Some recent changes made to indexed annuities would hint that they are not selling well, but that is quite the opposite. In “Indexed annuities are changing – and selling,” Linda Koco of Insurance News Net discusses the current trends in the indexed annuity marketplace. Both changes in the product offerings and decreases in commission have been common this year. Many think this would indicate a decline in the demand for and sales of indexed annuities, but experts point out why these products are still a hot commodity and there has been no decline in its sales.
Low interest rates are the main culprit forcing these changes to indexed annuity products. The GLWB guarantees have been causing heartache for many providers and have been the culprit of a lot of the changes. There are more than twenty providers who offer the GLWB with your indexed annuity and although they are tweaking their products, they are not exiting the marketplace. During the second quarter, fourteen changes were made by nine insurance companies on their indexed annuity products. The average commission went down from 6.52% of premium in the first quarter to 6.33% in the second quarter. That is the lowest average commission that there has ever been. Not every company is lowering commissions though, and some companies are changing the structure of their commission instead of just lowering the rates.
Indexed annuity sales have been strong even with product changes and lower commissions. The second quarter sales of $8.6 billion were an 8% increase over the first quarter and a 6% over last year’s sales. The highest ever indexed annuity sales were in the third quarter of 2010 and these numbers from the second quarter were only .6% less than those sales. For the fourth time in a row, fixed indexed annuity sales have been higher than traditional fixed annuity sales. Indexed annuities account for 47% of the current fixed annuity market.
Even with the changes happening in the market, indexed annuities are still offering great value and benefits to customers. During the second quarter, 71% of purchasers chose the GLWB rider and 87% of the annuities sold offered the rider with their product. LIMRA thinks that this particular rider is a large reason for the popularity of indexed annuities. Not all of the data collected regarding GLWB’s shows the same statistics, but it does show that they remain a popular rider and that more than half of indexed annuity purchasers are opting for a GLWB rider.
Changes to the rollup provisions with GLWB’s are a common occurrence now. It was common in the past for a ten year rollup period, which is now often down to a seven year period. This rollup guarantees that the benefit base of your indexed annuity will increase by a certain percentage each year. It is still a worthwhile benefit though, even with a lower time frame. The rollup interest rate has also been lowered in many products. A common offering is either an 8% guaranteed rate or a 5% guaranteed rate with the possibility of an increase to 10% or more depending on interest credits.
Another recent change to indexed annuities is the addition of some type of long term care benefit with the annuity. This can be offered as true long term care coverage or a type of annuity benefit. There have also been changes to include not only income benefits and long term care benefits in your fixed indexed annuity, but also offer death benefits within the product. There are great benefits to consumers with all of the changes happening in the indexed annuity market. While this requires a lot of additional work and training for those selling indexed annuities, the fact that they have so much to offer their customers really makes it worthwhile.
Written by Rachel Summit
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