As people are living longer and healthier lives, the insurance industry has had to adjust to provide products that help people manage their wealth for longer periods of time. In some cases, people are worried about outliving their incomes, while others, who are confident their savings will last through their lifetimes, are interested in finding the most advantageous investment strategies for their wealth.
For both of these reasons and more, deferred income annuities, often called longevity annuities, have grown in popularity in the past few years. These products mix the features of intermediate annuities and deferred variable annuities with guaranteed benefits, according to Kiplinger. Similar to a variable annuity, a DIA restricts when your clients can start receiving money out of the fund. Clients can elect to receive money as early as thirteen months after the policy issue date. Like an intermediate annuity, it will give them a monthly payment for the rest of their lives.
LIMRA Associate Managing Director of Retirement Research Jafor Iqbal likened DIA payments to pension income during retirement, Kiplinger reported.
DIA sales increasing as we speak
In 2012, consumers bought more than $1 billion dollars worth of DIAs, and in 2013, a LIMRA-CANNEX joint study found nine companies offered DIAs, and eight more companies were planning to introduce DIA products to the market soon. In only the first nine months of 2014, DIA sales reached the $2 billion mark, a 35 percent increase from the previous year.
While DIAs may still take up a relatively small share of the market within the insurance industry, the clear advantages of these annuities are boosting sales and will likely continue to do so into the future as people seek the best way to manage their wealth for decades after they retire.
When speaking with your clients about managing their longevity risk and the possibility of investing in a DIA, educate them on these key benefits:
- Provides ability to make multiple contributions. Unlike intermediate income annuities, DIAs allow your clients to make multiple contributions to the fund prior to its start date, according to LIMRA. This means your clients can boost the fund overtime, increasing the amount of money they’ll have available to them later in life.
- Creates a predetermined plan. Set payments that begin at an older age mitigate the risk your clients will be unable to manage their finances during this time. Chartered Financial Analyst and professor Wade D. Pfau, who has a doctorate of economics, states longevity annuities provide a type of “dementia insurance,” according to the Financial Planning Association. As people live longer, the risk of Alzheimer’s disease, dementia and other memory issues increases – all of which could make it difficult for your clients to properly manage their finances. Set payments protect your clients from having to rearrange their incomes or make difficult financial decisions when they are ill.
- Manages market risk. Neither you nor your clients can predict the future, which means there is no telling whether the market will be favorable to their investments a decade or two down the road. Having previously invested funds that are guaranteed to be available at a later date can reduce the need for high returns during retirement.
- Improves liquidity. Many DIA products offer accelerated payment options, providing security for your clients if they were to suddenly have an increase in expenses later in life.
- Offers psychological comfort. While many of your clients may not be concerned with outliving their wealth, investing in a product that ensures funds will be available in their advanced ages can provide a great deal of comfort. DIAs ensure income will be available when they need it, even if the cost of living rises or they incur unexpected medical expenses.