Annuities

EIA sales have greatly benefited from 3 innovations: bonuses (percentage of initial premium purchase), GLWBs, and GMDBs (enhanced withdrawal or death benefit). These 3 factors provide a strong incentive for 1035 exchanges.

Linked-benefit annuities cover costs of long-term care insurance by providing a benefit that is a multiple or percentage of the annuity contract’s value. The insurer (annuity issuer) pays for this benefit by taking a fee from the contract. This type of long-term care protection usually costs quite a bit less than an individual long-term care policy; if the long-term care benefit annuity rider is never used, the contract owner still has something of value (the annuity).

Conservative investors often look to bank CDs, money market funds, and government securities for current income. Sadly, fixed-rate annuities are usually not considered. This is unfortunate because annuities have yields that are substantially higher than bank CDs and money market accounts; annuities also consistently have better rates than government securities.

A feature shared by all variable annuities is a death benefit. This is an important feature because the investor selects one or more subaccounts (similar to mutual fund choices), ranging from conservative (i.e., a locked in rate for 1+ years), to moderate (a balanced portfolio of stocks and bonds), to aggressive (70-100% in stocks).

Total annuity sales for 2011 were $231 billion [$155 in variable annuities (VAs) and the balance in fixed-rate annuities]. Of this $231 billion total for 2011, $223 billion was invested in deferred annuities and less than $9 billion to immediate annuities. The vast majority of variable annuity sales are from 1035 exchanges (not new money).