Use of Lifetime Income Annuities Expanding

New York Life’s branded LifeStages Lifetime Income Annuity reached $292 million in sales in 2004–up 154% from 2003–and total sales are up 40% through August, outpacing an industry-wide increase of only about 3%. But the mutual insurer worked hard to get past some investors’ initial reluctance to purchase immediate annuities.

“When we were designing this [LifeStages annuity] we did some consumer research to see why some of these products were not being sold more frequently,” says Meyer. New York Life found three major concerns. First, traditional immediate annuities don’t have much liquidity. Second, many individuals want to leave something to their heirs, and not sock all their money away into a product that in its pure form leaves no estate. Third, there’s the possibility of higher inflation.

Thus, New York Life went to work designing a product that has options, such as a withdrawal feature of up to 30% of the present value of remaining payments without penalty on the fifth, 10th or 15th anniversary of the annuity, and a feature that allows policyholders two chances to accelerate payments during the time of the contract. For instance, instead of $500 a month, the policyholder could receive $3,000 today and stop payments for the next five months. To guard against inflation, a policyholder can increase the income payment amounts. Also there are options of death benefits at 25% of premium or at 50% of premium no matter how long the policyholder has been receiving income in exchange for a lower monthly payment/income on the LifeStages annuity.

Policyholders pay in expenses or lower payments for more bells and whistles on the product, however. For example, the added refund features drop the payment stream by 10% to 20% in some immediate annuity products, says Michael Kitces, director of financial planning at Pinnacle Advisory Group in Columbia, Maryland. “It’s a good product for the right fit,” Kitces acknowledges. But it is an irrevocable decision to basically “surrender hundreds of thousands of dollars for a stream of income later,” he notes.