Market Fears & Rising Insurance Rates Drive Up Annuity Sales

Highlights:

Insurers are offering better policy terms and increasing interest rates on annuities.
Annuity sales are expected to overtake the all-time high set in 2008.

Annuity sales are at an all-time high as consumers flee stock volatility and insurers offer more attractive rates.

The Insurance Industry Group (LIMRA) forecasts that Americans will invest $267 billion in annuities this year, surpassing the last record set when they invested close to $250 billion.

Investors have been spooked by anemic economic growth and the war in Ukraine. The S&P 500 is down nearly 13% this year while bond prices sink to their lowest level since 1989 because investors are worried that inflation will rise again. The Bloomberg U.S Aggregate Bond index is down more than 9% this year, with bond prices moving opposite to interest rates due mainly to recent hikes by The Federal Reserve.

Insurance companies have offered consumers better payouts and guarantees amid rising interest rates to increase profits further.

Some trade-offs exist, but insurers generally charge a premium for their guarantee. Consumers also can’t touch the money in an annuity without penalty unless they sell it first or take out another loan against what’s already been invested with that insurer. That might be difficult if they need access to that money quickly because of the taxes on withdrawal amounts from retirement accounts such as IRAs and 401(k)s.

Fixed-rate annuities are a popular option for older consumers looking to protect their money and not worry about fluctuations in the market. First-quarter data shows that over $16 billion was purchased by those between the ages of 60 – 65. This increased by 45% from last year’s figure and a 9% rise from earlier.

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Immediate or deferral annuities have not grown as much in popularity because they provide income now rather than later. This is expected to change. However, if interest rates continue rising then, consumers may become more interested in these products. This is due to the benefits of having guaranteed money for life without risking capital gains on stocks and bonds compared to equity-based investments.

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