The current market leaders could run into some challengers.
By Cyril Tuohy
Nationwide, looking to capitalize on the recent demand for indexed annuity products, announced it has launched an indexed annuity branded as New Heights.
Buyers of the new annuity have the choice of adding a lifetime income benefit rider or a bigger death benefit. The riders come at extra cost, the company said.
“New Heights offers uncapped earning potential, a rarity in the indexed annuity world,” said Eric Henderson, senior vice president of life insurance and annuities for Nationwide. The structure of the annuity “supports increased capacity for risk,” he said.
Sales of indexed annuities rose to $10 billion in the third quarter, an increase of 15.1 percent compared to the year-ago period, according to Beacon Research. Year-to-date indexed annuities sales ending in the third quarter were $26.9 billion, up 4.7 percent compared to the same period in 2012, Beacon said.
Total indexed annuity sales in 2012 reached $33.9 billion, up 5 percent from 2011, according to LIMRA.
Indexed annuities are often marketed as products that are designed not to lose principal, while offering gains tied to a market benchmark. If the Standard & Poor’s 500 index rises, the annuity delivers gains – but those gains are usually capped. If the index falls, there are no losses.
With the S&P 500 delivering gains of 30 percent last year, indexed annuities are more attractive to many investors than fixed annuities, which deliver low returns when interest rates are low, as they are now.
Strong market gains means indexed annuities are also delivering higher returns than bonds and certificates of deposit, the traditional safe havens for retirement investors looking to secure retirement income as they live longer.
Market analysts note that indexed annuities are often complicated. Another downside is that if the S&P 500 returns 15 percent, but the annuity’s return is typically capped, or fixed, at 7 percent, investors lose out.
Nationwide’s New Heights annuity family will be marketed and distributed by Annexus, a designer and wholesaler of indexed annuity products, through independent marketing organizations (IMO), according to a company news release.
“The real benefit that Nationwide receives is immediate access to wealth of information with regard to these types of products,” said Don Dady, co-founder of Annexus. “Annexus provides them with access to independent distribution channel that they don’t have.”
Beginning next month, the indexed annuity will be available through Nationwide’s exclusive sales agents, independent distributors and bank and wirehouse channels, Nationwide said.
Indexed annuities represent a middle ground between fixed annuities, which offer a fixed rate of interest, and variable annuities which are considered investment products where the potential for gain and for loss is greater.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at firstname.lastname@example.org.
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