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Variable Annuity Industry has Divided Into Two Categories

The landscape of the variable annuity industry has been changing over the past couple of months.  Insurance companies are introducing a range of new variable annuity products that don’t offer living benefits.  Some insurers, jilted over the hits they took on variable annuities during the recession in 2008-2009, decided to exit the market altogether.  But others have come up with a new way to sell their variable annuities, one that capitalizes on another benefit of the product altogether.  Investment News’ Darla Mercado tells us how the industry has divided in her article, “VA market splits on issue of living benefits.”

Many insurance companies are focusing on new variable annuity products that are investment-only and do not offer the previously common living benefits.  AXA Equitable’s Investment Edge was introduced back in November.  The company has seen a lot of interest from producers who don’t even normally sell variable annuities.  In December, both Prudential and Jackson National brought new variable annuity products to the SEC.  Jackson National’s already popular Elite Access variable annuity will now be available in a “brokerage edition”.  This new edition focuses on alternative investments and the tax efficiency of the variable annuity.  Prudential, on the other hand, has not released as many details about their new variable annuity.  While there is a death benefit attached to this product, there is no mention of any living benefits.  It looks right now like the product will be made to compete with Jackson’s Elite Access with B and C-shares.

Traditional variable annuities with living benefits are not going anywhere.  Many insurance companies will continue to offer these products because of their consumer demand.  It’s hard to guarantee lifetime income with another product.  There will also be a concerted effort by many insurers to focus on the tax deferral benefits of variable annuities because of the changes in capital gains tax rates.  The financial environment makes 2014 a good time for investment-only variable annuities.  As taxes rise, advisors and consumers are looking for the type of tax benefits offered with variable annuities.  Many of them are not even interested in any living benefits.  The variable annuity industry will likely remain divided into two categories going forward, with different benefits available to tailor to consumer needs.

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