Trends in Income Annuities

A recent joint LIMRA/CANNEX study has found that a majority of the companies offering income annuities have added features designed to address consumer concerns and attract new sales.

Income annuities provide a guaranteed stream of income for as long as the owner or annuitant lives and can ensure that this income covers both lives of a couple. The study, Features in Income Annuities, surveyed 39 insurance companies that offer income annuities representing 84 percent of the 2012 industry sales.

Many income annuities now include features that offer retirees increased access to cash or liquidity in case of an unforeseen need. Other features include death benefits to address the event of a premature death and flexible income options to keep up with inflation. All these features are designed to make income annuities an appealing part of anyone’s portfolio.

“There is a disconnect between the need and the amount of sales,” Lowell Aronoff, CEO, CANNEX, says. “Retirement income research universally suggests that income annuities should be a core product for nearly all retirees. Yet sales of these products are still fairly modest.”

A sure bet

In the past, one objection advisors had to recommending income annuities for their clients was loss of liquidity. However, the majority of immediate annuities—including 9 of the top 10 companies—now offer access to cash outside of their scheduled payments in case of emergency or other needs. Liquidity may come in several forms: access to the guaranteed payments, access to the life contingent payments or an acceleration of several months of scheduled payments in advance.

Assurance of receiving death benefits can offer owners and their beneficiaries peace-of-mind and confidence during the purchase process. All carriers surveyed offer the simplest form of death benefit, where if the annuitant dies, payments will continue to their estate for a specified number of years, and most provide the option to guarantee that the client never loses money by continuing guaranteed payments until the sum received equals the initial amount invested. Most of the companies in the survey (31 out of 39) offer at least one death benefit that provides additional money upon the annuitant’s death as a payout option.

Currently, all of the top 10 companies offer a Cost of Living Adjustment (COLA) option that allows retirees to receive increasing income and address one of their chief concerns—inflation. Retirees can choose various COLA rates of up to six percent increases or more. Other companies offer payments that are pegged to the Consumer Price Index.

“Advisors who are engaged in retirement income planning are beginning to take a second look at income annuities,” Mark Paracer, LIMRA research project director, says. “Including an income annuity—either deferred or immediate—can help retirees ensure that at least their essential expenses in retirement are covered, allowing an advisor to invest the remaining portion of their portfolio with a goal of higher returns.”

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