(John Miller AP)

Advisors are working with clients starting at an earlier age so they can take advantage of variable annuities with the guaranteed living benefit riders. They remain sought after and among the most poular products industry-wide, but benefits may not be as rich as they once were, according to a life insurance executive from Lincoln Financial Group.

Working with clients in the 55 to 60 year-old range, or the five years before retirement, provides a build-up for the living benefits, according to Dan Herr, Vice President of product research & development for retirement solutions at Lincoln Financial, Radnor, PA. After that, on the brink of retirement, or in it, there is not as much leverage, he says.

These products are dominating the marketplace with about 90% of sales volume in dollars had guaranteed living benefit (GLB) riders offers, according to LIMRA.

LIMRA also noted that 88% of consumers elected a GLB rider (when offered/available) with their VA contract in the third quarter 2011.

Lincoln’s guaranteed income benefit product where payout payments can fluctuate with the performance of the market but never go below a certain rate has done very well over recent years, Herr says.

However, to compensate for the continued low interest rate environment and still attract happy consumers is a tough balance.

We’ve reached the point where you just can’t keep raising the fees, Herr said.  The company has to manage the risk or make the benefits less rich than they had been, he noted.

“There’s a point where you can’t just keep raising the price,” he said, and you look at the risk and manage the cost of hedging that risk, he said.

Lincoln uses a protection fund strategy and other techniques to manage the volatility of the investments.  

The low interest rates are driving up the cost of hedges providing these guarantees, and some of the benefits have been “retrenched,” so that the benefits from five years ago are “much richer than what you see today,” said Herr, who has worked at Lincoln in individual annuities for about two decades and at the company for 26 years.

However, he said, these products are the “only place to insure your retirement assets with an income stream.”

“GLB rider benefits are very dynamic and vary quite a bit. Companies often tweak their GLB offerings as their business strategy dictates. Because of this, we do not release industry data on benefit levels of GLBs,” a LIMRA spokeswoman noted.

Analysts are watching returns for these immensely popular products, while some regulators are considering risk, as seen on recent regulator –industry conference calls.

“Sellers have done an adequate job of reserving but I remain somewhat concerned that the returns for this product in general may or may not be adequate,” said life insurance analyst Andrew Kligerman of UBS AG said back in December.

According to a report on Lincoln’s 4th quarter earnings, for the full year, variable annuity deposits were up 6% to $8.7 billion. Retirement Plan Services net flows were at $0.5 billion compared to $0.3 billion in 2010.    

Lincoln Financial produces two suites of variable annuities, each containing 10 distinct variable-annuity products.