Making Income Annuities Irresistible

In addition to addressing these various perceptions, financial advisors can increase their income annuity business by bringing new income annuity innovations into the practice. There are several to consider.

For instance, several insurance companies now offer health-rated or impaired risk income annuities. These annuities can provide for a higher monthly income based on a client’s “health” age vs. actual age. The health age is derived through medical underwriting to determine health or medical age. This medically based age rating allows the insurance company to rate the client as “older” than his/her physical years, thus decreasing life expectancy. The result is increased monthly income from the annuity.

In addition, some insurance companies are experimenting with different names for income or immediate annuities, using names that might better attract the consumer’s attention. For example, consider “CIA” for current income annuity.

Another concept on the horizon takes into account indirectly issuing more income annuities by selling more deferred annuities with an “ADL” surrender waiver to an ADL-rated income annuity.

This concept is a carry-over from a feature of most long term care insurance policies. The term ADL stands for activities of daily living. ADLs include being able to dress or feed oneself. There are normally six ADLs listed. If the client is unable to perform two of the six ADLs, this generally triggers the beginning of a benefit period.

Applying this to the income annuity, advisors should know that substantial statistical data already exists concerning the “health age” of a person vs. actual age, correlated with the number of ADLs a person is unable to perform. (This data now is held by LTC insurers.) Now, consider a fixed deferred annuity owner whose policy has a one-year nursing home waiver of surrender charges. An additional provision could be added to the policy that would allow this person to convert the deferred annuity to an income annuity that is based on the health age of the client. This conversion could occur under the same terms as the existing nursing home waiver. The potential benefit to the consumer could be a higher payout based on health age and ADLs rather than actual age.

Bottom line: This concept–which is in development now–would give the owner more potential income bang for the annuity dollar. It also opens a largely untapped market for annuity agents to go after, since no preliminary underwriting would be required. In addition, the “ADL waiver” would be easy for the annuity owner to understand. The insurance company can control medical underwriting costs with this approach, though it may still offer full medical underwriting for a more exacting medically underwritten income annuity quote.

Another idea is to be more flexible in the area of multigenerational planning and asset transfer. For instance, income annuity insurers should consider adopting multiple and contingent payee options, as well as restricted beneficiary riders. In addition, they should explore ways to offer beneficiaries re-priced payments of period certain balances based on the beneficiary’s age instead of the standard options of ongoing payment stream of the deceased annuitant, or lump sum commutation. Such changes would give advisors more leeway in meeting client needs.

Finally, advisors should focus on effective communications to the public about the features and benefits of income annuities. This can be done via traditional methods, like news articles and paid advertising. However, considering that many consumers do their research through the Internet, advisors also should look into promoting income annuities on their own websites.

The Positives