Annuity FYI Blog

In Maria Wood’s LifeHealthPro article “Checking Into Annuities,” the author draws a comparison between the annuity industry and the hotel industry after working in both.  Both annuities and hotels may seem like simple products at first glance, but both have many different options and their industries work hard to cater to the needs of their clients.  For people who didn’t want to pay more money for hotel amenities they didn’t use, hotels started changing their offerings and excluding some items to make rates cheaper.  There is always the option of an expensive hotel with all the amenities for those looking of course.

The annuity industry works hard to to cater to clients’ needs while maintaining their bottom line.  That is what brought about the options of fixed annuities, variable annuities, indexed annuities, and deferred versus immediate annuities.  Some annuities exist that combine long term care insurance or life insurance with an annuity product.  There are many options for funds, riders, and distribution channels when looking into the best immediate annuities and deferred annuities.

Innovation is important in both the annuity industry and the hotel industry.  With hotels, it ensures that everyone can get the exact amenities they want for the price.  The same holds true for annuity products.  If you want to pay more for GLWBs, death benefits, or other annuity riders; that is available to you.  Variable annuities are great for investors who like some risk and can handle stock market ups and downs.  Those looking to take on little to no risk are better suited for indexed annuity products.  Annuities and hotels both try to cater to the clients who use or will use them.

Written by Rachel Summit

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There have been some new annuity products introduced this year, but they have not been in abundance and agents are looking for more to offer their clients.  Insurance News Net’s Linda Koco estimates that we may have to wait a bit longer in the article “2012 Could Be Rebuilding Year for Annuities.”  The article summarizes what happened this past year in the new annuity market and what is expected to happen in 2012.

The traditional deferred fixed annuity didn’t get much love this year, partly due to low interest rates and partly due to insurers worrying about guaranteeing any fixed rate at all.  Many annuity carriers brought new tools for their sellers and annuity clients to use, including online reporting and comparison tools.  While there were some new variable annuities introduced this year, they weren’t as exciting as in years past.  What is important in regards to the variable annuities is the focus on new GLB riders.  Some advisors say that clients will only purchase annuities with these guarantees in place.

Indexed annuity products are hotter than ever, boosted by large product development releases this year.  Even this month saw two new indexed annuity products, one from Hartford and one from Genworth.  Income products, including annuities, riders, and options are hot on the development list.  There were also some new immediate annuities this year as companies look to offer  more options to retirees.  So while this year wasn’t particularly exciting when it came to new product development, there are some new things out there and 2012 may be a more exciting year for annuity product development.

Written by Rachel Summit

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According to a press release from Aplifi, they have created a partnership with Great-West Life & Annuity Insurance Company to help simplify advisors’ annuity process.  Aplifi provides solutions related to documents and client management in the annuity and life insurance sector.  AFFIRM for Annuities is their easy to use system helping advisors comply with all annuity regulations and enter their annuity contract information as simply as possible.

There are thousands of companies who use AFFIRM for Annuities to enter indexed annuity and other product information for their clients.  This partnership will help Great-West’s distributors and advisors sort through all of the regulations required for annuities and allow for a very smooth application and paperwork process.  Their annuity orders will be submitted through the computer in real time and will use eSignatures when possible to get things done more quickly.

Aplifi is happy with the partnership because they believe Great-West works hard to help their distributors and advisors in any way they can.  Offering them the ability to use AFFIRM for Annuities will only help them to sell more annuity products as the process is simplified.  Great-West is focused on offering their clients affordable retirement income solutions and they believe that making the process lower cost and simpler for distributors and advisors will trickle right down to the clients.

Written by Rachel Summit

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Sophisticated investors sometimes use “collar” strategies to protect their investments. When someone has a collar around a stock, for instance, he or she obtains the right to sell it at a certain price (by buying a “protective put”) and gives someone else the right to buy it at a certain price (by selling a “covered call”). The investor is protected against loss and, until the stock price rises, earns revenue from the call.

A relatively new variable annuity from AXA-Equitable was described to me as employing a collar strategy. The product, which resembles a fixed indexed annuity more than a variable annuity, is called Structured Capital Strategies ADV. It’s not widely distributed right now, but if successful it could lead to similar products from other insurers.

When you buy an SCS contract, you invest your money for one, three or five years in an account whose performance is linked to the performance of either the S&P 500 Price Return Index, the Russell 2000 Price Return Index, the MSC EAFE Price Return Index, a gold price index, an oil price index, or some blend of those.

What makes it a “collar” strategy? SCS limits the amount you can lose while capping the amount you can gain. For instance, if you bought a one-year contract and selected the S&P 500 Price Index as your investment option, you could gain up to 10% over the year (but no more) if the index went up. At the same time, you would be protected against up to 10% in losses during the year. If the S&P 500 Price Index lost 8%, your account would lose nothing. If the index lost 14%, you would lose the difference between 10% and 14%, or 4%.

Bullish investors probably won’t like the 10% ceiling on gains. And bearish investors might object that there’s no clear floor to their possible losses. But this product isn’t for pure bulls or pure bears. It’s intended to give risk-averse people an alternative to staying “on the sidelines” and not investing at all.

Written by Kerry Pechter

The new generation of fixed index annuity products offer excellent guarantees with market downside protection, and they also have lower fees.  Annuity FYI’s article “Fixed Index Annuities Getting a Fresh Look,” says that last year’s sales of $31.4 billion broke sales records for the second year in a row.  Fixed indexed annuity products are very complex and while they are an excellent investment for many people, you definitely need to research the underlying index, the formula which credits interest, the guaranteed minimum return, the participation rate, the spread fee, any cap, bonus possibilities, and the type of indexing method that will be used.

A fixed index annuity is a hybrid of a traditional fixed annuity product.  Investors are guaranteed that they won’t lose any of their original investment because they are guaranteed that their rate of return will always be above zero.  What makes fixed indexed annuities different from fixed rate of return annuities is that the rate of return varies based on a specific equities market.  You will usually have a guaranteed minimum interest rate that can increase based on the performance of the index on which the FIA is based.  FIA’s are an investment somewhere in between a fixed annuity and a variable annuity.  FINRA says that while you will have more risk and more potential return than a fixed annuity, you will have less risk and less potential return than a variable annuity.

The fixed index annuity is worth a look because the newest products have lower fees and better lifetime income guarantees than previous FIAs.  You also get the tax-deferred growth that is so popular with all annuities, shorter surrender periods, walkaway options, choice of an index, and a waiver of annuitization.  The Wharton school found that fixed index annuities have performed better than many alternative investments.  They have been competitive with many of the most popular and safest investments and have even performed better than some variable annuities and mutual funds.  FIA’s are best for investors nearing retirement who want to protect their money, especially after the past couple of market collapses.