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3 must-know annuity innovations: fixed, variable, immediate--you already know everything about annuities right? Maybe not. Several new riders and options have hit the market, and they could help serve your clients' long-term care and retirement needs. Here, we break down three of the most important trends in annuities right now.

Insurance brokers offering annuity policies to their clients know the importance of keeping up with current trends in the marketplace. If you are not making your clients aware of product advancements, you can count on the fact that other brokers or online marketers will do so in your absence.

The Internet provides an abundance of information to prospective annuity buyers. You can safely assume that once you have given a presentation detailing the advantages and stability of annuity products, your potential client will be working to fact-check your recommendations by reading articles online or contacting competing agents.

In their research, savvy consumers will discover annuity trends that may be of interest to them and their families. And if you are not aware of the new riders and options associated with annuity policies, then you may miss out on some business opportunities.

If you are aware of these trends, then you know the importance of fact-finding with your clients to better understand their concerns and needs. In the past, annuities may have been sold on returns and probate avoidance alone, but they now offer several more bells and whistles that will be of interest to your clients.

As the Baby Boomer generation comes of age, many in this demographic are hoping to enjoy a comfortable retirement. However, they are concerned about the possibility of outliving their savings and investments as well as the potential for significant long-term care expenses as they grow older.

Fixed and indexed annuities have always been valued for their safety and reliability. With the addition of new income and long-term care riders, these products can now provide predictable future income and/or leveraged dollars for long-term care expenses--sometimes both.

Trend One: Hybrid annuities that stand in for LTCI

It should come as no surprise to experienced life and health agents that the majority of consumers have not accounted for the possibility or expense of a prolonged long-term care stay. Prospective clients will have myriad excuses as to why this is, but most simply cannot--or choose not to--pay for traditional long-term care (LTC) insurance.

Enter the hybrid LTC annuity combo. The present trend is for most hybrid LTC products to be tethered to a fixed annuity chassis. Consumers who do not wish to pay outright for traditional long-term care insurance now have hybrid insurance options, which can be more attractive when compared to traditional coverage.

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The annuity policy value will increase by a fixed interest amount as guaranteed by the contract each year. Rates will fluctuate from year to year with most policies, but they will not return less than the minimum guaranteed interest rate. The LTC rider will have a cost to the policy each year--either realized or built-in, depending on the carrier. Thus, interest credited will be offset each year by the cost of the rider--or the rate of return will be less than a comparable fixed annuity policy without the rider.

Some policies allow both spouses to purchase coverage together as joint annuitants, as opposed to each spouse needing to fund his or her own policy. They can combine their assets and purchase a single plan that would provide care simultaneously or separately, depending on the circumstances.

A joint-annuitant strategy can help eliminate concerns about only one spouse needing long-term care and who would most benefit from purchasing a policy. Should both spouses require benefits at the same time however, it is important to understand the maximum benefit amount that would be available at one time.

Hybrid annuity policies are also popular as they require less medical underwriting than most traditional long-term care insurance coverage. If your client has been turned down for traditional coverage in the past or is worried about significant rate increases during under writing, then a hybrid plan can be a suitable alternative. And once a policy is in force, your clients will not need to worry about future rate increases, as they would with traditional LTC coverage.

Many seniors already own fixed annuities or have substantial deposits in bank CDs or money market accounts. LTC annuities are usually funded by a lump-sum deposit from an existing account and can provide much more value to consumers than a traditional fixed annuity or bank CD. In some cases, agents might recommend a 1035 tax-free exchange from a mature annuity crediting a below-average minimum guarantee or one that has otherwise been left idle by the owners.

Instead of touting the merits of a fixed annuity that offers higher returns than the local bank or an annuity that may not be subject to the probate process, what about stating the virtues of one that can leverage invested dollars two or three times over if long-term care is needed in the future?

Selling LTC annuities lets you present clients with a solution to a valid concern, as opposed to what your clients might see as an aggressive attempt to reposition their funds. Consumers will also like the idea that the accumulated value is available for withdrawal (subject to any applicable surrender penalties) and that the unused funds can be passed on to family members in a lump sum.

Senior consumers prefer to maintain control of their money while watching their deposits earn interest each year. Hybrid LTC annuities allow for this, while also accounting for potential long-term care expenses--all without the need to write a check for LTC coverage each year. This can be a much more appealing solution that will better meet your clients' present and future needs.

Trend Two: Lifetime annuity income riders for shaken investors

Annuity policies are not just for seniors anymore. Few private companies provide pensions any longer. Public pensions are in danger due to state cutbacks. Social Security is unstable at best, and stock market instruments can be risky and unreliable. Younger investors who have watched their portfolios whipsaw back and forth over the last decade are interested in practical alternatives to direct stock and bond market exposure.

Middle-aged consumers who desire safety for a portion of their assets are inquiring more about the inner workings of fixed indexed annuity accounts. Indexed annuities can usually stand on their own when compared to other more risky retirement vehicles, but when coupled with a guaranteed income rider, they provide much more than safety alone.

Lifetime annuity income riders come in several shapes and sizes. Numerous insurance companies offer guaranteed income riders, and most come at a cost to the walk-away value of the contract, but not all. Fixed, indexed and variable annuities can all be purchased with an optional lifetime income guarantee, so it is important to find one that fits best with the overall risk tolerance of your client.

Annuity policies offering income riders will have two accounts at work: one that allows your client to walk away at maturity (or subject to applicable surrender penalties) and one that will provide a lifetime income stream through a guaranteed leverage rollup.

The guaranteed interest rollup and the future withdrawal divisor are known quantities and will allow you to accurately illustrate future income for your client, based on the amount deposited and the year in which the future income stream will potentially be activated.

It is wise to shop around for income riders for your client. While one might promise an attractive guaranteed interest rate or bonus to the income account value, the future withdrawal factor may be smaller than that of a competing insurance company. And, of course, the cost itself for the rider (usually 5 to 8 basis points) will help you determine what will work best, now and in the future.

When you present the top three riders to your clients, they can rest assured you are presenting them their best options. It may go without saying, but it is also important that the income benefits are not oversold. Clients need to understand that they cannot walk away with the income account value in a lump sum to be invested elsewhere.

A few insurance companies will allow for the total income value to be withdrawn by a beneficiary at passing but not usually in a lump sum. Most often, the accumulated income value must be taken over a minimum of five years by the survivor(s) if it has not already been activated by the owner or annuitant.

A fixed or indexed annuity offering a lifetime income rider can provide a reliable solution for those who are risk averse but understand the need for future income.

Trend Three: Leveraged future income payments for LTC

Guaranteed future income payments are an extremely valuable piece of the retirement puzzle. This explains heightened investor interest over the last several years in immediate annuity contracts as well as those offering a guaranteed rollup.

However, another innovation is also very attractive for those who desire income and are also concerned about long-term care expenses. A select few insurance companies are offering guaranteed income riders that can be leveraged when used for long-term care expenses.

Like all long-term care insurance policies, the insured will need to meet certain requirements before the income can be leveraged higher. Usually, this will require that two or more activities of daily living cannot be performed or the insured has a cognitive impairment.

Combining indexed annuity accounts and income riders with a leveraged long-term care guarantee are fairly new concepts. And like most innovations in the insurance world, the policies will likely become more beneficial to the consumer as they develop over time.

The popularity of this policy type will also grow as medical underwriting requirements become simpler, if necessary at all. The insurance company will only be exposed to maximum benefit amounts in the future, thus eliminating the worry about policyholders who are hoping to activate their leveraged income in the short term.

It is very possible that an LTC option of some kind will be included or available as part of many indexed annuities in the near future. Assuming the annuity designers working behind the scenes create policies that make it easy for the insured to access benefits in a multitude of settings with realistic benefit triggers, then insurance agents will have yet another tool that provides multiple solutions for their clients.

If you can illustrate a significant future income stream for your client and then double it should he or she need long-term care benefits, then you are adding value to your recommendations that few other industry professionals can match.

Help your clients help themselves

All industries are competing for the same dollars. There are those in industries working tirelessly to besmirch annuity policies. Yet there will always be forward-thinking consumers who understand that bank and brokerage instruments simply cannot solve all of their present and future needs.

Sometimes, it is about asking the right questions as an agent. You may ask your prospective clients if they have planned for a reliable source of income in retirement or if they have accounted for the need for long-term care expenses. What about both?

Almost all agents have encountered clients or family members who have failed to plan for their future needs. In many ways, you must help your prospective clients help themselves. By helping consumers understand their future needs and speaking about family experiences, you can help reinforce a present reality that needs to be ad dressed sooner rather than later.

Adam Hyers is the owner of Hyers and Associates, a life and health agency serving consumers and agents across the country. Annuity education is a primary focus of his agency, and he has written several articles to help agents and consumers better understand annuity contracts. Visit his website at www.ohioinsureplan.com or contact him at ahyers@ohioinsureplan.com.
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Title Annotation:Trends in Annuities
Author:Hyers, Adam
Publication:Life Insurance Selling
Date:Mar 1, 2011
Words:1944
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