You’ve probably seen this attention-grabbing advertising message on television or on a billboard: “The First Person To Live To 150 Is Alive Today.” Not surprisingly, the ad comes from an insurance company–Prudential–and the pitch is for annuities.
You may find the message optimistic, unsettling, or just plain disturbing–but it does highlight the insurance industry’s core value proposition for annuities: Even the best retirement plan can’t precisely account for how long you’ll live–so use insurance to hedge your risk.
It’s been slow going. Annuity sales have mostly bumped along as a small fraction of the overall retirement market, the result of complex product offerings, high fees in the variable annuity segment, and buyer resistance to locking up their money with an uncertain future total return.
But that may be changing. One annuity category, in particular, is starting to show impressive growth: the deferred income annuity (DIA). These income annuities typically let buyers set a future date to start receiving income. Buyers pay an initial premium and then continue making additional premium contributions along the way.
Industrywide sales doubled in 2013 to roughly $2 billion, according to LIMRA, the insurance industry research and consulting group. And the number of insurance companies offering DIAs is growing fast. Just five companies offered them in 2012; another five came into the market in 2013, and several more are expected to launch products early this year, LIMRA reports.
The media has tended to focus on one variation of the deferred income annuity–the so-called longevity policy. These policies are designed for purchase at retirement or later, and payouts don’t begin until–and unless–you reach an advanced age, say 85 or 90. The idea is to hedge the risk of exhausting funds in very old age. But longevity policies make up no more than 20% of the market currently, industry experts say.
“Going back a few years, these policies were known as longevity insurance,” says Phil Michalowski, vice president of retirement income at MassMutual. “Just in the last year or two, they’ve started to be seen as an integral part of retirement income.”
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