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Whos Buying Non-Qualified Annuities?

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New York

Results of the most recent Gallup survey of non-qualified annuity contract owners confirm that the segment of population buying such annuities is precisely the demographic presumed to be interested: generally people over 40 with annual household incomes under $75,000.

Using the income as a financial cushion in case they or their spouse live beyond their life expectancy; avoiding being a financial burden on their children; and ensuring a retirement income were cited by eight in 10 of those surveyed as intended uses for their contracts.

Seven in 10 owners bought their contract to provide for catastrophic illness or nursing-home care, or as financial protection against high inflation or poor performance by other investments.

Ninety-four percent of contract owners agree that maintaining the current tax treatment of annuities is a good way to encourage long-term savings, according to the survey. Ninety-one percent agree that non-qualified annuities are an effective vehicle with which to accrue retirement savings.

Thirty-four percent of contract holders are age 72 and older, according to the survey. This is up 10 percentage points from the same survey conducted in 1992 (24%), but down six percentage points from 1997 (40%).

A higher number of variable annuity contract owners were under age 50 when they bought their first annuity (53%) than those whose first annuity was fixed (41%).

The survey found that 90% of respondents still own the first annuity they bought, and only three in 10 owners have withdrawn or received money from an annuity they or their spouse still owns. Of these respondents, the average age at which they first withdrew or received funds is 62.

Slightly more women than men are owners of non-qualified annuity contracts. The survey found that women are more likely to buy fixed, non-qualified annuity contracts while men are more likely to buy variable, non-qualified annuity contracts.

The majority of owners are married; 21% are widowed; and 10% are single, according to the survey.

Consistent with findings in previous surveys, the 1999 report reflects that the educational background of non-qualified annuity contract holders is varied. Most owners are high school graduates, but more than half (55%), are not college graduates. However, 21% have done post-graduate work or have post-graduate degrees, the survey says.

Also in keeping with previous surveys, in 1999 it was found that most owners–56%–are retired; 30% are employed full-time; 7% are employed part-time; 3% are homemakers; 2% are disabled or temporarily unemployed; and 2% did not answer.

Owners of non-qualified annuity contracts hold, or are retired from, a variety of jobs, according to the survey. Forty-four percent are current or retired business owners, officers of a company or professional people; 18% are current or retired blue-collar/service employees; 13% are currently in or retired from a supervisory position; 12% are current or retired support staff; 4% are currently in or retired from sales positions; 3% are homemakers; 2% are in the “other” category; and 5% did not answer.

The survey shows the majority of people buying non-qualified annuity contracts are middle-class. Consistent with results from earlier surveys, the 1999 report reflects that the substantial majority of owners of such annuities earn between $20,000 and $74,999.

Only 18% of owners are currently helping one or more children with higher education or housing costs. Ten percent have adult children living at home; 9% of owners or their spouses financially support or anticipate supporting elderly parents; 2% pay alimony or child support.

The survey, conducted seven times since 1992, was started as a response to governmental regulation, says Joseph McKeever III, attorney, Davis & Harman LLP, Washington, D.C.

“Questions were asked by policymakers in Washington about the characteristics of annuity buyers and we wanted to be able to give authoritative answers to those questions,” he says.

Results of information accrued in late 2000 are expected this summer, says McKeever.

The results can also be a tool for annuity brokers seeking to best serve their clients, says McKeever.

“It helps [brokers] to know what motivated people to buy the contract and what people want to use the annuities for,” he says. “That can help them emphasize those purposes in serving their customers needs. Any time you understand the customer, youre going to help serve their needs, and the survey says a lot about the customer.”

Reproduced from National Underwriter Life & Health/Financial Services Edition, June 4, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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