August 28, 2013

Deferred Income Annuities Reach Record Sales

The strong performance reflects recent product innovation, according to IRI research

Deferred income annuities continue their dominant run. LIMRA recently reported that DIAs surpassed $500 million for the first time, reaching $535 million in the second quarter of 2013, 155% higher than in the second quarter of 2012. Year to date, DIA sales grew 151% to nearly $1 billion. DIA sales are on pace to reach $2 billion by the end of the year, doubling 2012 results.

Now IRI is validating the findings with its own research, claiming DIA product sales actually reached an estimated $1 billion in 2012.

First introduced several years ago, DIAs provide another retirement income option to financial advisors, and their clients, as they develop plans to protect against longevity risk in a way that best suits each individual client’s needs.

“DIAs achieved their first year of significant sales, about $1 billion, in 2012, and sales have continued to grow in 2013," Cathy Weatherford, IRI President and CEO, said in a statement. “While this is only a small percentage of overall industrywide annuity sales, we expect this growth to continue into 2014. As more companies begin to offer DIA products and as they expand into new distribution channels, DIAs are becoming a viable option for consumers and financial advisors looking for guaranteed retirement income to insure against longevity risk.”

Similar to their precursor, advanced life deferred annuities (ALDAs), DIAs are designed to provide income later in life to protect against the risk of outliving assets. While ALDAs never experienced significant sales, insurers revisited the concept by shortening the deferral period. DIAs also offer more flexibility through, among other features, optional death benefits and liquidity options.

Key findings from the report:

  • IRI anticipates DIA products to be the fastest growing annuity product in terms of sales on a percentage basis in 2013 and 2014.
  • Income on DIA products can start between two to 40 years from issue, but most DIAs are elected with an income start date between five and 15 years from issue.
  • As recently as last year, only six companies offered DIA products. Now at least a dozen companies offer or have filed to offer a DIA product.
  • The average DIA buyer profile resembles that of buyers of variable annuities and fixed-indexed annuities with living benefits. The average DIA buyer is in their late 50s, with most DIAs being purchased by buyers ranging from their early 50s to mid-60s.
  • Across the industry, the average income deferral period for DIA products is eight years.
  • One-fifth of Baby Boomers believe that guaranteed income each month is the most important trait of a retirement investment product.

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Check out Milevsky: Mispricing Annuities, Then and Now on ThinkAdvisor.

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