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Structured Annuities Are An Alternative to Fixed Income Products

One of the newest annuity products is linked to a stock market index, but is not exactly an indexed annuity.  Investment News’ Darla Mercado discussed these structured-product annuities in the article “The latest annuity innovation: Contracts with structured products“.  More insurance companies are showing interest in these newer products because of their principal protection and the steady growth of the account value.  The focus with structured annuities is not on fast growth, but slow and steady.  Five to seven years seems to be an ideal time frame for these new annuities.  One advisor says that they typically recommend the products for people who are planning to retire within that time frame.  The returns are linked to a stock market index over the specific time frame.  Returns are usually capped by the life insurance company.

There are currently three big insurers who offer these structured-product annuities.  AXA Equitable introduced their Structured Capital Strategies variable annuity in 2010.  They have sold more than $3 billion of these products since their introduction.  AXA links their investments to a range of different indexes and has been adding more of them since 2010.  Insurers seek to buffer some of their downside risk by copying the index’s performance through their investing.  Allianz Life Insurance introduced their Indexed Advantage annuity just last year and has seen great success with this product.  They forecast its sales at $500 million this year.  The third insurer with a structured-product annuity option, MetLife, has been selling the Shield Income Selector for almost a year.

Many broker-dealers are hesitant to sell structured annuities because of the added complexity when you combine annuities and structured products.  Brokers need more training because of all of the different moving parts in these new products.  Many experts see these structured annuities being used as a substitute for the fixed income products, especially now when returns are better than they are with a fixed annuity product.  These structured annuities are also an alternative to traditional indexed annuities because the cap rates are better for clients.  Clients who are looking for an annuity over a five to seven year window have three options.  These are fixed annuities, which still have fairly low interest rates, indexed annuities, or these newer structured annuities.

The average client purchasing structured-product annuities is younger than the average variable annuity client.  Allianz Life found that 30% of people buying structured annuities are older than 70, while 25% are below age 55.  One financial consultant who was wary of the products at first now appreciates them as an alternative to the different types of fixed-income options out there.  She says they are similar to buffered notes, with better caps and a nice upside.  Structured-product annuities are new to the industry, comparatively.  Our financial experts can help you with any annuity questions that you have.

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