Annuity FYI Blog

While demand for variable annuities is still very high, many insurers are stepping back from them quite a bit.  According to Investment News’s Darla Mercado in the article “VA carriers hunkering down,” life insurers have had a hard time hedging their variable annuities with living benefits.  Stock market volatility and low interest rates are making it expensive for insurers to offer variable annuities.  Genworth Financial stopped selling annuities at the beginning of 2011 and Sun Life Financial stopped their sales earlier this month.  Some of the biggest companies; like Jackson National, MetLife, and Prudential Financial; have stopped offering some of their living benefits and started using less risky investment options.

John Hancock Life plans to stop selling a lot of their annuity products as well as limiting their distribution channels.  As more companies do the same, there will be less competition in the industry and prices could rise.  Most advisors still send their clients to the top three sellers, MetLife, Jackson and Prudential.  There may be more room for the smaller companies in the future.  If living benefits drop below 5%, many advisors will be playing up the tax deferred growth benefit of variable annuities.  With fewer living benefits offered, advisors will go back to the root benefits of variable annuities, death benefits and tax deferred growth.  One advisor believes that 2013 will see a big focus on those benefits over the living benefits of variable annuities.

Written by Rachel Summit

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According to the National Underwriter‘s article “Annuity With LTC Rider Debuts,” Genworth Financial Inc. has a new annuity product to introduce.  The Total Living Coverage Annuity is a linked-benefit policy linking this single premium non-qualified deferred annuity and a long term care insurance rider.  Genworth Life Insurance Company is the underwriter.  This annuity contract enables investors to buy long term care insurance that is up to three times the amount of their single premium by using their annuity value.  By doing this, they essentially have a “pool of benefit dollars for their LTC expenses.”  Once a claim is filed, benefits come first from the annuity value and then out of the pool that remains.

The Pension Protection Act of 2006 makes the LTC claim payments tax-free for the investor.  It may also be possible for some consumers to purchase the policy with a tax-free 1035 exchange from an annuity or life policy they already have.  Some of the highlighted annuity features include LTC coverage that is renewable and guaranteed, a simplified underwriting process, inflation protection as an optional addition, and the waiver of a monthly provision for LTC charges.  This new product is one of the best annuities for people with assets over $200,000 to protect that are near or in retirement, know that the need for LTC could be in their future and could financially hurt them if not insured against, and are already self-insuring against the LTC risk for their future.

“A Summer Crop of Variable Annuities” in the Retirement Income Journal summarized this summer’s spectrum of variable annuity products.  Author Kerry Pechter stated that insurance companies are either reducing the cost of the product and making it much more simple or keeping the elaborate benefits and increasing the cost.  John Hancock and MetLife introduced simplified versions while Allianz Life and Genworth Financial’s new products are similar to traditional variable annuities.  As equity markets have rallied this summer from a DJIA of 6,700 points in March to 9,100 this week, this may be the time for some new products.

John Hancock Life’s AnnuityNote is one of the more straightforward products on the market.  There are one investment and one income option and only one inclusive cost.  With an S&P rating of AA+, John Hancock is aiming this product to the advisers that don’t normally recommend annuities, marketing AnnuityNote like “a mutual fund with a true guarantee.”  The Simple Solutions variable annuity from MetLife is also meant to be easily understood and lower cost than traditional VAs, while still offering good benefits.  It has a guaranteed lifetime withdrawal benefit (GLWB), one income option, four options for investments, and a short application that is only three pages.  The annuity rates of payout vary with age and investors have a choice of how they annuitize.

On the other side of the spectrum, the Vision variable annuity from Allianz Life has a complex prospectus and fees can be around 4%.  An Investment Protector and and Income Protector are the main riders offered with this product.  As you grow closer to receiving the income payments, the investments become more conservative, no matter which investments are chosen.  Their Vice President stresses that this new offering communicates what the company has learned in a tough market about product offerings and cost.  RetireReady One from Genworth also offers an Income Protector for its GLWB rider.  Speak with an expert about the details regarding any of these variable annuities.