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Life Health > Annuities > Variable Annuities

Variable Annuities: What’s In and What’s Out

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What You Need to Know

  • Change happens.
  • Riders that help clients cope with medical events are popular.
  • The author sees income benefits guarantees losing ground to withdrawal benefits guarantees.

Variable annuity issuers are always pushing to find better ways to help more people achieve a sense of protection and security.

Because there are many retirement solutions available, it’s important to be open, proactively learn, decipher trends and solve problems to meet customers’ specific needs when planning for their desired security and financial freedom.

Here’s what you should consider about the evolving landscape of variable annuities.

What’s In: More flexibility

Customers do not always know what the future will bring, so they prefer solutions that can meet changing needs.

Solutions that offer various features that are tailorable to a customer’s circumstance are highly valuable, and customers want flexibility to add income riders or accelerate benefits when a medical event happens.

When these features are tied to a variable annuity, customers get tax-deferred growth potential.

Furthermore, product features and riders allow for flexibility when major life events happen, such as a client or their spouse becoming unemployed, being confined to a nursing home, or being diagnosed with a terminal illness.

These features are more desirable as they contribute to a client’s confidence knowing they have options to access their contract value when the unexpected happens.

What’s Out: Guaranteed Minimum Income Benefits (GMIB)

Most clients like to have control over their retirement accounts.

With GMIBs, clients are able to generate a lifetime income stream, by annuitizing the rider.

This limits their options if they need to surrender their contract and can affect their ability to leave a death benefit to loved ones.

Most advisors and clients are leaning toward a guaranteed lifetime withdrawal benefit (GLWB), which is different than a GMIB in that it allows clients to surrender their contract after they have started receiving income.

It will also pay a death benefit to beneficiaries upon death if there are funds left in the contract value.

What’s In: Flexibility on How and When Clients Take Income

While products like variable annuities can provide guaranteed lifetime income, sometimes, clients don’t always need to take the same amount each year.

Features that let clients reserve their withdrawal amounts for future needs are very attractive, because then those funds retain their tax-deferred growth potential.

This allows a client to take more income in later years when medical expenses may be higher, or they want to take their dream vacation.

Features like this allow flexibility when retirement needs change.

What’s Out: High/Low Riders

These can become problematic in forecasting retirement income in the long term.

While the idea of a guaranteed lifetime withdrawal benefit is appealing, when customers turn on the rider to receive payments the account value declines until the account value of the variable annuity hits zero and the subsequent payments then become lower.

When this happens, customers are usually in their 80s, well into retirement, and, unfortunately, often facing rising medical care costs.

The level of uncertainty we are mindful of is not knowing exactly when your payment will decrease makes high/low riders hard to predict.

The Future

Insurers should continue reinventing their products to address customer trends and fill gaps.

We leverage our investment expertise and financial strength to protect the retirement of financial professionals’ customers. We are dedicated to playing a role in providing solutions customers can be confident in and understand.

Jim Wagner. (Photo: Protective)Jim Wagner is the chief distribution officer, retirement division at Protective.





(Image: Shutterstock)


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