As insurance companies withdraw guaranteed income products, now may be the time for those nearing retirement to buy them while they are still around.
Insurance industry experts say that Standard Life’s decision to suspend its GLWBs, barely months after Transamerica’s decision to discontinue its fixed annuity products, confirms a pattern of carriers trying to de-risk their annuities.
This has created the perfect time for buying these products as more companies tweak or terminate these products making them less attractive, if not unavailable, says Byren Innes, senior vice-president and director of NewLink Group Inc.
“Each product change that we have seen for [the past] four years now has made the [new] product a little less attractive than the previous [offering],” he said. “So if this is something you think might be part of your future, there’s value in getting into it now because insurance companies that are selling the product won’t be withdrawing your product [even when they do so] for new people.”
Innes’ rationale resonates with Francis D’Costa, insurance advisor and owner, D’Costa Financial Group, who says there is an opportunity for clients, and insurance agents, as these products may not be around forever.
“This is a good opportunity for insurance agents as fewer companies are offering GLWBs,” said D’Costa. “They can now tell their clients [that] this is the last chance they have; they’ve got to buy it [because] insurance companies can’t dishonour a contract once it is signed.”
Innes says this trend is the direct result of insurance companies’ response to poor investment climate and the ongoing reserve requirements for these products.
“This a double-edged sword; the markets are not doing well and the guarantees will have to kick in, but we have to reserve capital for those and, gee, what a rotten time for reserving given the low interest rate environment,” he said. “And the point of the sword is that the government wants them to reserve in a stronger manner.”
These factors, he added, are causing everybody to take a look at products that require long-term guarantee, a category of which GLWBs is a part.
That said, Innes doesn’t believe these products will disappear altogether, but he does concede that insurance companies may try to make them less attractive for buyers going forward.
“They will continue to make product tweaks that will make them less expensive to support, less expensive to reserve, so they will still have consumer benefits, [just] not as good as when they were first launched,” said Innes. “Making them less attractive would mean that they are better able to support those products and won’t have to go through withdrawals down the road.”
Ultimately, it’s the client that loses out as the product is eroded, says D’Costa.
“It was a fantastic product for clients to have because they always come out a winner with this,” he said. “I don’t see any product better than this at the moment. You are getting 5% guaranteed [when] the markets go down and if they go up, you make more.”