Producer's Corner: Expect a Surge in DIA Sales

Flanscha pegs the DIA’s IRR at between at 4.5% and 5.8% during the accumulation or deferral phase. In the current low interest rate environment, the higher of the two IRRs, Flanscha acknowledges, may be hard to match. But assuming that 4.5% is the more realistic of the two, then the client may be better off investing in, say, taxable bonds, CDs or mutual funds, then rolling the retirement funds into a SPIA (which enjoys a higher exclusion ratio—the ratio of non-taxable to taxable income—than the DIA).

Additionally, should the client elect an optional rider, such as a death benefit or return of premium, then the power of the DIA’s accumulated mortality credits is diluted. These riders provide, in effect, an indirect way of purchasing life insurance. If providing a legacy for heirs is desired, then the smarter choice is to dispense with the annuity’s death benefit and buy life insurance.  As Flanscha observes, a life policy can provide significantly more leverage for the premium dollars invested.

Numbers aside, one might reasonably question whether DIA backers are justified in their optimism about future sales. True, both New York Life and Thrive Income are, as I note in the feature, enjoying enviable revenue streams from the product. But these companies are, to my understanding, marketing DIAs, and funding agent educational initiatives about the products, unmatched by other providers.

Indeed, I was astonished to learn from John Olsen, a chartered financial consultant and president of Kirkwood, Mo.-based Olsen Financial Group, that he regularly encounters during speaking engagements agents who know little or nothing about their carriers’ DIA offerings. And, Olsen insists, the carriers are to blame for their agents’ ignorance because the companies are doing a “terrible job” promoting the products.

What might also dampen sales is a continuing hesitancy among non-DIA providers to join the fray. Rao Garuda, a principal of First Financial Resources, Columbus, Ohio, says that carriers interested in entering the market need substantial capital reserves to design, market and support the products. All but the largest insurers, he suggests, lack the deep the pockets to be players in the DIA space.

Perhaps. But I suspect that providers still on the fence, and the less than aggressive insurers that have DIAs, will reconsider their market posture as more of the millions of boomers now entering retirement buy into the solutions. For me, thus, the central question is not whether DIAs will achieve wide market acceptance, but how soon.