The relative lack of success of immediate annuities remains a major concern for the insurance industry. The chart on this page shows reasons frequently cited for the disappointing sales seen so far.
Even so, immediate annuities are bound to increase in popularity in the coming years. As many articles have pointed out, demand for financial guarantees is growing. So is the risk that people may outlive their money due to increased longevity.
Insurers that will benefit most from this pent-up demand will be those offering single premium immediate annuities designed with these needs in mind. In particular, they will market SPIAs that can meet multiple buyer concerns associated with long term care needs in the later years.
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The timing of the sale of such a product, around retirement, matches quite closely the time when many buyers first start worrying about how they will fund their long term care. (It is preferable that LTC needs be addressed at earlier ages, but consumers have not demonstrated such wisdom.)
What would such a vehicle look like? By and large, it would look very much like any other SPIA. That is, the single premium deposit would buy a stream of payments.
However, and this is key, such SPIAs would also provide for an enhanced stream of payments should the annuitant become chronically ill. But the product structure will need to address several issues, which follow:
What is the trigger? The trigger will likely be some kind of chronic illness definition. There may be considerable appeal in basing the trigger on an expectation of permanent chronic illness. This is being market tested.
Note: The most prevalent definition of chronic illness–that the individual is unable to perform two out of six activities of daily living or requires substantial supervision as a result of severe cognitive impairment–is not necessarily the definition that ought to be used in the SPIA contract.