Annuities’ Month-Long Celebration
July 15, 2014 by Victoria Peterson and Jamie Johnson
The inaugural National Annuity Awareness Month came at an opportune time in the indexed annuity industry! Spreading the word about annuities is crucial, particularly when the economy is still rocky.
Why do we believe June 2014 was a perfect time to launch this special event? Americans need annuities. They’re hearing about them. And they’re purchasing them.
How do we know? Wink’s data backs it up. Indexed annuity sales reached the fifth consecutive record-setting year in 2013, with $38.6 billion in sales, topping 2012’s record of $34.1 billion by 13.4%! Phenomenal.
Consumers are realizing the value in these retirement products. Rates on indexed annuities are looking more and more attractive, which is aiding the boost in sales. Currently indexed annuity purchasers can receive annual point-to-point caps as high as 8.05%. Although this is not representative of the average cap, today’s typical caps look similar to 2008’s market collapse.
Consumers are now hearing about indexed annuities from their banks and financial planners, which is likely a first. Since rates are on the uptick and indexed annuities have become more compliance-friendly, the bank and wirehouse distribution channels are now embracing indexed annuities, which have been out of favor in the past. Certificates of deposit (CDs) have typically been the product of choice in these channels. With CD rates at historical lows, banks and wirehouses now include a growing number of indexed annuities in their approved product offerings.
We’ve seen sales of indexed annuities being sold through banks and wirehouses double in the past year, with sales in these channels now accounting for 17.8% of total indexed annuity sales according to Wink’s Sales & Market Report. As these channels fuel the growth in indexed annuity sales, this also translates to a need to provide more information to a demographic that hasn’t seen indexed annuities before.
We need National Annuity Awareness Month because of the spike in innovative design features on indexed annuities. Consumers need to be educated on these features so that there is no confusion about the choices available to them.
For example, chief among the recent developments is insurance carriers offering more indices outside of the familiar S&P 500® within indexed annuity crediting strategies. While the S&P 500® is still the top choice among indexed annuity purchasers, accounting for 53.9% of indexed annuity sales, a handful of other indices are quickly making headway. Some of these indices include real estate benchmarks, while others are hybrid indexed—composed of other indices—and we have also seen proprietary indices.
Another recent observation: Storms of hybrid annuities are being touted as indexed annuities. These are being called “Registered Indexed Annuities” and “Indexed Variable Annuities” yet they are not indexed annuities. “Hybrid annuities” have an indexed component with a floor less than 0%, which makes them variable annuities. Losses may be limited, but the purchaser can still lose money, making this product much different from a fixed indexed annuity.
With all these new choices available, agents and marketers have an exciting story to tell with annuities. Consumers, on the other hand, have a lot to keep up with. Ensuring that prospective annuity purchasers have the facts on these developments and understand the differences between products is key.
In addition to the product development trends, there has been a flurry of recent advertising around indexed annuities, such as “uncapped interest gains.” It is crucial for consumers to understand that uncapped does not mean unlimited. National Annuity Awareness Month gives us another avenue to ensure the consumer truly understands the difference.
The battle against unfair and inaccurate media attention around indexed annuities isn’t over, but we have had a major breakthrough. National Annuity Awareness Month is another advance in this battle. Wink’s President and CEO, Sheryl J. Moore, spent five years responding to and correcting every misleading or inaccurate article published on indexed products. She continues to work closely with the media as a fact-checking resource on these products. NAFA has taken over the daunting task of responding to the downright misleading articles that still circulate.
“Finally we have an event that can shed light upon reliable, accurate, and credible sources for fact-checking information on annuities!” exclaims Ms. Moore.
At Wink, we see our top priority as “ensuring that the public has the needed information and tools that are necessary to succeed in their search for retirement planning and life insurance solutions.” It’s about time we dedicated a month to these essential retirement vehicles—Americans need them!
