MassMutual VA Lets Owners Make Switches Inside The Contract

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“Consumers dont want to be locked into a product forever,” contends David OLeary, senior vice president, annuity business, at Massachusetts Mutual Life Insurance Company, Hartford, Conn.

“They do want a long-term relationship with their insurer and with their product,” he adds, “but they want to have it in a product that allows changes as their needs change.”

That was one of the key findings that came from research and focus groups MassMutual conducted with consumers, he says.

The finding was so compelling that he says the insurer redesigned its variable annuity strategy around it. The resulting product–MassMutual Transitions VA–offers three “package” plan options (I, II, and III) and also a completely unbundled option (Custom).

No matter which plan the buyer selects, OLeary says, the person has choice in features.

In addition, after policy issue, owners can change certain features of the Custom plan and, if in a Package plan, can make “switches” between Packages I, II, and III right inside the contract. They can do these Package switches starting on the 2nd anniversary and every year thereafter. (But they cant switch between Package plans and Custom.)

“Our focus groups indicated consumers are looking for a product that helps them grow their money, live their lives, and protect their money,” says OLeary. So the designers structured Transitions–and its marketing materials–to facilitate all three.

For instance, the “grow your money” features include the products multiple investment options, and its asset allocation program. The investment options include: 39 subaccounts handled by 15 money mangers, three dollar cost averaging fixed accounts (six-, 12-, and 18-months), and four guaranteed fixed accounts (three-, five-, seven-, and 10-year periods).

The “live your life” features include various penalty-free withdrawal features (depending on plan selected); a nursing home waiver (in Packages II and III and in Custom as an option); and several guaranteed income options (including fixed, variable, and combination).

Further, as indicated above, Transitions lets “owners change certain benefit selections or make transfers between Packages, when needs change,” says OLeary. This way, “we help people transition between the stages in their lives,” he says, indicating thats why the insurer chose Transitions as the name of the policy.

The “protect your money” features include a guaranteed minimum accumulation benefit, a guaranteed minimum income benefit, six death benefit features, an earnings enhancement benefit, and “equalizer” (an earnings credit after year 10 and every five years thereafter).

“This is not a one size fits all product,” stresses OLeary.

To illustrate, he says Package I might be ideal for a younger person who is primarily interested in maximum tax-deferred accumulation. It has the lowest cost of the three packages (95 basis points for the mortality and expense and administrative charges); the lowest penalty-free withdrawal maximums of the three (10% of purchase payments in year one, etc.); a basic death benefit only; and no nursing home waiver or earnings enhancement benefit.

However, if buyers of that plan later decide they want richer benefits, “they dont need to make a 1035 exchange into another VA,” OLeary says. “They can simply switch into Package II” (which, at 130 basis points, has higher costs, but also offers a nursing home benefit and a 5% rollup feature on the death benefit).

Or, for 155 basis points, they can “switch” into Package III, which offers greater liquidity, a nursing home waiver, an annual ratchet on the death benefit and an earnings enhancement benefit.

The company decided to offer an unbundled Custom path, too, OLeary says, because some clients prefer to pick and choose features, outside the confines of a package. This opens up the product to sales in a broader market than would be possible with packaged plans alone, he says. The options are priced separately.

The point, concludes OLeary, “is that the customer has the choice to buy a Package plan or not, or a Custom plan or not. Its at their discretion. And they can make changes later on.”

Furthermore, he says, commissions for Transitions “dont change by plan selected, whether Package or Custom, or by individual features selected. “Therefore, this is a commission neutral product.”

The entire design represents a “brand new direction for us and, I think, for the industry,” contends OLeary. “The structure puts the emphasis on building a sustainable relationship with the client. It uses open architecture, modular design, and unbundled concepts to do thatso the buyer can make it morph as needs change.

“We think designs like this will help eliminate the industrys 1035 exchange problem,” he says, referring to estimates that roughly 65% of VA sales come from “old money”–1035 exchanges from older VAs–not from “new money.”

MassMutual plans to keep updating the contract and some of the changes may be ones into which existing buyers may also move. OLeary says the concept is that “if you keep updating a policy, it will be hard for the client to get into a discussion about exchanging out of the product into something else.”

With Transitions, he says, MassMutual is making a statement that it is going after new money, not 1035 exchanges.

Surrender charges run seven years in the Package plans but can be five, seven or nine years in the Custom Plan.


Reproduced from National Underwriter Life & Health/Financial Services Edition, August 5, 2002. Copyright 2002 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.