As you may or may not know annuities are a powerful tool for producing a steady income stream in retirement. Once annuities are annuitized they pay the annuitant a specific amount of money based on, among other criteria, the amount of money in the annuity, age of the annuitant and life expectancy. This income stream can last for a certain period of time or for the remainder of the annuitants and beneficiaries lives.
A new report, the Substandard Annuities report, “provides vital insight to insurers on the challenges, risks, and benefits associated with offering substandard annuities.” The report was sponsored by the Society of Actuaries (SOA) and LIMRA International with research conducted by Ernst & Young.
According to the report substandard annuity products “could generate one to two billion dollars in annuity sales for the insurance industry by 2009, if the product achieves its potential.” One of the benefits of substandard annuities is that they “offer larger payouts for impaired risk individuals with shorter-than-average life expectancies than standard immediate annuities.
Three reasons behind the need for products offering guaranteed lifetime income according to the report are; the decreased number of defined benefit pension plans available; the increased prevalence of defined contribution retirement plans, and finally, fears of potential cuts in Social Security benefits.
Substandard annuities currently only account for 4 percent of the total immediate annuity contracts in 2004. Annuities are and will continue to be an integral choice for people nearing retirement and in search of a guaranteed income in retirement. The more options for retirees the better for everyone involved.
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