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Shorter Surrender Periods Improve Sales of Indexed Annuities


As the first-quarter numbers roll in, the data is showing that investors are especially attracted to indexed annuities with shorter surrender periods. Sales through banks and broker-dealers skyrocketed as these distributors prefer the shorter surrender periods due to the higher rates and caps that they can impose in exchange for lower commissions.  

“We’ve seen stuff going over to banks and broker-dealers more and more, and with banks and  broker-dealers, the five to seven-year surrender charge is the sweet spot,” said Sheryl J. Moore, CEO of Wink Inc., in a recent InsuranceNewsNet article. “The 10-year sales have never been lower in over a decade.”

Surrender charges, or early withdrawal penalties, are designed to deter contract holders from turning the annuity in early.

“At one end of the spectrum are indexed annuities with no surrender charge and at the other end is one that comes with a 16-year surrender charge.”

These charges allow insurers to recover their commissions paid upfront to advisors on the sale of a commission-based contract. These charges are usually attached to a sliding scale with earlier years carrying a higher charge and slowing disappearing as time passes.

In the first quarter, Wink reported that compared to the year-ago period:

  • 10.2% of indexed annuities were sold with a five- or six-year surrender period in 2018 compared with 9.1%.  
  • 26% of indexed annuities were sold with a seven-year surrender period compared with 22.1%.
  • 42% of indexed annuities were sold with a 10-year surrender charge compared with 43.3%.
  • 2.7% of sales were sold with a surrender period of 15 years or more, compared with 4.1%.

In the first quarter, nearly 37% of all indexed annuities were sold through banks and broker-dealers. At the end of last year, these distributors were responsible for 34.5% of indexed annuity sales, which is an increase of 7.7% from the fourth quarter of 2012. In comparison, independent insurance agents were responsible for 59% of indexed annuity sales at the end of last year. This is compared to 87% at the end of 2012.

“The fact that independent agents are still selling indexed annuities at a healthy clip while at the same time ceding market share to other channels is possible because the indexed annuity sales pie as a whole continues to grow,” Moore said.

Written by Rachel Summit

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