For nearly two decades, a large part of the financial press has trashed annuities. They have claimed annuities are too expensive, offer worthless and unnecessary benefits, and are generally not good for consumers.
Today, these same financial writers are trashing the annuity industry for being too generous with benefits offered to annuity purchasers and they wonder if the industry can survive such expensive guarantees.
If there were a Nobel Prize for talking out of both sides of the mouth, these financial writers would win, hands down.
Let’s break down the issues. Are the guarantees that have been provided to purchasers of annuities expensive to the insurers issuing the contracts? You bet.
Could anyone have projected a financial meltdown that would see the various stock market averages drop to the extent they have? Of course not.
Will annuity insurers suffer financial pain as they fulfill the guarantees they sold? Again, you bet. But through all this pain, the guarantees offered with various types of annuities will do exactly what they were designed to do: protect consumers against unforeseen hazards.
The financial press has always viewed annuities as merely a form of tax-deferred investment. It has never understood the annuity’s insurance elements and has refused to give these elements any value. Now that these insurance features are likely to provide salvation to large numbers of annuity owners, the financial press is crying doom for annuity insurers. So much for even-handed journalism.
We have often noted in these columns that the true nature of annuities as insurance products has been poorly understood. In many instances, annuities have been sold merely as tax-deferred investments, with little discussion of the insurance benefits inherent in the product.
Certainly, the development of special guarantee riders in the past 15 years has prompted greater discussion of the insurance elements. Yet, the financial press has routinely criticized these guarantees as unnecessary, perhaps in the mistaken belief that the stock market will always rise.