A reincarnated version of an annuity that never gained much traction in the marketplace is finding fans among seekers of retirement income.
Deferred income annuities, an adaptation of products once known as advanced life deferred annuities, last year generated about $1 billion in sales and are expected to be the fastest growing annuity product in terms of sales, according to a new report from the Insured Retirement Institute.
Unlike their precursor products, deferred income annuities offer a shorter deferral period, meaning buyers do not have to wait as long to begin taking income. Most deferred income annuity contracts offer the ability to start income anywhere from two to 40 years from issue. The old annuity products typically had deferral periods of 20 to 40 years.
Deferred income annuities also offer more flexibility through optional death benefits and liquidity options. For example, some incorporate a payment advancement feature that allows buyers to access a portion of future certain payments in emergency situations. And many allow them to change their income start date, though most limit this flexibility, according to IRI.
The buyers of deferred income annuities are similar to those who purchase variable annuities and fixed-income annuities with living benefits. The typical buyer is in his or her late 50s, with most purchasers falling into the early 50s to mid-60s range.
Despite the uptick in sales, deferred income annuities account for a relatively small percentage of the total annuity market, accounting for less than 1% of total annuity sales.
While this is only a small percentage of overall industrywide sales, we expect this growth to continue into 2014. As more companies begin to offer DIA products and as they expand into new distribution channels, DIAs are becoming a viable option for consumers and financial advisors looking for guaranteed retirement income to insure against longevity risk, Cathy Weatherford, president and CEO of IRI, said in a statement.