Do Fixed Indexed Annuities Cost More Than Other Fixed Income Annuities?
March 5, 2019 by Eva L. Levine
I. The Issue
There is a common belief that fixed indexed annuities (FIA) cost more than other fixed income annuities such as the vanilla deferred income annuities (DIA) and the immediate annuities (SPIA). The basis for such belief is that FIAs are more complex in product design, which leads to higher fees such as surrender charges and certain benefit riders. They also pay higher commissions to agents as part of their marketing efforts. Accordingly, many advisors would recommend DIA and SPIA over FIA to clients because these annuities have low or no sales commissions and no surrender charges.
If DIAs and SPIAs are better products due to their low costs, it should follow that the benefits that flow from these products would be better than those offered by FIAs for the same amount of investment.
This paper seeks to show that the perceived low costs of DIAs and SPIAs do not necessarily translate into better benefits than FIAs by comparing the income benefit offered by each type of annuity.
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