Annuity FYI Blog

In “Comparing & Contrasting Variable Annuity Riders,” Russell Bailyn of I Stock Anyalyst highlights the riders associated with current variable annuities being offered.  Some of the top companies offering variable annuities last year were MetLife, Prudential, and Jackson National so the author discusses some of their products as well.  Basically a variable annuity allows you to grow savings for the future while deferring taxes until you actually use the money.  The premium you have paid an insurance company is divided among different investments, so the value of your contract will fluctuate with those investments.  Once you withdraw the money, it is taxed as ordinary income.  Variable annuities are registered with the SEC because they are considered securities.

Variable annuities usually guarantee you a return of premium, so that while you could get (and hope to) more than you put in, you at least won’t receive less in the future.  Most variable annuities also offer death benefits, so that if you die before receiving your premium back the money will go to a beneficiary.  The guaranteed lifetime income riders guarantee a different amount based on the age that investors start receiving their payments.  The author points out that most companies and variable annuities offer about the same income amount based on the riders you choose and that their marketing efforts are what differentiates them.

Prudential offers the HD Lifetime 6 Plus, which takes 6% of the highest daily value of the variable annuity to guarantee income.  They offer a daily lock whereas some other companies offer monthly or quarterly locks in value.  The Guaranteed Minimum Income Benefit Plus from MetLife compounds 5% of the income base until you are 80.  It is different than some other variable annuities because there is a point where you have to annuitize and receive an income stream.  Jackson National offers the Perspective II giving 6% interest for 10 years in each year that you leave the money in your annuity.  They have a lot of other investment options that are less restrictive than some other insurance companies as well.  Those are just a few of the many variable annuities in the market to choose from.  While the basics of the product are fairly standard, the difference lies in what type of living benefit rider goes along with the variable annuity.

There are nine new investment products out there to help you both save for retirement and live in retirement and annuities appear more than once on this list.  Ernst & Young compiled the list they say offers you a bulletproof retirement, as written in “Tools to build a bulletproof retirement portfolio” by Robert Powell of MarketWatch.

There are four main products recommended to help you save for retirement.  While target-date funds have drawbacks for some, they can be useful in many circumstances.  Fixed annuities are less complicated than most other annuities and guarantee a minimum return.  Fixed indexed annuity products help conservative investors save for retirement through principal protection and returns based on a stock market index.  A variable annuity with a guarantee is another great way to save for retirement.  Choosing between the guaranteed minimum benefit riders may be difficult, but once you find the product for you it is worthwhile.

While living in your retirement, there are other investments to consider.  Payout funds are very liquid, but your net asset value will fluctuate.  Single premium income annuities are becoming more popular and user friendly for their guaranteed income payments over your lifetime.  Other products to consider include life insurance, long term care insurance, and other combinations.

The guaranteed living benefit rider for variable annuities has become increasingly popular, according to National Underwriter’s “VAs with GLB Rider Rose 18% in 2Q.”  Variable annuity products with the GLB accounted for $20.3 billion of new deferred sales during the second quarter of this year.  This was an 18% increase over first quarter sales.  It was the third quarter in a row that 87% of investors opted for the guaranteed living benefit rider when purchasing their variable annuity products.  LIMRA of Windsor, Connecticut performed the study of 27 different carriers representing 95% of the industry sales in the second quarter.

Other guaranteed benefits were elected about the same percentage of time as in the past.  The guaranteed lifetime withdrawal benefit was elected 64% of the time.  Guaranteed minimum income benefits were chosen in 17% of cases.  Both the guaranteed minimum accumulation benefit and guaranteed minimum withdrawal were chosen 3% of the time.  The variable annuity assets with the GLB rider actually went down 3% to $427 billion in the second quarter as did the total variable annuity assets which went down 5% to $1.36 trillion.  GLBs were available in deferred variable annuity contracts that generated $23.2 billion in premiums.  The guaranteed living benefit rider is really seeing a rise in popularity because of its lifetime benefits.

According to “Feature: Regulator group moves to reign in secondary market for annuities,” Trevor Thomas of the National Underwriter notes that death benefits related to annuities are coming under fire.  The Interstate Insurance Product Regulation Commission voted to let annuity carriers end the guaranteed living and death benefits when the annuity has been sold in the secondary market.  This includes all individual deferred annuities, both variable and fixed.

There are some exceptions to this new rule regarding secondary market annuities.  If the annuity is transferred to a personal trust, changed to a joint spouse annuity, updated with a new spouse, or is a 1035 exchange from one annuity right to another the guaranteed living and death benefits won’t be automatically canceled.  Twenty-eight of the twenty-nine states that voted were in favor of the rule, but individual states will have the right to opt out of implementing it.

The actual annuity policy cannot be terminated, only the guaranteed rider associated with it.  Any restrictions on annuity transfers will have to be told to consumers up front.  Life insurers and life settlement professionals did not agree on whether this new rule would help consumers.  Each side had their own opinions on the ruling, which has been researched for nearly a year.  As this rule goes into effect in less than ninety days, it remains to be seen what the effects will be on consumers, insurers, and the secondary annuity market as a whole.

In “Consumers’ Interest in Guaranteed Living Benefits Remains Strong in 2009, LIMRA Reports” from Insurance News Net, LIMRA’s 4th quarter findings are detailed.  When variable annuities offer the Guaranteed Living Benefit (GLB) rider, 84% of people elected to get the rider in the 4th quarter of 2009.  The four quarters prior to last, 89% of people elected for the GLBs.  The small decline is associated with a similar decline in the guaranteed living withdrawal benefit rider (GLWB), although the market share for GLWBs was still high.

LIMRA believes that the high number of investors opting for the security of the GLB is directly related to the shaky economy.  Even though insurance companies are trying to decrease the attractiveness of these low-risk riders, 80% of variable annuity contracts last year elected a GLB.  From the beginning of 2009 to the end, sales of variable annuities with GLBs attached increased by 41%, while total variable annuity assets increased by 21%.  New investors’ high rate of election of the GLB rider accounts for the larger increase of products with GLBs.  Many older annuities do not have the rider and are past the point of having a surrender charge so may leave the market.