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Variable Annuities Adapting to Changing Times

I was attracted to this article immediately because of the title, “Bruised, But Not Broken.”  I think that is such a great description of the state of variable annuities right now.  Financial Advisor’s Karen Demasters says that consumers need not worry that variable annuities are going to disappear.  Even though many insurance companies have either left the variable annuity business or slimmed down their product offerings, many more remain and are excited about what variable annuities have to offer clients now.  The interest rates on fixed products like annuities, CDs, and bonds are low right now.  So variable annuities have a lot to offer clients who are looking for a higher income than they can get from many fixed products now.

That’s not to say that variable annuities have not taken a hit over the past few years.  The riders that were so desirable to investors got some insurance companies into a bind when their promises outweighed their reserves.  Prior to 2008, it was not uncommon to see 6 and 7% annual increases in the variable annuity account value for investors.  Some people were even able to start to see these increases as young as 59 1/2.  This got a lot of insurance companies into trouble because interest rates fell and have yet to rise.  But you can still get some good guarantees with variable annuities.  You just have wait until 65 and even 70 in some cases for a lower annuity increase of 3 to 4%.

While total variable annuity sales in the third quarter of last year decreased 4.9%, net sales increased 44.3% in the same time frame.  This means that new variable annuity sales have been increasing and the decrease in total sales is likely due to fewer exchanges and trades.  Nationwide is one company that remains dedicated to the sales of variable annuities.  Since they made better financial decisions and were able to hedge their contracts, they didn’t fall behind like some other companies.  Nationwide also did not sell an exorbitant amount of variable annuities with high guarantees before the 2008 crash like others did.  They remained relatively conservative.

The bottom line is that while guarantees may be less than before, variable annuities are not going away and they are still good investments relative to the other options out there.  Everything waxes and wanes over time, including different financial products.  The huge guarantees offered before 2008 put many insurance companies in a bad place, but everyone in the industry learned a lot from the past half decade or so and is adapting accordingly.

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