Amazing race: designers of retirement products seek a competitive edge through product development.Key Points * Retirement products provide protection at a price. * Insurers see product design as a key to competitive advantage. * New products use restrictions to lessen market risk, but also afford flexibility. * The industry expects the demand for certainty will rise as more people retire. The race is on. Financial-services companies are positioning themselves to serve retiring baby boomers See generation X. , and insurers are churning Firing one group of employees and hiring another. As companies move into newer, high-tech ventures, they often eliminate employees with older skills while bringing on new people who have computer programming, networking and Web experience. out enhancements to their many retirement products that provide principal protection and lifetime income guarantees. Insurance company activity has become "frantic," with the equivalent of an "arms race" in the variable annuity Variable Annuity An insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a minimum payment. The remaining income payments can vary depending on the performance of the managed portfolio. marketplace, said W. Borden Ayers, a principal of consulting and research firm The Diversified Services Group Inc. A good example is the Guaranteed Minimum Withdrawal Benefit on variable annuities Variable annuities Investment contracts whose issuer pays a periodic amount linked to the investment performance of an underlying portfolio. , which currently provides lifetime withdrawals that can increase and are guaranteed to never run out, all without having to turn over assets to the insurance company. Hartford Life Insurance Co. introduced the first GMWB GMWB Guaranteed Minimum Withdrawal Benefit in 2002, and other writers quickly joined the fray fray 1 n. 1. A scuffle; a brawl. See Synonyms at brawl. 2. A heated dispute or contest. tr.v. frayed, fray·ing, frays Archaic 1. To alarm; frighten. 2. . VA writers without one today "are dead in the water," said Ayers. Other retirement offerings by insurers guarantee the growth of future annuitized income, guarantee growth of contract values, enhance death benefits, or provide insurance against the costs of long-term care long-term care (LTC), n the provision of medical, social, and personal care services on a recurring or continuing basis to persons with chronic physical or mental disorders. as an option to an annuity or life insurance contract. This story will highlight some recent product innovations. The lifetime withdrawal benefits "are clearly being perceived in the market as beneficial and fulfilling consumer needs," said Mary Fay, senior vice president and general manager of Sun Life Financial's annuities division. They led to strong VA sales growth in 2006 as consumers and brokers saw them as filling a gap in their retirement planning Retirement financial planning refers to a collection of systems, methods, and processes which, in their aggregate, support a family unit's (client's) desire to achieve a state of financial independence, such that the need to be gainfully employed is optional. by providing flexibility and floor protections, Fay said. "There is a lot of opportunity lot these features to be extended to other markets, like qualified plans and rollovers," she said. "The industry has talked a lot about a transfer from the accumulation phase to decumulation--the income phase--and now we're starting to see that occur." The arms race is about which company will develop "the next greatest benefit option," Ayers said. As a result, the VA industry is becoming increasingly complex, and the biggest challenge for advisers and consumers is wading through the offerings, he said. Hartford Life Insurance Co.: Solving the Long-Term-Care Risk Long-term-care costs are known to be a threat to retirement savings, but LTC LTC abbr. lieutenant colonel insurance sales remain poor. With that thought in mind, Hartford Life Insurance Co. in May introduced the LifeAccess Accelerated Death Benefit Rider as an option on select variable universal life insurance The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. products. To gain early access to the death benefit (technically, as a loan), an insured must be diagnosed annually by a physician as chronically ill due to the inability to perform at least two activities of daily living or be cognitively impaired, said Maureen Mohyde, Hartford's director of gerontology gerontology: see geriatrics. . Like LTC riders on other permanent-life products, this one provides LTC coverage with the certainty for insureds that they or their heirs will get back the money one way or another, whether for long-term care or due to death. It is different, however, in that it is not a reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. product. Instead, the benefit can be used for any purpose. An insured widow receiving long-term care at home, for example, could use the tax-free benefit to pay for mowing mow 1 n. 1. The place in a barn where hay, grain, or other feed is stored. 2. A stack of hay or other feed stored in a barn. her lawn, cleaning her gutters, walking her dog and cooking her meals. "You can't get a health-care policy that covers those needs," said Mohyde. "In fact, you can't get LTC insurance that covers these things "These Things" is an EP by She Wants Revenge, released in 2005 by Perfect Kiss, a subsidiary of Geffen Records. Music Video The music video stars Shirley Manson, lead singer of the band Garbage. Track Listing 1. "These Things [Radio Edit]" - 3:17 2. . We're giving people better options." The rider's cost is less than 10% more than that of the VUL VUL Variable Universal Life VUL Vulnerability (unit) VUL Vulgar for males, and more for females. It is about one-fourth the cost of a stand-alone LTC policy. Mohyde said owners of LTC policies might use the LifeAccess rider as a supplement, especially because actual medical-cost inflation may outrun out·run tr.v. out·ran , out·run, out·run·ning, out·runs 1. a. To run faster than. b. To escape from: outrun one's creditors. 2. inflation riders on LTC contracts. Conversely con·verse 1 intr.v. con·versed, con·vers·ing, con·vers·es 1. To engage in a spoken exchange of thoughts, ideas, or feelings; talk. See Synonyms at speak. 2. , a person who doesn't need permanent life insurance could buy a stand-alone LTC policy more cheaply, Mohyde pointed out. Hartford underwrites the rider separately from the life insurance, she said. Hartford plans to make the rider available on other kinds of life policies, she added. Sun Life Financial: 'Income Storage Benefit' Hits Market As might be expected, GMWB features vary by company. Sun Life Financial's launch in March of the industry's first "Income Storage Benefit" recognizes that policyholders expect their income needs to vary throughout retirement, said Mary Fay, senior vice president and general manager of Sun Life Financial's annuities division. While other GMWBs work on a use-it-or-lose-it basis (take the withdrawal or decline it), the storage benefit allows owners to park at any time the payment in the contract's Income Benefit Base. (The benefit base is a shadow account separate from the contract value that insurers use to determine the amount of the guaranteed withdrawal.) Her example: A buyer at age 55 invests $1 million in a variable annuity and immediately begins an annual 5% GMWB, but chooses to store the annual $50,000 inside the benefit base. When the owner retires at age 65, he has $500,000 stored. At that point, he can take the lump sum Lump sum A large one-time payment of money. and begin collecting the $50,000 annual withdrawal in cash, or he can take the stored amount in increments at any time. Alternatively, he could reset the annual guaranteed withdrawal to $75,000 (5% of $1.5 million). Over the 10 years, the Years, The the seven decades of Eleanor Pargiter’s life. [Br. Lit.: Benét, 1109] See : Time contract value may have grown or shrunk shrunk v. A past tense and a past participle of shrink. shrunk Verb a past tense and past participle of shrink shrunk, shrunken shrink depending on the performance of underlying investments and contract costs. If it had shrunk, Sun Life would restore the account value one time to the original principal amount. If it had grown, the benefit base would have increased automatically each year. The storage benefit costs 0.65% of the benefit base annually (0.85% for spousal spou·sal adj. 1. Of or relating to marriage; nuptial. 2. Of or relating to a spouse. n. Marriage; nuptials. Often used in the plural. continuation). Fay said Sun Life's VA sales rose to $523 million in the first quarter of 2007 from $377 million in the first quarter of 2006. On June 20, the company reported its U.S. VA sales in April and May were $529 million. Allianz Life Insurance Company of North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. : Variable Annuity Restrictions and Rewards Allianz Life Insurance Company of North America's Vision Variable Annuity, introduced in June, also makes use of living-benefit features to generate, protect and increase retirement income. Its optional Lifetime Plus Benefit (cost: 0.70%, single life; 0.85%, joint life) automatically locks in contract gains to the benefit base quarterly if the owner does not take withdrawals. It also guarantees that purchase payments will increase the benefit base by 5% compounded annually for the first 10 contract years and that the benefit base will be at least twice the purchase payments at the 10-year anniversary. During the decumulation phase, income payments may increase but not decrease unless excess withdrawals are taken. (The withdrawal rates range from 4% to 7%, depending on the owner's age.) A significant feature is that on each benefit anniversary, Allianz Life compares the current contract value to that of the previous anniversary and increases the Lifetime Plus payment by the same percentage amount, said Robert DeChellis, president of Allianz Life Financial Services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. . Other products do not pay increases unless the contract value is at least the original level, he said. While many products force those electing withdrawal benefits into an asset allocation Asset Allocation The process of dividing a portfolio among major asset categories such as bonds, stocks or cash. The purpose of asset allocation is to reduce risk by diversifying the portfolio. model, the Vision product gives advisers freedom to choose from among 60 investment options, provided their choices fall within the guidelines of three "fund lists," DeChellis said. DeChellis said the Vision product is constructed to help advisers move away from transactions to emotionally connect with clients. "We want them to talk about solutions, not products," he said. Allianz used a survey of 2,000 people, mostly boomers and elders, to help design the Vision VA. MassMutual Financial Group: Annuitization Over GMWBs Despite the success of GMWBs, MassMutual Financial Group has made a big commitment to annuitization. Last year, it introduced the Retirement Management Account, a rollover IRA Rollover IRA A traditional individual retirement account holding money from a qualified plan or 403(b) plan. These assets, as long as they are not mixed with other contributions, can later be rolled over to another qualified plan or 403(b) plan. Also known as a conduit IRA. that allows incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. purchases into a fixed immediate annuity immediate annuity An annuity that is purchased with a lump sum and that begins making payments one period after the purchase. Immediate annuities are most commonly purchased by people who have accumulated a sum of money and are ready for retirement. along with mutual fund investments. This year, it rounded out its retirement-income portfolio with two single-premium products, the RetireEase fixed immediate annuity and the RetireEase Select variable immediate annuity. RetireEase offers optional inflation protection. RetireEase Select offers 40 investment choices, an inflation rider for the fixed account, an income floor on variable payments, and levelized monthly income over 12-month periods. "We have deferred annuity Deferred Annuity A type of annuity contract that delays payments of income, installments or a lump sum until the investor elects to receive them. This type of annuity has two main phases, the savings phase in which you invest money into the account, and the income phase in which products," said Dick Byrne, head of product development in MassMutual's Retirement Income Group. "We have living benefits. We're very happy selling those as well. But when you look at the demographics The attributes of people in a particular geographic area. Used for marketing purposes, population, ethnic origins, religion, spoken language, income and age range are examples of demographic data. of the marketplace, where we all know this will go, and at what the market will need over time--both the consumers and reps trying to sell--we think that income annuities are just off the page in terms of positives. "When you buy a true lifetime annuitization, the longer you live, you are essentially benefiting from those who pass away before they are supposed to," Byrne added. "The folks who live beyond that have the pure insurance element of longevity insurance." Even with this year's new produces, MassMutual won't ever be satisfied with its retirement lineup, Byrne said. "Every day we get feedback from the market," he said. "We plan to let these contracts evolve over time and get better as we learn more about the baby-boomer market and what they like and don't like." Several features make RetireEase Select stand out from other immediate variable annuities, Byrne said. One is a competitive cost for a floor benefit: For 50 basis points of contract value, MassMutual guarantees the periodic payments will never fall below 90% of the initial payment, he said. Owners may cancel that rider any time after the fifth year. "Not many people have owned or sold variable income annuities, so we want to give them a safety net," he said. "After three or four years, people will fred the market is tip at least 20% or 25% ... and the 90% floor is no longer necessary." He said he expects the floor feature will be "hugely popular." MassMutual also allows policyholders to freely move between fixed and variable investment options, Byrne noted. Byrne also expects the free levelized monthly variable income for 12 months at a time will make people feel more comfortable. People with variable rate mortgages will be familiar with the concept, which helps them set tip budgets. Symetra Life Insurance Co.: Simpler, Cheaper Equal Better Not all companies tout Tout To promote a security in order to attract buyers. tout To foster interest in a particular company or security. For example, a broker might tout a security to a client in the hope that the client will purchase the security. the virtues of living-benefit guarantees. In May, Symetra Life Insurance Co. introduced the Focus Variable Annuity, a simpler and less-expensive product. The product's average total cost including all 14 investment options is 1.59% (of which 0.95% is for mortality and expense) versus the 2.51% that trade association VARDS has compiled for the industry. It is the newest of low-cost VAs that include offerings from Jefferson National, Fidelity Investments Fidelity Investments is a group of privately held companies in the financial services industry. It is made up by two independent but closely cooperating companies, Fidelity Management and Research Corporation (FMR Co. and Peoples Benefit Life (through Vanguard). Focus offers investment options from Vanguard and Fidelity and exchange-traded funds Exchange-traded funds (or ETFs) are Open Ended investment companies that can be traded at any time throughout the course of the day. Typically, ETFs try to replicate a stock market index such as the S&P 500 (e.g. from Ibbotson through Financial Investors Variable Insurance Trust. "You can achieve a lot of the core objectives of retirement planning by going with a straightforward product" and then pairing it with an immediate annuity, said Symetra spokesman Colin Johnson Colin Johnson is the current Anglican Bishop of Toronto. He is an alumnus of Trinity College in the University of Toronto. The Right Reverend Colin Robert Johnson is the 11th Diocesan Bishop of Toronto [1]. . "If you take a close look, it may be that you can get investors closer to their objectives if you take a streamlined approach rather than add to the cost." Johnson said a recent article by syndicated columnist Inc.com defines a syndicated columnist as, "[A] person hired by publications or broadcast organizations to produce written or spoken commentary about specific feature subjects. Jane Bryant Quinn Jane Bryant Quinn (born February 5, 1939) is an American journalist. She was born in Niagara Falls, New York, and she graduated magna cum laude from Middlebury College in Vermont. She is a contributing editor for Newsweek and has a weekly article in Newsweek. "is indicative of why the Focus product will have great traction." In a May column, she argued that GMWBs are like "getting your own money back" and that their expense brings total VA annual expenses to 3% to 4%. Because of this expense drag, she wrote, an owner's income won't rise unless the underlying investments return at least 8% or 10% a year consistently. She concluded such numbers were "almost impossible" to achieve with a mixed portfolio of stocks and bonds. "Most likely, you're buying a fixed income at a high price," she wrote. "Future inflation will eat you up." She suggested a portion of savings be put into a simple lifetime immediate annuity and the rest invested in low-cost mutual funds. Long-Term-Care Insurance Cost Comparisons Life Insurance Coverage with LifeAccess Rider * Hartford Stag Protector protector /pro·tec·tor/ (-tek´ter) a substance in a catalyst that prolongs the rate of activity in the latter. Variable Universal Policy * $240,000 death benefit * Standard, non-nicotine rate Long-Term-Care Policy * Genworth Privileged Choice LTC Policy * $4,800/mo. for 48 months ($230,400 in total) * Standard rate Example 1: Male, Age 45 Annual Premium for Base Policy: $2,215 Annual Premium for Rider: $218 Total Annual Premium: $2,433 LTC Policy: $1,104 Example 2: Female, Age 45 Annual Premium for Base Policy: $1,710 Annual Premium for Rider: $232 Total Annual Premium: $1,942 LTC Policy: $1,104 Example 3: Male, Age 65 Annual Premium for Base Policy: $6,705 Annual Premium for Rider: $592 Total Annual Premium: $7,297 LTC Policy: $2,496 Example 4: Female, Age 65 Annual Premium for Base Policy: $5,207 Annual Premium for Rider: $789 Total Annual Premium: $5,996 LTC Policy: $2,496 Source: The Hartford Financial Services Group Learn More Allianz Life Insurance Company of North America A.M. Best Company # 06830 Distribution: Independent agents Sun Life Assurance Company of Canada (U.S.) A.M. Best Company # 08226 Distribution: Career agents, general agents, third-party intermediaries Symetra Life Insurance Co. A.M. Best Company # 07017 Distribution: Independent broker/dealers, marketing organizations, agencies, financial institutions and Symetra Investment Services Massachusetts Mutual Life Insurance Co. A.M. Best Company # 06695 Distribution: Career agents, banks, broker/ dealers and wirehouses Hartford Life Insurance Co. A.M. Best Company # 06518 Distribution: Independent agents, brokers, banks, wirehouses For ratings and other financial strength information about these companies, visit www.ambest.com. Why Consumers Like Guaranteed Lifetime Withdrawal Benefits Importance of features in choosing a retirement income product or solution. Importance is indicated by allocating a total of 100 points across the list of features. Control over your money 15.9 Safety/security 14.5 Guaranteed income 12.6 payments for life Flexibility to change 9.8 investments Guarantee of principal 9.7 High growth potential 9.6 Tax advantages 7.5 Guaranteed minimum 7.3 returns Easy to understand 7 Way to view all financial 6 assets in one place Source: The Diversified Services Group Inc., 2006 Consumer Attitudes and Perceptions Study |
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