The General Accounting Office (GAO) agrees new annuity designs with guarantees can be helpful to helping consumers looking for a steady stream of income but used a variety of input from state and federal regulators as well as insurers to conclude that consumers should proceed with caution, or the help of a professional, for now, when selecting these products.
And, the report said the products are not without risk for both consumers and the industry.
“These products can also create risks for insurers which, if not addressed, could ultimately affect insurers’ ability to provide promised benefits to consumers,” the report concluded after input from several insurers and regulators on the risks.
The GAO referenced others when it suggested it is important for consumers to obtain professional financial advice before purchasing these products and making key decisions.
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However, the GAO was not heavy-handed in its report in any way. For example, it stated that consumers who purchase variable annuities with guaranteed lifetime withdrawal benefits (GLWB) and contingent deferred annuity (CDAs) can face risks similar to those they may face with the purchase of other financial products.
The GAO-listed risks are obvious to those familiar with variable annuities, and include purchasing an unsuitable product, paying too much, making withdrawal decisions that decrease benefits, and having an insurer become insolvent before benefits are received.
The GAO did state that until regulatory issues are resolved on whether state guaranty funds laws allow for CDA coverage, consumers may not be fully protected, concluded a recent GAO report on annuities with guaranteed lifetime withdrawals and sister products, CDAs.
Happily for the industry crafting these products, the GAO identified CDAs and VA/GLWBs as products that could well provide unique benefits to consumers in building their retirement security.
Consumers can benefit from these products by having a steady stream of income regardless of how their investment assets perform or how long they live, while at the same time maintaining access to their assets for unexpected or other expenses, the GAO report said.
It did offer a small primer on the controversial CDAs, culled from input from interested parties, including those who represent state guaranty funds.
One benefit specific to CDAs is that the guarantee of lifetime withdrawals can, in certain cases, be applied to existing investment assets. That is, consumers who have existing investment assets may be able to purchase a CDA to cover those assets, if an insurer agrees to cover those assets under a CDA, the GAO report stated.