In the Wall Street Journal article, “Restyled Annuities Offer Fewer Choices,” Leslie Scism says that variable annuities with lifetime income guarantees don’t have as many investment options as they did a few years ago. When the market was stronger, insurance companies used a wide range of investment options to compete with other insurers. Once the market took a steep downturn, while the minimum income guarantees were fantastic for investors, insurance companies took a hit to keep their promises to investors. Insurers are now requiring most investors to choose a more conservative investment mix, something they refer to as reduced volatility.
MetLife, Hartford Financial, and AXA all have new products that limit investors from having the majority of their money in high risk investments. This helps protect both investors and insurers from huge swings in the market, while still keeping the income guarantees annuity products are known for. By giving up complete control over how their money is invested, people are helping keep the insurance companies in tact so that their income guarantees will be around when they start taking annuity payments to last their lifetime.
Some advisors are not happy with the changes to variable annuities that insurance companies are making. But the article gives many reasons why variable annuities are still a valuable investment, despite a decline in the options available for investing. The value of an increasing benefit base is great and will not happen if the underlying accounts happen to suffer large losses. These new variable annuities are good for those looking for predictability. They’re still a better choice than low fixed rate investments right now and their popularity is shown in part by the success of Prudential’s version of the less risky variable annuity.
Written by Rachel Summit
