Fixed Annuity Sales Continue to Soar While Massive Inflation Risks are Ignored
Bloomberg reports that there is continued strength in fixed and immediate...
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Variable Annuity
In contrast to a fixed annuity, the key features of a variable annuity can fluctuate (they are “variable”) during the accumulation period and during the payout phase. Also in contrast to a fixed annuity, the variable annuity contract holder assumes much of the investment risk. With a variable annuity, the insurance company provides the contract holder with the ability to determine how his or her premiums are invested. One investment option is a variable account which typically consists of equity, bond or money market mutual funds. The other option is the general account of a variable annuity which provides a guaranteed return. The contract holder decides how much risk or variability they want to tolerate by allocating premium payments among the general and variable accounts. The amount of money accumulated and the amount of income during the payout phase are determined by the returns of these accounts. With a variable annuity: 1) the money can go in as a single premium payment or a series of payments; 2) the money is invested at a variable or non guaranteed rate; 3) payments are variable and can begin immediately or at some future date.
The Vast Majority of Variable Annuities Sold in 2008 Include Some Form of Guaranteed Living Benefit (GLB)
Guaranteed living benefits ( GLB ) are optional guarantees that can be embedded into variable annuity products. A recent variable annuity survey from the actuarial and consulting firm Milliman indicates that GLBs have experienced rapid growth consumer adoption over the past several years. 96% of variable annuity sales in 2007 and the first half of 2008 included some form of GLB. "Sales of VAs that offered a GLB during calendar year 2004 averaged 87% of total VA sales, increasing to 95% in 2005...
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Who insures my annuity? What happens if they fail?
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Variable Annuity Assets Decrease 13% to $1.1 Trillion While Sales Decrease 15% to $154 Billion
The financial crisis took a toll on the amount of total assets and total sales within the U.S. variable annuity industry. Both figures had significant declines relative to the same period in 2007. That said, combined net assets in variable annuities in the U.S. still exceed $1 trillion, and total sales of variable annuities in the U.S. in 2008 exceeded $150 billion. Table 2. Variable Annuity Premium Sales(1) Quarter Ended Year Ended (Dollars in Millions) 12/31/08 12/31/07 12/31/08 12/31/07...
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Vanguard Applies for Guaranteed Lifetime Withdrawal Benefit (GLWB) Rider
Vanguard is seen expanding variable annuity features with an SEC application for a guaranteed lifetime withdrawal benefit ( GLWB ). The precise cost of the rider, which can apply to one owner or joint owners, and the payout rates at various age bands were left blank in the application, although Vanguard provided an example that set the rider cost at one percent of the income base. The minimum initial payment is $5,000 and a $25 annual fee is assessed when the account value drops below $25,000...
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