is a date to fund it.

40. Nudges: Bring the future into the present Client gets nervous when value of investment drops and says he’ll buy a annuity as soon as he recovers his losses. It is asking the consumer "If that investment was worth $60,000 less a year from now would you be happy or sad that you didn't buy the fixed index annuity today?"

41. QBE (Question-Behavior-Effect) 1. Simply asking the question can increase intent to act “Are you doing anything this evening?” “Are you planning to take a walk after dinner?”

42. QBE (Question-Behavior-Effect) 2. Right questions increase motivation of socially desirable actions “Are you going to vote” “Are you going to vote in this crucial election that will decide the future of our children?” 3. Cognitive Dissonance increases motivation to act “I am a good person that won’t hurt children” “I speed through school zones”

43. QBE (Question-Behavior-Effect) 1. Simply asking the question can increase intent to act 2. Right questions increase motivation of socially desirable actions 3. Dissonance increases motivation to act “I’d rather earn a little less rather than risk losing my money” “It is important to protect at least some assets from the risk of stock market loss” “My retirement assets are protected from the effects of a prolonged bear market.” “Do you own a fixed annuity?”

44. Anchoring & Cueing Countering Annuiphobia Bias Annuities Cause Warts Counter With Stance of Indignation & Unfairness 4 out of 5 Experts (stockbrokers) Say Fixed Annuities Bad Senator Says Index Annuities Are Evil & Sold By Devil Worshippers

46. Percentage of retirees that do not buy a life annuity income (pink)

47. Mental Accounting Alarms • I’ll either live or die – so it’s 50/50 that the annuity is a bad gamble • Never spend the principal – but that’s what we’re doing with the annuity • 100% of the annuity is illiquid meaning I don’t have cash available for emergencies.

48. And there’s also • Confirmation Bias • Uncle Fred died at 67 and Aunt Myrtle was left with zip • The Ads and my Advisor say I’m right to hate annuities • Psychological Distance • 2032 is a long way off, I’ll never make it • Age 90 is a long way off, I’ll worry about running out of money then Denial • I’ll still be the same and can manage my affairs when I’m age 85

49. How To Reframe Psychological Distance This is Real Money If you place $130,000 into this fixed annuity you can withdraw a guaranteed $12,201 a year for life. Not maybe $12,201, not a projected $12,201, not a Monte Carlo simulated $12,201, but a GUARANTEED CHECK EVERY YEAR FOR $12,201 FOR AS LONG AS YOU LIVE.

50. Psychological Distance: Not Consistent On Time We Won’t Swap $100 Today For $110 In 1 Year But We Will Swap $100 In 8 Yrs For $110 In 9 Yrs Bring The Future Into The Present $100,000 Premium Today At Age 50 Returns $15,000/Year Every Year Begin Age 65