Indexed Annuity Commissions, Surrender Charges Down

In “Indexed Annuities: Perception vs. Reality,” Brad Johnson discusses the changes in indexed annuities since their inception in 1995.  The Financial Planning article shows detailed changes from 2002 to 2012 as well to show how many advisors’ have a skewed perception of the hybrid annuity products.  When they were introduced by SunLife (formerly Keyport) in 1995, the industry touted indexed annuities as a “bridge” between fixed and variable annuities.  Many like to call them a hybrid now, but they maintain the same basic premise.  They are like a fixed annuity because they guarantee a fixed return for a preset number of years.  But like variable annuities, they also have part of their return dependent on the performance of underlying mutual funds.  When introduced, indexed annuities were little known and many advisors were not willing to look at the few options available.  In 2013, there are hundreds of different indexed annuities out there.  That alone doesn’t make them a viable option, but they should be considered when looking at retirement options.

Some important changes have been made in the indexed annuity industry from the 4th quarter of 2002 to the end of last year.  The article’s statistics come from Wink’s Sales and Market report.  Quarterly sales went from $3.5 billion to $8.5 billion and the percentage of sales held by the top three carriers decreased from close to 60% down to 38%.  Indexed annuities were sold by independent agents over 97% of the time in 2002, which is down to 87% currently.  One of the most significant changes is that close to 70% of the products sold in 2002 had a surrender charge period longer than 10 years.  Now, only 22% of indexed annuities have such a long surrender period, largely due to customer demand changes.  Average premiums were $36,384 in 2002 compared with $69,454 in 2012.  Another important change over the past decade or so is that the weighted average street level commission went from 9.96% to 6.09%.

When they were introduced, many indexed annuities had double-digit surrender charges and very long terms.  The industry has evolved over the past few decades, much to the benefit of consumers.  Many variable annuity sellers are looking to make changes after losing money on hefty guarantees, so they have started selling and adapting indexed annuities in the market.  All of these changes don’t necessarily mean that an indexed annuity is right for everyone, but they should be considered when looking for guaranteed income during retirement.  If consumers or advisors are interested in indexed annuities, they should do their research and see if they might be right for them.  Indexed annuities might be the right product for you or your client, especially with the changes that have come about over the past decade.  One of our advisors can help answer any questions you may have about indexed annuities.

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