Bad press and declining inflow rates continue to hamper certain segments of the annuity industry. The National Association for Variable Annuities recently reported a 50 percent decrease in variable annuity net flows in 2005, and Notice 05-50 caused more chaos than guidance in the equity-indexed space. As if this wasn’t bad enough, due to the abusive sales practices of a small number of unscrupulous individuals, the regulatory spotlight continues to shine on the issue of client suitability.
But far from accepting the Chicken Little-like predictions of the financial media, carriers are responding to the tough environment by developing generous and flexible annuity rider options. Whether it’s lifetime income benefits, withdrawal benefits, bonus products or no-surrender features, these customized solutions offer more choice for senior advisors when addressing the income and planning needs of their clients.
In recognition of one such need (that women generally outlive men and run a greater risk of financial peril), New York-based The Guardian Insurance and Annuity Co. has released two new living benefit riders, Spousal AssetAccess and Lifetime AssetAccess, to help advisors help their clients – and their clients’ spouses – supplement lifetime income.
“We commissioned a study, and one of the findings was that annuity living benefit riders are significantly more popular with non-married women than with married women,” says Bruce Long, president of The Guardian. “We saw this as an under-served market. The spousal need in the annuity arrangement was left uncovered.”
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Spousal AssetAccess, Long says, is one of the few guaranteed minimum withdrawal benefits that extend the guarantee to a spouse. The rider allows withdrawals to be made or guaranteed payments to be received as long as either spouse is alive.
As most advisors know, living benefits riders like those offered by The Guardian are not the only annuity features available, but they are among the most prevalent. Living benefit riders provide certain guarantees to annuity contract owners, most often in the form of a minimum value to either reinvest or annuitize. The three main categories are the guaranteed minimum accumulation benefit (GMAB), the guaranteed minimum withdrawal benefit (GMWB) and the guaranteed minimum income benefit (GMIB).
The GMAB lets the client invest for growth potential while guaranteeing the contract’s principal at the end of 10 years. The GMWB gives the client the flexibility to make periodic withdrawals until the principal, at a minimum, is returned to the contract owner. The GMIB allows the client to annuitize his contract at some future point, typically at least 10 years after issue, and receive the greater of his current annuity value or premium increased by some interest factor.
In November, New York-based AXA Equitable introduced two new living benefit options, as well. Both are designed to address the longevity and income issues their clients face and are indicative of the type of features that annuity carriers are now offering.