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New Twists in Annuities Warrant Another Look

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It’s a tried and true strategy to protect client liquidity in a low rate environment in order to ensure the client is well positioned to seize growth opportunities when they finally begin to appear again, and to prevent losses from lock-in on investment vehicles with poor pay-outs and sluggish break-even surrender dates. Because this strategy has proven historically sound, many investment advisors urge clients to avoid investment products such as Certificates of Deposit (CDs) and multi-year guarantee annuities (MYGA). But these are not ordinary times and the low rate environment is lasting too long for cash to lay fallow, earning nothing for several years. 

While top Federal Reserve officials differ on whether the U.S. central bank should take even more aggressive action to spur the economy, the Fed guidance says rates will stay extremely low until at least late 2014. Meanwhile, Chicago Fed President Charles Evans told a field of reporters that he expects inflation will also remain low, under 2 percent actually, for several years to come. His prediction matches the Fed’s formal inflation target. 

This scenario renders two reasons to reconsider annuities in a low rate environment. First, the fear of any loss to inflation for the next two to five years is negligible. Second, interest rates are not going to rise and create very many new opportunities any time soon. One could argue of course that there is always the option to choose higher yield investment options such as stocks but with that come the loss of liquidity and considerably more risk. 

Fortunately, forward-thinking annuity product developers are stepping up their game and creating products that are more advantageous than the norm in a low rate market. 

Bankers Life is the first to launch this new breed of annuity products. Indeed, the company has a patent pending on its new annuity design and is offered exclusively through Bankers Annuity Brokerage. 

The Bankers Life Interest Plus MYGA product preserves the advantages of the traditional annuity, namely low investment minimums, guaranteed rates, and deferred taxation. It also carries an upfront sales load as is typical of this type of investment vehicle. 

The twist comes in providing more upside for the investor than a traditional annuity can deliver. It is important to note that the remake is contained to providing better performance for investors and does not radically alter the traditional annuity. Therefore, this change is comforting to clients whether they are new or experienced in the ways such investments work. 

Among the top differentiators between Interest Plus and competing traditional annuity products are these key elements: 

  • Highest guaranteed rate as compared to other equivalent number of years MYGA 
  • Highest guaranteed renewal rates after initial guaranty 
  • A fast full surrender break-even date 
  • A high degree of opportunity friendliness, meaning it provides 99% of liquidity of account value to enable the client to take advantage of opportunities as they arise or to pay for emergency needs.

Each of these advantages outweighs drawbacks traditionally associated with annuities, namely significant rate drops after the first year or two, lack of or insufficient liquidity, and long break-even surrender dates. These changes warrant a new consideration of the investment possibilities this new product presents.

Conversely, continuing to cling to the belief that all MYGAs are created equal, and to the antiquated adage that these investment vehicles are a poor choice in a low rate environment, amounts to a disservice to clients. The better practice would be to stay abreast of changes in annuity products as they occur exactly as you would with any other investment vehicle.


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