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Deferred Income Annuity, aka Longevity Insurance

Deferred income annuities, or longevity insurance, are being introduced by more and more mutual insurance companies.  These annuities are becoming increasingly popular due in part to the the low interest rate environment and a volatile stock market.  Investment News’ Darla Mercado talks about why mutual funds are selling more deferred income annuities in “Mutual insurers ramp up development of deferred-income annuities.”  This so-called longevity insurance basically means that you purchase an income stream now that you won’t receive until the future.  The time frame starts at ten years and can be much higher.  The risk with deferred income annuities is that you have the possibility of dying before you start receiving your income stream.  That is part of the reason for the alternate name of longevity insurance, so that people realize they are insuring themselves in case they live a very long life.

Northwestern Mutual Life Insurance Co. has just introduced the Select Portfolio Deferred Income Annuity.  RetireEase Choice from Massachusetts Mutual Life Insurance Co. was introduced just last month.  New York Life Insurance Co.’s product is a little different because it is a variable annuity with lifetime income that comes from a deferred income annuity.  MetLife Inc. and Symetra Life Insurance Co. also offer deferred income annuities.  Northwestern Mutual’s annuity takes advantage of the fact that they can offer dividends to their clients, which increases their guaranteed income floor.  This is one of the main differences allowing mutual insurance companies to take better advantage of deferred income annuities.

While low interest rates are not helping insurance companies make good profits now, they are hopeful that rates will increase and their profits will as well.  Mutual insurers are able to invest in the long term bond markets in order to fund their deferred income annuities.  They don’t have the pressure of their competitors who have to prove increasing profitability to shareholders on a quarterly basis.  Beacon Research just recently started tracking deferred income annuities.  But between the first and second quarters of this year, sales went from $155.4 million to $202.7 million.  Low interest rates have made annuity product competitors less appealing, so deferred income annuities offer insurance and longevity protection by taking on a little more risk.

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