Why there's no one annuity to rule them all

by Leo Almazora17 Oct 2018

A company that supports the exchange of pricing information for annuity and bank products across North America has come out with new research on the maximum income benefit that different types of annuities can offer.

According to the study from Cannex, the highest guaranteed-income product depends on the client and when they start drawing income. Researchers looked at fixed-index annuities (FIAs), deferred-income annuities (DIAs), single-premium immediate annuities (SPIAs), and variable annuities with equivalent benefits to determine which generated the highest guaranteed income, reported InsuranceNewsNet.com.

“We were surprised that all three products – SPIAs, FIAs and VAs - had places where they excelled,” Tamiko Toland, head of annuity research at CANNEX, told the publication.

SPIAs were generally found to provide the highest income guarantee for those who plan to draw immediate income. However, the study determined that a variable annuity with guaranteed income may generate the highest annual payments for a couple who are of different ages.

For individuals who plan to start drawing down money in five or 10 years, an FIA provides a greater guaranteed stream of income than a DIA or variable annuity.

Gender also played a significant role. Based on longevity expectations, DIA benefit payments were generally lower for women than men; women who choose an FIA over a DIA can delay taking income, which would result in a greater benefit for them.

But a delay in taking income from DIAs doesn’t always result in a large amount of income, Toland noted. “At age 70 for men, you see a DIA actually does really well after a five-year or a 10-year delay, but those are not common delays,” she said, noting that people who take income at age 70 usually take it right away. “So that may be one reason for that.”

The bottom line: advisors whose clients have an income objective must look across product types to evaluate which is going to be best for the client. Even if they’re looking at the income guarantee alone, any one of the different annuity types might be best depending on different circumstances.

“Income generation is not the only [factor in selecting an annuity], but it is central to their value proposition and advisors need to rely on real analytics, not traditional perceptions or best guesses of how guarantees work to best serve their clients,” Toland said.

 

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