Queries Spike For Annuities With Life-Only Guarantees

Queries for life-only guarantees on income annuities rose to 26 percent of all queries last year from 22.4 percent in 2016. This comes as advisors value a higher payout over a death benefit, an annuity data tracking service has found.

In 2015, only 20.5 percent of advisor queries were for life-only guarantees on income annuities, annuity data supplied by CANNEX USA has found.

“When we looked at the data internally that kind of raised some eyebrows,” said Gary Baker, president of CANNEX USA.

The three-year trend quotation data was for single premium immediate annuities (SPIAs) and deferred income annuities (DIAs).

SPIAs have an income start date with 13 months less while DIAs have an income start date equal to or longer than 13 months.

Cash Refund Most Common Query

While income annuity life-only guarantees experienced the highest growth, the most common query over each of the last three years was for a SPIA or DIA with a cash refund guarantee, according to the data.

A cash refund guarantee means that the beneficiary gets the remaining deposit or premium minus payments received to date.

If the annuitant received $30,000 worth of payments on a $100,000 income annuity and then passes away, the beneficiary gets $70,000.

Meanwhile, queries for the life with five-year guarantee, the life with 10-year guarantee, the life with 15-year guarantee and the life with 20-year guarantee, fell over each of the past three years, according to the CANNEX USA database.

Life with a 10-year guarantee means that if the annuitant dies within the first 10 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.

Indications of a Planning Approach

More queries about life-only guarantees may be an indication that financial planners use income annuities to solve for income as part of a broader portfolio of products as opposed to leaving a legacy, Baker said.

“It’s an indicator that financial planners who sell these products continue to take more of a planning approach versus a product sales approach,” he said.

The Department of Labor’s fiduciary rule, which was intended to prod advisors to use a planning approach to apply a best interest standard toward clients, may have something to do with more advisors looking for life-only clauses on SPIAs and DIAs, he said.

Choosing a life-only guarantee on an income annuity means that if the annuity contract holder dies, then whatever is left stays with the insurance company and isn’t distributed as a benefit to a beneficiary.

Since there is no benefit at death, the periodic payments made by the annuity while the contract owner is alive are higher than an identical income annuity with a death benefit.

If advisors are using SPIAs and DIAs to solve for income, then they are mostly likely turning to other types of investments and life insurance to leave a legacy to beneficiaries, Baker said.

Of all advisor queries submitted last year, 39.4 percent were for a cash refund, 26 percent for a life-only guarantee, 15.2 percent for a life with 10-year guarantee, 5 percent for a life with five-year guarantee, 4.8 percent for a life with 20-year guarantee, 3.6 percent for an “other” guarantee type, 3.1 percent for an installment refund and 2.9 percent for a life with 15-year guarantee, CANNEX USA said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.
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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 cyril.tuohy@innfeedback.com.