December 3, 2025 • 12 mins
"Hey Mike, how can some insurance companies offer a better version of a buffered ETF if they work in the same market?"
Discover what makes them similar and what makes them different.
Text your questions to 913-363-1234.
Request Your Wealth Analysis by going to www.retireontime.com
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Mike (00:05):
Welcome to How to Retire On Time, a show that answers
your retirement questions. We'rehere to move past that
oversimplified advice thatyou've heard hundreds of times.
Instead, we're gonna get intothe nitty gritty. As always,
text your questions to (913)363-1234. And remember, this is
just a show, not investmentadvice.
Do your research. David, what dowe got today?
David (00:26):
Hey, Mike. How can some insurance companies offer a
better version of a buffered ETFif they work in
Mike (00:32):
the same market? Yeah. This is a great question in that
someone's obviously done theirhomework, and they're trying to
make sense of something. Theyprobably hate insurance
companies and are trying tofigure out how to get around
them. What's sad is how horribleinsurance companies have to deal
with their PR.
Mhmm. So I'm not gonna defendinsurance companies by any
(00:55):
means, but let's make sure we'vedivided up three different
categories. Okay? Okay. Firstoff, you've got health
insurance.
That's the one people love tohate. Yeah. That's different.
You've got home and autoinsurance. Mhmm.
That's another one people loveto hate. That's a different
category. You've got annuities.People love to hate them, but
(01:18):
not for the same reasons. Well,it's not a good investment.
Well, it's not an investment.The expectations are misaligned.
Let's first just define what isgoing on here, then let's define
the insurance component of anannuity, and then let's define
why they're different.
David (01:35):
Okay.
Mike (01:36):
Okay. So first off, what's going on here? What people are
looking for typically is theywant growth potential with no
downside risk.
David (01:45):
Yeah. Sounds good.
Mike (01:46):
The easiest and most common two options for this,
you'd have a buffered ETF or afixed indexed annuity. Why is
that? Well, a buffered ETF,these are roundabout numbers.
Okay? But let's say you can getup to 7% growth on the S and P
and 60% of downside protection.
So if the markets go down 50%,you don't lose anything. If the
(02:10):
markets were to go down 65%, youmight lose 5%.
David (02:13):
Okay.
Mike (02:13):
And then there's fees to account for whatever the expense
ratio is. But it does expenseratios and everything, so it's
not a weird thing. So when Iexplain what a buffered ETF,
they say, oh, well, that's whatthe fixed index annuity is.
Well, kind of. A buffered ETF isan annual contract.
David (02:29):
Okay.
Mike (02:29):
Not even a contract to you per se because it's technically
liquid. You could sell out of itwhenever you want at whatever
the fair market value is. Butwhat they're doing is they're
buying option contracts andderivatives. Basically, a fancy
way of saying, hey. We're gonnagather some money, and all the
growth above 7%, we're gonnasell to some other person, and
(02:52):
they're gonna pay money for thecontract or the right to buy
those shares at the sevenpercent threshold and above.
So they're buying the growthpotential after that threshold.
Are you with me?
David (03:03):
Yes. But when I hear that, I think, who's coming up
with this stuff? How doessomeone figure that out? Oh, I'm
gonna buy the growth above 7%.
Mike (03:12):
Yeah. The financial markets are incredibly more
complicated than most peoplerealize. Mhmm. I mean, the
intricacies would melt yourbrain. It's it's deep.
Yeah. And the hard part ispeople have no idea. They think
it's just kind of magic behindthe scenes. Now there's a lot
going on here. But, yeah, theseare very sophisticated contracts
(03:34):
on an institutional level thatmove millions, if not billions
of dollars every day.
David (03:41):
Yes. Okay. That aside. Yeah.
Mike (03:43):
What a buffered ETF does, they take then the proceeds, and
this is oversimplifiedexplanation of a very
complicated situation. Okay. Butthey take the proceeds from the
sale of that option contract,and they then go around and buy
basically protection or abuffer. So someone else, if the
markets were to go down, they'regonna take the hit. That's the
(04:03):
idea behind it.
Okay? And so the price ispredicated on that. There's some
flexibility with it. I don'teven wanna go into that because
it gets even more complicated.Let's just start from a high
level standpoint here.
Okay?
David (04:16):
Mhmm.
Mike (04:16):
That's a buffer ETF one year up to 7%. And then people
say, well, you know, a fixedindex annuity could offer nine
percent or or something likethat. I'm not quoting the price
here. The rates are gonna changeall the time. Okay?
I'm not highlighting aparticular product. I'm just
trying to explain something.Sure. So if a fixed index
(04:37):
annuity can offer you 9%, well,how come they're better? There's
two main reasons for this.
One is your assets are illiquidfor a longer term period of
time.
David (04:48):
In the annuity.
Mike (04:48):
The annuity, it's gonna be three, five, seven, ten years,
whatever it is. Your assets arethere, and if you pull them out,
you're going to pay a surrenderpenalty. So they can do more
with the money because if youpull it out, you're gonna get
hit. You're less likely to pullit out. That's why insurance
companies are less likely tohave a run on an insurance
company as opposed to a bankwhere people would have a run on
(05:11):
the bank.
Uh-huh. Assets are liquid at thebank for the most part. Assets
are not liquid with an insurancecompany. Where are you gonna go?
If you have a disaster, you'regonna go to the bank first.
You don't wanna pay the $8.09,10 percent penalty or whatever
it is. 5%, 3%, they're alldifferent, and they're different
in different years.
David (05:28):
Yeah. I wanna try and avoid that loss.
Mike (05:30):
Yeah. So they have a higher probability of the money
being in there, so they can dodifferent things with it. For
example, let's say instead ofdoing the option contract
derivative component that I justexplained Mhmm. They go in and
they take maybe, I don't know,95% of your assets and put it
(05:51):
with a note for one year at fivepoint something percent. And I'm
oversimplifying a very simpleI'm just I'm trying to explain
the concept here.
So they can put it in there,5.6%, whatever it is, it's a
note, millions of dollars, abank or institution might lend
it to the company, to insurancecompany. So it's a different
grade, a different amount. Imean, private credits pay 9% for
(06:11):
goodness sake. So you couldprobably get 7%, something like
that. So then after one yearperiod of time, that money fully
recovers.
So 95% of a portfolio at a 5.2%loan rate or note becomes a 100%
after one year because of thecompounding effect. That means
(06:35):
they can take 5% and buy upsidecontracts and derivatives and
all these other things, so thenthey've got more room to either
incorporate the note for someguaranteed returns, but also
they've got more flexibility tobuy options in a different way.
So because of the illiquidity,because it's an insurance
company, they're not actuallyinvesting your money in the
market. They're investing itaround the market with very
(06:58):
sophisticated instruments. Theycan offer you a possibly better
return.
Possible is the keyword therebecause some of them will do
teaser rates, and contractually,they can lower the rates.
Uh-huh. So there are somecompanies that have a reputation
where they're gonna offer you agreat rate. Oh, man. This is a
deal.
But then in year two or three,they might drop it, and now
(07:18):
you're making, like, up to 4%.Well, the buffered ETF would
have been better in thatsituation. So understanding
which companies offer what,what's the renewal rate, what's
the liquidity schedule, you needto do this kind of due
diligence. But, yes, in essence,they're kind of doing the same
(07:39):
thing, but because assets in aninsurance company are less
liquid, they have moreflexibility to be more creative
on how they structure theproduct. And most people do not
dive into those kinds ofdetails.
Oh, well, here's the rate. Itshould be good. And if it's not,
we'll just switch it. That'sgarbage planning. I mean, it's
like saying, oh, well, here's acar.
(08:00):
It goes. Well, how long does itgo? How does it do at 50,000
miles? How about a 100,000miles? Yeah.
Is it one of those cars that cango three, four hundred thousand
miles if you take care of it, oris it gonna fall apart? That's
important research. Yeah. Thesame as with these financial
products. It doesn't make thecategory good or bad.
(08:20):
It says that the due diligenceis that much more important.
David (08:24):
And can a DIY person sort of learn and understand all this
and do this on their own? Shouldthey have an adviser?
Mike (08:30):
Anyone can learn it. We have to know the right questions
to ask, and you also have to getpeople willing to talk to you. A
DIY person's probably not gonnaget a VP of an insurance company
with the person that created theindex that's the underlying
mechanism that supports theentire product. Uh-huh. They're
not gonna talk to you.
David (08:46):
Yeah. Right.
Mike (08:46):
But they'll talk to me. Yeah. Because they want my
business, and so I will ask aton of questions. I've annoyed a
lot of higher ups by asking alot of questions, and I don't
care. And you can't buy anannuity anyway unless you go
through a licensed insuranceagent.
Yes. And a lot of the times,they'll sell off of the
illustration. Well, I'll tellyou what. The illustration the
only thing true about anillustration are the page
numbers. Everything else is asales pitch.
(09:08):
Yeah. So if you're leaning onillustrations, if you walk into
an agent's office and they'vegot all these brochures from
that company, they're justselling you the product and some
story. Unless you can have adetailed intelligent discussion
about the underlining index andhow it's going to be able to
hedge against a rising ordecreasing interest rate
environment, how the Fed couldaffect the rates, how the
(09:30):
markets could shift over time,how is the price point
sustainable, the underlyingcontracts are sustainable within
the product. If you can't talkabout stuff like that, if you
can't have that conversation,I'd question, you know, are you
selling a car and you have noidea how the engine works? I'd
rather buy cars throughmechanics than salespeople.
That's not a criticism ofsalespeople. I just would rather
get into the nitty gritty with amechanic. Yeah. So there are
(09:54):
different fixed index annuitiesthat are honestly built for cash
growth that are moresustainable, in my opinion at
least, but their income offer isgarbage. There are other fixed
index annuities that have a verycompetitive income offer, but
the cash growth is garbage.
There are some that have allsorts of bells and whistles to
(10:16):
make it look like long term careinsurance. It's not long term
care insurance. So you can'thave your cake and eat it too.
What are you really trying toshop for? What's your single
objective for a singular productas a part of your overall
portfolio?
That's the question to ask. Andthen you might be better suited
to do more appropriate shoppingto find the right product. When
(10:38):
people are disappointed, it'soften because they either didn't
do enough research, or theperson they were working with
didn't ask enough questions, oreither party just didn't
understand how the productactually worked. And that goes
without actually calling outsome of the products that have
really been set up to fail in myopinion, but we won't disparage.
(10:59):
So in conclusion, if I may.
David (11:03):
Sure.
Mike (11:04):
Buffered ETFs are great for shorter term liquidity and
more flexibility, but you couldget a better I believe if it's
done right, you can get bettercash growth through a fixed
index annuity and have a littlebit more flexibility of, like,
10% withdrawals or five yearperiod certain payouts, and
other things like that. Justunderstand, though they may
rhyme, they're two differenttools in a toolbox. Just like
(11:26):
there's different hammers fordifferent purposes, there are
different saws for differenttypes of situations. I I was
looking at leaf blowers theother day. Mhmm.
There are leaf blowers that aregreat for the yard. There are
blowers for like sawdust. Canyou imagine trying to use a a
blower that blows sawdust offyour table and try to blow the
(11:47):
leaves in your yard, that'd be ahorrible situation. Yeah. Just
because they have similarfunctionality doesn't mean they
do the same thing, and you mightwant both.
You might want neither. Youmight want one or the other.
That just depends on yourspecific situation. That's all
the time we've got for the showtoday. If you enjoyed the show,
consider subscribing to itwherever you get your podcasts.
(12:09):
Just search for how to retire ontime. Discover if your portfolio
is built to weather flat marketcycles or if you're missing tax
minimization opportunities thatyou may not even know exist.
Explore strategies that may beable to help you lower your
overall risk while potentiallyincreasing your overall growth
and lifestyle flexibility. Thisis not your ordinary financial
(12:31):
analysis. Learn more about YourWealth Analysis and what it
could do for you regardless ofyour age, asset, or target
retirement date, go towww.yourwealthanalysis.com today
to learn more and get started.
Welcome to How to Retire On Time, a show that answers
your retirement questions. We'rehere to move past that
oversimplified advice thatyou've heard hundreds of times.
Instead, we're gonna get intothe nitty gritty. As always,
text your questions to (913)363-1234. And remember, this is
just a show, not investmentadvice.
Do your research. David, what dowe got today?
David (00:26):
Hey, Mike. How can some insurance companies offer a
better version of a buffered ETFif they work in
Mike (00:32):
the same market? Yeah. This is a great question in that
someone's obviously done theirhomework, and they're trying to
make sense of something. Theyprobably hate insurance
companies and are trying tofigure out how to get around
them. What's sad is how horribleinsurance companies have to deal
with their PR.
Mhmm. So I'm not gonna defendinsurance companies by any
(00:55):
means, but let's make sure we'vedivided up three different
categories. Okay? Okay. Firstoff, you've got health
insurance.
That's the one people love tohate. Yeah. That's different.
You've got home and autoinsurance. Mhmm.
That's another one people loveto hate. That's a different
category. You've got annuities.People love to hate them, but
(01:18):
not for the same reasons. Well,it's not a good investment.
Well, it's not an investment.The expectations are misaligned.
Let's first just define what isgoing on here, then let's define
the insurance component of anannuity, and then let's define
why they're different.
David (01:35):
Okay.
Mike (01:36):
Okay. So first off, what's going on here? What people are
looking for typically is theywant growth potential with no
downside risk.
David (01:45):
Yeah. Sounds good.
Mike (01:46):
The easiest and most common two options for this,
you'd have a buffered ETF or afixed indexed annuity. Why is
that? Well, a buffered ETF,these are roundabout numbers.
Okay? But let's say you can getup to 7% growth on the S and P
and 60% of downside protection.
So if the markets go down 50%,you don't lose anything. If the
(02:10):
markets were to go down 65%, youmight lose 5%.
David (02:13):
Okay.
Mike (02:13):
And then there's fees to account for whatever the expense
ratio is. But it does expenseratios and everything, so it's
not a weird thing. So when Iexplain what a buffered ETF,
they say, oh, well, that's whatthe fixed index annuity is.
Well, kind of. A buffered ETF isan annual contract.
David (02:29):
Okay.
Mike (02:29):
Not even a contract to you per se because it's technically
liquid. You could sell out of itwhenever you want at whatever
the fair market value is. Butwhat they're doing is they're
buying option contracts andderivatives. Basically, a fancy
way of saying, hey. We're gonnagather some money, and all the
growth above 7%, we're gonnasell to some other person, and
(02:52):
they're gonna pay money for thecontract or the right to buy
those shares at the sevenpercent threshold and above.
So they're buying the growthpotential after that threshold.
Are you with me?
David (03:03):
Yes. But when I hear that, I think, who's coming up
with this stuff? How doessomeone figure that out? Oh, I'm
gonna buy the growth above 7%.
Mike (03:12):
Yeah. The financial markets are incredibly more
complicated than most peoplerealize. Mhmm. I mean, the
intricacies would melt yourbrain. It's it's deep.
Yeah. And the hard part ispeople have no idea. They think
it's just kind of magic behindthe scenes. Now there's a lot
going on here. But, yeah, theseare very sophisticated contracts
(03:34):
on an institutional level thatmove millions, if not billions
of dollars every day.
David (03:41):
Yes. Okay. That aside. Yeah.
Mike (03:43):
What a buffered ETF does, they take then the proceeds, and
this is oversimplifiedexplanation of a very
complicated situation. Okay. Butthey take the proceeds from the
sale of that option contract,and they then go around and buy
basically protection or abuffer. So someone else, if the
markets were to go down, they'regonna take the hit. That's the
(04:03):
idea behind it.
Okay? And so the price ispredicated on that. There's some
flexibility with it. I don'teven wanna go into that because
it gets even more complicated.Let's just start from a high
level standpoint here.
Okay?
David (04:16):
Mhmm.
Mike (04:16):
That's a buffer ETF one year up to 7%. And then people
say, well, you know, a fixedindex annuity could offer nine
percent or or something likethat. I'm not quoting the price
here. The rates are gonna changeall the time. Okay?
I'm not highlighting aparticular product. I'm just
trying to explain something.Sure. So if a fixed index
(04:37):
annuity can offer you 9%, well,how come they're better? There's
two main reasons for this.
One is your assets are illiquidfor a longer term period of
time.
David (04:48):
In the annuity.
Mike (04:48):
The annuity, it's gonna be three, five, seven, ten years,
whatever it is. Your assets arethere, and if you pull them out,
you're going to pay a surrenderpenalty. So they can do more
with the money because if youpull it out, you're gonna get
hit. You're less likely to pullit out. That's why insurance
companies are less likely tohave a run on an insurance
company as opposed to a bankwhere people would have a run on
(05:11):
the bank.
Uh-huh. Assets are liquid at thebank for the most part. Assets
are not liquid with an insurancecompany. Where are you gonna go?
If you have a disaster, you'regonna go to the bank first.
You don't wanna pay the $8.09,10 percent penalty or whatever
it is. 5%, 3%, they're alldifferent, and they're different
in different years.
David (05:28):
Yeah. I wanna try and avoid that loss.
Mike (05:30):
Yeah. So they have a higher probability of the money
being in there, so they can dodifferent things with it. For
example, let's say instead ofdoing the option contract
derivative component that I justexplained Mhmm. They go in and
they take maybe, I don't know,95% of your assets and put it
(05:51):
with a note for one year at fivepoint something percent. And I'm
oversimplifying a very simpleI'm just I'm trying to explain
the concept here.
So they can put it in there,5.6%, whatever it is, it's a
note, millions of dollars, abank or institution might lend
it to the company, to insurancecompany. So it's a different
grade, a different amount. Imean, private credits pay 9% for
(06:11):
goodness sake. So you couldprobably get 7%, something like
that. So then after one yearperiod of time, that money fully
recovers.
So 95% of a portfolio at a 5.2%loan rate or note becomes a 100%
after one year because of thecompounding effect. That means
(06:35):
they can take 5% and buy upsidecontracts and derivatives and
all these other things, so thenthey've got more room to either
incorporate the note for someguaranteed returns, but also
they've got more flexibility tobuy options in a different way.
So because of the illiquidity,because it's an insurance
company, they're not actuallyinvesting your money in the
market. They're investing itaround the market with very
(06:58):
sophisticated instruments. Theycan offer you a possibly better
return.
Possible is the keyword therebecause some of them will do
teaser rates, and contractually,they can lower the rates.
Uh-huh. So there are somecompanies that have a reputation
where they're gonna offer you agreat rate. Oh, man. This is a
deal.
But then in year two or three,they might drop it, and now
(07:18):
you're making, like, up to 4%.Well, the buffered ETF would
have been better in thatsituation. So understanding
which companies offer what,what's the renewal rate, what's
the liquidity schedule, you needto do this kind of due
diligence. But, yes, in essence,they're kind of doing the same
(07:39):
thing, but because assets in aninsurance company are less
liquid, they have moreflexibility to be more creative
on how they structure theproduct. And most people do not
dive into those kinds ofdetails.
Oh, well, here's the rate. Itshould be good. And if it's not,
we'll just switch it. That'sgarbage planning. I mean, it's
like saying, oh, well, here's acar.
(08:00):
It goes. Well, how long does itgo? How does it do at 50,000
miles? How about a 100,000miles? Yeah.
Is it one of those cars that cango three, four hundred thousand
miles if you take care of it, oris it gonna fall apart? That's
important research. Yeah. Thesame as with these financial
products. It doesn't make thecategory good or bad.
(08:20):
It says that the due diligenceis that much more important.
David (08:24):
And can a DIY person sort of learn and understand all this
and do this on their own? Shouldthey have an adviser?
Mike (08:30):
Anyone can learn it. We have to know the right questions
to ask, and you also have to getpeople willing to talk to you. A
DIY person's probably not gonnaget a VP of an insurance company
with the person that created theindex that's the underlying
mechanism that supports theentire product. Uh-huh. They're
not gonna talk to you.
David (08:46):
Yeah. Right.
Mike (08:46):
But they'll talk to me. Yeah. Because they want my
business, and so I will ask aton of questions. I've annoyed a
lot of higher ups by asking alot of questions, and I don't
care. And you can't buy anannuity anyway unless you go
through a licensed insuranceagent.
Yes. And a lot of the times,they'll sell off of the
illustration. Well, I'll tellyou what. The illustration the
only thing true about anillustration are the page
numbers. Everything else is asales pitch.
(09:08):
Yeah. So if you're leaning onillustrations, if you walk into
an agent's office and they'vegot all these brochures from
that company, they're justselling you the product and some
story. Unless you can have adetailed intelligent discussion
about the underlining index andhow it's going to be able to
hedge against a rising ordecreasing interest rate
environment, how the Fed couldaffect the rates, how the
(09:30):
markets could shift over time,how is the price point
sustainable, the underlyingcontracts are sustainable within
the product. If you can't talkabout stuff like that, if you
can't have that conversation,I'd question, you know, are you
selling a car and you have noidea how the engine works? I'd
rather buy cars throughmechanics than salespeople.
That's not a criticism ofsalespeople. I just would rather
get into the nitty gritty with amechanic. Yeah. So there are
(09:54):
different fixed index annuitiesthat are honestly built for cash
growth that are moresustainable, in my opinion at
least, but their income offer isgarbage. There are other fixed
index annuities that have a verycompetitive income offer, but
the cash growth is garbage.
There are some that have allsorts of bells and whistles to
(10:16):
make it look like long term careinsurance. It's not long term
care insurance. So you can'thave your cake and eat it too.
What are you really trying toshop for? What's your single
objective for a singular productas a part of your overall
portfolio?
That's the question to ask. Andthen you might be better suited
to do more appropriate shoppingto find the right product. When
(10:38):
people are disappointed, it'soften because they either didn't
do enough research, or theperson they were working with
didn't ask enough questions, oreither party just didn't
understand how the productactually worked. And that goes
without actually calling outsome of the products that have
really been set up to fail in myopinion, but we won't disparage.
(10:59):
So in conclusion, if I may.
David (11:03):
Sure.
Mike (11:04):
Buffered ETFs are great for shorter term liquidity and
more flexibility, but you couldget a better I believe if it's
done right, you can get bettercash growth through a fixed
index annuity and have a littlebit more flexibility of, like,
10% withdrawals or five yearperiod certain payouts, and
other things like that. Justunderstand, though they may
rhyme, they're two differenttools in a toolbox. Just like
(11:26):
there's different hammers fordifferent purposes, there are
different saws for differenttypes of situations. I I was
looking at leaf blowers theother day. Mhmm.
There are leaf blowers that aregreat for the yard. There are
blowers for like sawdust. Canyou imagine trying to use a a
blower that blows sawdust offyour table and try to blow the
(11:47):
leaves in your yard, that'd be ahorrible situation. Yeah. Just
because they have similarfunctionality doesn't mean they
do the same thing, and you mightwant both.
You might want neither. Youmight want one or the other.
That just depends on yourspecific situation. That's all
the time we've got for the showtoday. If you enjoyed the show,
consider subscribing to itwherever you get your podcasts.
(12:09):
Just search for how to retire ontime. Discover if your portfolio
is built to weather flat marketcycles or if you're missing tax
minimization opportunities thatyou may not even know exist.
Explore strategies that may beable to help you lower your
overall risk while potentiallyincreasing your overall growth
and lifestyle flexibility. Thisis not your ordinary financial
(12:31):
analysis. Learn more about YourWealth Analysis and what it
could do for you regardless ofyour age, asset, or target
retirement date, go towww.yourwealthanalysis.com today
to learn more and get started.
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