The rate at which indexed annuity product features have been changing in recent months can be dizzying to even the most seasoned financial producers. While staying current on recent market trends can be particularly difficult in the indexed annuity market, client interest in these products has never been greater.
Customizable annuity packages that can include a seemingly limitless combination of features make the indexed annuity a product that entices and daunts your clients. This something-for-everyone regime makes it certain that your clients will need your advice both in understanding the rapidly changing interest provisions and in creating the indexed annuity package that will lead them to their financial goals.
Impetus for change
Today’s prevailing low interest rates are the primary motivator for many of the changes seen in the indexed annuity market. Many companies have made corresponding reductions in the interest rates available for their products in order to maintain financial stability and reduce their exposure.
A second catalyst for change involves the entrance into the market of many large insurance companies that previously refrained from offering indexed annuities. Some of these companies have turned to indexed annuities upon abandoning variable annuity sales, since indexed annuities are often seen as a more stable product offering.
New market entrants have begun offering fresh product features, spurring innovation, as companies that have traditionally offered these products attempt to compete in the expanded marketplace. While it may be difficult to keep pace with these varied products, clients’ interest remains piqued, so the need for education has never been greater.
Popular product developments
Guaranteed lifetime withdrawal benefit (GLWB) features are one of the add-on options that have been stimulating the indexed annuity markets in recent months. According to a recent LIMRA survey, 71% of annuity purchasers choose to attach a GLWB rider to their indexed annuity contract.
The rollup component of the GLWB riders has been the subject of many recent changes, however. This feature guarantees that the base amount invested in the annuity contract will continue to grow at a set interest rate for a specified term. Many companies have reduced the applicable interest rate and shaved the number of years during which the value will grow in response to market pressure.
These reductions, which are meant to reduce the insurance company’s exposure to risk, do not appear to have impacted the popularity of the riders. Some companies who have opted to cut back the GLWB rollup benefits have offered a new option that reduces the guaranteed interest rate by several points, but offers the potential for earning a much higher return than the original guaranteed rate. This type of product feature ties the annuity’s performance more closely to actual market performance, reducing the seller’s risk while providing the client with a much higher potential upside.
Other popular annuity add-ons include riders that provide long-term care or death benefits. Similar to the GLWB rider, these riders are usually attached to the annuity contract to provide hybrid-style benefit packages to help each client meet his or her individual financial goals.
The rapidly changing product features and widespread availability of custom-made indexed annuity products have made it difficult to remain informed, but client interest—and the related potential for sales—has never been greater. Many annuity carriers have realized the difficulty that advisors may have staying current and are offering more detailed training to keep them abreast of their specific product developments.
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