This Might Be A Good Time o Bring Back Real Estate VAs
The past two years have seen a great instability in the investment marketplace. This is perhaps the first such instability that many professionals in the variable annuity industry have ever seen.
As you know, VA sales are down and, although fixed annuity sales have been increasing, they have by no means picked up the volume done in the VA business before the current market downturn.
Therefore, many insurers and distributors are looking for new products to enable them to offer competitive retirement vehicles to customers.
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Perhaps the answer is already there in the industrys existing VA lineup.
Perhaps instead of looking for new types of products, the industry needs to adapt VA investments already available to provide customers with the change in investment orientation they need.
We are thinking, in particular, of the so-called “real estate VA.”
In the early 1980s, the first real estate VA came to market. It offered investment in a portfolio of mortgages and “brick and mortar” real estate. As such, it afforded an alternative to the usual mix of stocks, bonds and insurer guarantees used by other VAs at the time.
That product was well received by distributors and consumers alike, and it provided respectable yields to contract owners.
However, all that came to an end with the advent of the 1986 Tax Act. Among other things, this Act terminated the favorable tax treatment those conventional real estate investments had enjoyed and caused a disaster in real estate values. As a result, the real estate VA faded into oblivion.
But, in todays market, we have to ask: Is this the time to consider reincarnating the real estate VA?
The structure of the VA business and the VA products we offer has changed a great deal since the 1980s, of course. But we believe that a real estate VA can be folded relatively seamlessly into the portfolio of investment options available in todays VA products.