Who Is the Typical Buyer
of Immediate Annuities?
A LIMRA study provides some clues. Women buy six of every ten immediate annuity contracts, according to LIMRA’s Guaranteed Income Annuities report.
LIMRA examined more than 55,000 immediate annuity contracts issued in 2008 and 2009, as well as the people who purchased them, to help marketers better understand and capture more of the unrealized annuity market, which LIMRA estimates to be $250 billion. Other findings included:
• The average age at purchase for an immediate annuity is 73. Immediate annuities purchased with pre-tax money were more likely to be clustered around ages that correspond either to the onset of Social Security benefits or IRS required minimum distributions.
• The average immediate annuity premium was just over $107,000.
• Seven out of ten immediate annuity buyers purchased lifetime guaranteed income contracts.
• Nine out of ten lifetime income annuity buyers chose payments that were guaranteed for a certain period of time or provided a refund guarantee that enabled beneficiaries to recoup some or all of any remaining premium.
Based on LIMRA’s quarterly annuity sales survey, the majority of immediate annuity sales are made through insurance agents, but a growing portion is sold through banks, national full service broker/dealers, or independent broker/dealers who are dealing with retirees needing to create an income stream.
“One of the biggest obstacles for potential clients to buy an immediate annuity used to be fear of losing control of their money,” said Matt Drinkwater, associate managing director, LIMRA Retirement Research. “Today, our research shows it’s not an all-or-nothing decision. Two-thirds of the contracts allow annuitants to convert a portion of remaining payments to cash, if necessary.”
Many immediate annuity contracts offer the option to increase payouts by a fixed amount or adjusted by inflation. However, LIMRA found that 93 percent of income annuity contracts have no automatic payment increase. LIMRA researchers believe the demand for inflation-protected guaranteed payouts will grow in the coming years with more retirees challenged to address this issue as they live longer.
LIMRA projects that annual fixed immediate annuity sales will increase to more than $12 billion by 2014.
The Appeal of Guaranteed
Living Benefits Riders Grows
According to LIMRA, the election rate of variable annuities (VA) guaranteed living benefit (GLB) riders rose to 89 percent in the third quarter, which represents 94 percent of the variable annuity GLB industry.
Third quarter sales generated $21 billion of new deferred VA premium, resulting in year-to-date sales for GLB of $58.5 billion, three percent higher than during the first three quarters of 2009.
“It was the second straight quarterly increase in sales of VAs with GLB riders, following a stretch of seven quarters of either declining or flat sales,” noted Dan Beatrice, senior analyst, LIMRA Retirement Research. “It now appears likely that VA sales with GLB riders will post an annual increase for 2010. On an annual basis, these sales had dropped each year since 2007.”
The guaranteed lifetime withdrawal benefit (GLWB) election rate increased to 65 percent. Guaranteed minimum income benefit (GMIB) riders were elected 18 percent of the time; guaranteed minimum accumulation benefit (GMAB) election rate increased to four percent in the third quarter of 2010.
The rate at which any GLB was elected increased four percentage points in the career distribution to reach 79 percent, while in the bank, independent and wirehouse channels, the rate was 91 percent in the third quarter.
VA assets with GLB increased 11 percent from $427 billion to $472 billion at the end of the third quarter. Most of the GLB asset growth occurred for GLWB and GMIB assets, which combined account for 83 percent of VA GLB assets. Total VA assets increased eight percent from $1.358 trillion mid-year to $1.460 trillion at the end of the third quarter.
