How workers’ need for lifetime-guaranteed income may drive more Americans to consider annuities

The goal of a successful retirement is to have enough guaranteed income to cover basic living expenses and not have to worry about running out of money for the rest of your life. According to recent LIMRA research, workers today do not feel that their households will receive enough lifetime-guaranteed income to cover basic living expenses throughout retirement.

The decision to buy an annuity or not can be a complex one. Understanding the factors that influence an investor’s decision to buy can help carriers design and market products and guide financial professionals’ approaches when speaking to their clients.

LIMRA Research Head explains the growing market opportunity for in-plan guarantees and the role of education.

Following the recent passing of the SECURE Act 2.0, the financial services industry expects greater adoption of in-plan guarantees in late 2023 and 2024. In-plan guarantees are plan designs offered by employers that can convert retirement savings into a stream of guaranteed income payments during retirement. Designs of in-plan guarantees include annuities inside a target date fund (TDF), a stand-alone annuity product, and annuity options outside of the plan but linked to it. Educating advisors, plan sponsors, and employees on the value of in-plan annuities will affect their acceptance.

Facing unprecedented long-term market volatility in 2022, consumers sought the protection offered by fixed annuities, propelling a record-high $312.8 billion in total U.S. annuity sales. According to LIMRA’s 2022 Individual Annuity Sales Survey, total 2022 annuity sales increased 23% over 2021 results and were 18% higher than the previous record of $265 billion set in 2008.

Total U.S. annuity sales increased 16% to $79.4 billion in the second quarter, according to LIMRA’s U.S. Individual Annuity Sales Survey. Fixed-rate deferred (FRD) and registered index-linked (RILA) sales reached an all-time record for the quarter, while fixed index annuity sales fell just short of a record quarter.

“All fixed products showed positive growth as consumers looked for safety from the volatile equity markets,” said Todd Giesing, assistant vice president, LIMRA Annuity Research. “With average yields at or above 3% for fixed-rate deferred annuities, it’s a rate environment we haven’t seen in a long time.”

Total new premium for individual life combination products increased 22% to $4.3 billion, compared with prior year results, and down slightly from the $4.8 billion in premium generated in 2019, according to LIMRA’s 2021 U.S. Individual Life Combination Products Annual Review. Combination products represented 20% of total life insurance premium in 2021.

Total U.S. annuity sales increased 22% to $77.5 billion in the second quarter, according to preliminary results from LIMRA’s U.S. Individual Annuity Sales Survey. This marks the highest quarterly sales ever recorded since LIMRA began tracking annuity sales and nearly $9 billion above the previous record set in the fourth quarter of 2008 during the Great Recession.

Despite the continued challenges resulting from the COVID-19 pandemic, the annuity industry rebounded strongly — with the first quarter of 2022 seeing total U.S. annuity sales increase 4% to $63.3 billion. LIMRA expects this momentum to continue through the next several years.

“The outlook for rising interest rates and fairly level equity markets will have investors continuing to look for the balance between protection, growth, and guaranteed income, creating a strong potential for individual annuity sales to break the all-time record levels of sales experienced in 2008,” says Todd Giesing, assistant vice president, LIMRA Annuity Research.

COVID-19 raised consumers’ awareness about the importance of life insurance. According to LIMRA research, half of U.S. workers believe their life insurance benefit is more important due to COVID-19. To ensure every worker who has access to life insurance at their workplace opts in, our industry needs to expand efforts to educate employers about the value their workers place on life insurance and encourage them to highlight this important benefit during their next open enrollment.

After strong results in 2019, the total new premium for individual life combination products decreased 23% to $3.7 billion in 2020, according to LIMRA’s 2020 U.S. Individual Life Combination Products Annual Review. There were approximately 421,000 policies sold in 2020, down 7% compared with 2019 results.

Life combination products provide life insurance coverage with long-term care or chronic illness coverage, an attractive value proposition to consumers, according to LIMRA consumer research.