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Insurers address income annuity liquidity concerns

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Insurance companies that offer income annuities are tweaking the features and designs of the products in order to allay long-standing concerns about liquidity.

A recent study conducted by LIMRA and CANNEX, a private, independent company that facilitates the sale of financial products, found that nine of the top 10 companies offering income annuities have employed some measure to mitigate against the risk of a liquidity crisis for the consumer.

The study, “Features in Income Annuities: Immediate and Deferred Income Annuity Designs,” found that most of the income products being offered on the market today include elements that offer retirees increased access to cash should an unforeseen need arise.

Other features being added to traditionally vanilla income annuities include death benefits and flexible income options designed to keep pace with inflation. The 39 insurance companies surveyed, which comprised 84 percent of industry sales in 2012, hope that these features will make income annuities a desirable part of anyone’s portfolio.

The oft-documented and reported “Annuity Puzzle” which has come to be the preferred term in economic circles for why more of the population does not annuitize their income in near retirement when it would greatly benefit them to do so, has contributed to dismal sales of income annuities which in turn, has resulted in advisors not recommending the product.

The main concern for advisors and consumers was that along with the product comes a loss of liquidity. Now, with companies offering cash outside of their scheduled payments when an emergency or other need comes along, liquidity is coming in many different forms; from access to guaranteed payments to access to contingent life payments or payment acceleration.

All of the carriers surveyed offered traditional death benefits with their income annuities while 31 out of 39 companies offered at least one type of death benefit that provided additional money upon the annuitant’s death as a payout option.

All of the top 10 companies offer Cost of Living Adjustment options that allow retirees to receive increasing income in order to address concerns about inflation.