Interest Spikes In Premium Return Annuities
Annuities with cash refunds are running hot.
Nearly half – 47.6 percent – of income annuity quotes from advisors in the first quarter were for annuities with a cash refund death benefit (aka return of premium), compared with 40 percent in the first quarter of last year, according to the Cannex index of annuity queries.
The cash refund payout on a single premium immediate annuity or deferred income annuity is the refund to the beneficiary of any unpaid premium so that there is no loss in the event of an early death.
If the annuitant received $30,000 worth of payments on a $100,000 income annuity and then passes away, the beneficiary gets a cash refund of $70,000.
“Increasingly, people want beneficiary guarantees in addition to income for peace of mind,” said Dylan Huang, senior vice president and head of Retail Annuities for New York Life. “Cash refund is one that resonates the most and is easiest to understand.”
NY Life is the No. 1 seller of income annuities and more than 60 percent of NY Life’s customers choose a premium refund guarantee, Huang said.
Some people choose a lump sum to beneficiaries and others choose to continue with income payments to beneficiaries until the premium is recouped, he said.
Gary Baker, president of Cannex USA, which compiled the quarterly data and tracks annuity queries, said he was surprised by first-quarter spike in queries.
“I would have expected more of a gradual increase,” Baker said.
Cash Refunds Involve a Tradeoff
Choosing a cash refund option involves a tradeoff, Huang said.
With a cash refund, the amount of guaranteed lifetime income is less than annuity options without the refund guarantee and advisors should talk to clients about income and legacy goals to identify the best option, he said.
Advisors need to think about protecting essential expenses with a guaranteed source of income like Social Security or pensions, especially with retirement lasing up to 40 years for some people, he said.
“With uncertainty over the future of Social Security and fewer pensions, annuities act as a supplement,” Huang said.
Cash Refunds Not the Only Query
Cash refunds aren’t the only types of death benefits offered with income annuities, but they are the most common type of query by far.
Income annuities also come with what’s known as a lifetime-only contract, or a death benefit for a limited period.
A lifetime contact with a 10-year guarantee is a common selection although the period can typically range from five to 20 years.
Life with a 10-year guarantee means that if the annuitant dies within the first ten years while receiving income, then the beneficiary gets the remaining income stream.
If the annuitant dies in the third year, the beneficiary receives the remaining seven years of payments.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].
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