Hybrid income annuity products can be a great way to provide clients with a stream of income during retirement, especially when they offer guaranteed lifetime withdrawal benefits. Despite this, there are a number of reasons why clients may continue to resist locking their funds into an annuity.
Typically, they worry about losing control of their retirement savings or an insurance company’s failure to continue annuity payments should they die earlier than expected. The market turmoil of the past few years has generated an additional concern about the financial stability of the companies issuing annuity contracts. A recent National Association of Insurance Commissioners (NAIC) Life Insurance and Annuities Committee meeting should lead to new regulations that will clarify and conform hybrid income annuities in order to make them much easier to sell.
What Is a Hybrid Income Annuity?
Hybrid income annuity products are annuities that are combined with a different type of annuity within the same annuity contract. For example, a contingent deferred annuity is an annuity that guarantees lifetime payments based on the value of the assets in the annuity account. Income payments are conditional upon the owner’s survival and the depletion of the assets in the account. Often, a GLWB rider is attached to the annuity to provide lifetime income payments that begin if there is a depletion or change in value of the annuity account’s assets. The addition of the GLWB rider is what makes the annuity a hybrid.
Synthetic hybrid income annuities, which are hybrid income annuities where the assets in the account are not owned by the insurer, are also being investigated, and would be subject to any new regulation.
It is the guarantee component that has attracted regulators’ attention. In the past, this element was viewed as an option that was ancillary to the actual annuity product. Clients today regularly want guarantees built into their financial products, prompting the NAIC’s review into whether these features are accomplishing what providers have promised.