We would love to hear from you. Click on the ‘Contact Us’ link to the right and choose your favorite way to reach-out!

wscdsdc

media/speaking contact

Jamie Johnson

business contact

Victoria Peterson

Contact Us

855.ask.wink

Close [x]
pattern

Industry News

Categories

  • Industry Articles (16,283)
  • Industry Conferences (3)
  • Industry Job Openings (9)
  • Negative Media (138)
  • Positive Media (73)
  • Sheryl's Articles (605)
  • Sheryl's Blogs (171)
  • Wink's Articles (235)
  • Wink's Blogs (216)
  • Wink's Press Releases (94)
  • Blog Archives

  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • November 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • August 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • November 2008
  • May 2008
  • February 2008
  • August 2006
  • Why Index Annuities Are Adding Living Benefits

    January 9, 2010 by Sheryl J. Moore

    Published 10/15/2006 

    Like other annuities, index annuities attempt to differentiate themselves from one another in various ways.

    For instance, from offering 3 basic interest crediting methods in the mid-1990s, the products expanded to offering over 40 variations by 1999. Index annuity carriers have also played with offering different indices, trailing commissions, and even a rider to help pay taxes on accumulated interest upon death.

    But none of these changes truly excited the marketplace.

    Now the index annuity industry is adding a new innovation — living benefit riders or options, in particular the guaranteed living withdrawal benefit. This article examines the new GLWB design and its marketplace potential.

    To develop these features, index annuity carriers borrowed from variable annuities, where living benefit riders guarantee a better death benefit, greater certainty of income, or provide a few other benefits.

    In VA products, such riders are designed to lower the risk of owning an investment. In index annuities, where the product already offers strong downside protection, the GLWB adds strong income protection. Here is how this came about:

    In June 2006, the first guaranteed lifetime withdrawal benefits were introduced in indexed annuities.

    For those familiar with GLWBs in VAs, these were a second generation version of the guaranteed minimum withdrawal benefit (GMWB). Where original GMWBs on VAs would typically offer clients [7%] annual withdrawals until a return of their principal, the new GLWBs enhanced that by giving the client the option for return of principal through [7%] annual withdrawals, as well as an option for [5%] annual withdrawals for life, even if the account value falls to zero.

    This was a brand-new value proposition for VAs, and it wasn’t long before just about every carrier in the GMWB market was offering this new type of benefit.

    Index annuity carriers waited by the sidelines for nearly 2 years after the first VA-GLWB debuted before launching their own such benefit. 2 carriers in particular dove in at the same time. Both introduced GLWB riders in exchange for a 0.40% charge (deducted annually from the account value). Both allowed the client to terminate the benefit at the client’s request. And both determined withdrawal percentages according to annuitant age (e.g., those aged 70-74 receive 6% annual withdrawals).

    Carrier #1 chose to take a more simplistic approach in design, with clients being given the option for 5%, 6%, or 7% withdrawals for life, based on age.

    Carrier #2 added more bells and whistles to its rider, offering clients withdrawal percentages ranging from 4%-8%. In addition, carrier #2’s clients will receive guaranteed 4% increases on their benefit base over a 10-year accumulation period, or until income starts (assuming 100% of the premium is allocated to index strategies and no withdrawals are taken). Clients can reset the 10-year accumulation period (every 5 years); can take a spousal continuation option; and get automatic step-ups if the account value exceeds the highest benefit base, once income commences.

    The 3rd carrier to enter the GLWB niche in the index annuity market just rolled out the feature in September 2006. This carrier took an entirely different approach by embedding the benefit in the product rather than offering it as a rider. Carrier #3 is emphasizing simplicity, so it “charges” clients for the GLWB by permanently lowering the participation rate on the product once income election begins. The withdrawal percentages range from 5%-7.5%; spousal continuation is a standard feature.

    What is different about this newest GLWB for index annuities is that clients can stop and re-start their income at any time after election, and the income amount is cumulative as long as the benefit base is not exceeded.

    So, what exactly is the market for these new products, the IA-GLWBs? VA sales are up more than 20%, but most agree this is not because of the bull market. Rather, it is because of living benefits. Our firm estimates that over 40% of VA products sold today have the GMWB elected, nearly all of them of the GLWB type, offering the guaranteed lifetime income on a withdrawal basis. The VA carriers are positioning these products as alternatives to annuitization.

    That being the case, why shouldn’t index annuity carriers be developing them? For that matter, why not fixed annuity carriers?

    The primary benefit of the GLWB for index annuity clients is providing guaranteed lifetime income they cannot outlive. The industry has been trying to communicate this message to baby boomers for years. How to get it there? Maybe the GLWB is the answer. Consider this scenario:

    “What’s that?” the advisor asks the Valued Client. “You say you’d like your annual withdrawal of 8%? Absolutely. But you say your account value has fallen to zero? No problem.”

    The GLWB is comparable to the benefits offered through annuitization. However, annuitization isn’t a popular alternative today. Recent statistics indicate that as few as 2% of clients annuitize their contracts. So too with single premium immediate annuities. Advisors repeatedly say, “I don’t want to sell my client the SPIA and have them lose control of the contract.”

    So, the GLWB may be what everyone has been looking for. It’s a pretty safe prediction that agents will sell the GLWB concept once they understand it because their clients won’t lose control and the agent will get paid more than 4% compensation, too. (According to Advantage Group Associates Inc., the average street level compensation for all indexed annuity products as of 2nd quarter 2006 was 7.05%.)

    In sum, with the new GLWBs, agents can continue to sell their favorite index annuities, offer guaranteed lifetime income their clients cannot outlive, and receive the compensation they know and love.

    Originally Posted at National Underwriter on October 15, 2006 by Sheryl J. Moore.

    Categories: Sheryl's Articles
    currency