Like September for Detroit, May is the month when variable annuity insurers reveal their new offerings. And this year, as updated prospectuses filed with the SEC reveal, the new features designed to lure in-vestors to the products involve tax savings, commodities and long-term care.
“For the carriers, the new products create buzz and provide something new and different without ratcheting up risk,” said John McCarthy, a vice president at Advanced Sales Corp., a VA consulting firm.
The firms' determination to avoid risk is a legacy of the financial trauma they suffered during the past two years. After adding guaranteed living benefits in 2008 that later proved costly to fulfill, insurers removed them last year.
Some 140 VA product changes were filed with the Securities and Exchange Commission during the first quarter, according to Advanced Sales. That is up slightly from the 134 changes filed a year earlier.
One of the new products de-signed to appeal to investors' fears of higher taxes is Jackson National Life Insurance Co.'s LifeGuard Freedom 6 Net guaranteed-minimum-withdrawal benefit. The variable annuity, which offers annual lifetime withdrawals of 4% to 7%, depending on the client's age at the time of the first withdrawal, allows for variable withdrawals to mitigate tax effects.
For example, if a $100,000 annuity has no gain in a given year, the investor can take a 5% distribution tax-free as a return of principal. If, in another year, the annuity appreciates to $105,000 and the client wants a 5% withdrawal, Jackson will increase the gross amount of the withdrawal to compensate for the tax bite that comes with a distribution from capital gains.
The benefit costs 105 basis points for the single-life version and 150 basis points for the joint-life benefit.
“We can't change the fact that money taken out of a variable annuity is taxed as income, but this benefit is intended to help investors manage the situation,” said Steve Kluever, senior vice president of product and investment management for Jackson National Life Distributors LLC.
On the commodities front, Axa Equitable Life Insurance Co. has submitted a filing for Protected -Capital Strategies, a variable and index-linked annuity that offers a “protected-investment option.”
The latter would provide a rate of return tied to a number of securities and commodities indexes, including those based on the price of gold and crude-oil futures. The commodities portion would be available only for annuities within individual retirement accounts.
In what appears to be a first for the VA industry, a new rider from Lincoln National Life Insurance Co. — the Lincoln Long-Term Care Advantage — is a qualified long-term-care policy that pays LTC benefits up to a maximum monthly limit for a minimum of four years. Investors designate a portion of initial purchase payments to cover the benefits. The benefits wouldn't be reported as taxable income, in line with a provision of the Pension Protection Act of 2006 that became effective Jan. 1, which allows tax-free LTC payouts from an annuity.
The product, initially filed in December and due to go live in February, is on hold. Lincoln declined to say when it expects to make the product available for sale.
Advisers had mixed reactions to the new riders.
“If a client needs commodities, I'm not sure that having them inside an annuity, where it could be costly, is worth it,” said Andi Y.H. Kang, president of Crown Wealth Management LLC.
The concept of addressing tax fears through a rider also was greeted with skepticism.
“Everyone who wants a rider is thinking about what will happen if the world ends; they're not thinking about account growth that's so rampant that they need to worry about taxes,” said Jeffrey B. Snyder, an adviser with First Financial Associates LLC. “For that rider to be attractive, you would need a client who is really worried about future appreciation.”
E-mail Darla Mercado at [email protected].
