By Michael K.Stanley
Deferred income annuities
(DIAs) are poised to pick up steam this year and next, solidifying their presence in the annuity marketplace due to their unique ability to protect against longevity risk.
A recent research paper by the Insured Retirement Institute (IRI) anticipates that DIA products will be the fastest growing annuity product in terms of sales on percentage in 2013 and 2014, after reaching an estimated $1 billion in sales during 2012.
The paper, “Deferred Income Annuities: Insuring Against Longevity Risk” found that Baby Boomers highly value products like annuities which offer them guaranteed income: the research found that one-fifth of Boomers called guaranteed income
the most important aspect of a retirement investment product.
With advancements in the medical field constantly extending the average life expectancy — in 2012, among individuals who have reached the age of 65, life expectancy hit 83 for males and over 85 for females — protecting oneself from the possibility of outliving one’s assets has become a top priority.
IRI research found that 49 percent of retirees enter into formal retirement before age 65, leaving many Americans spending over 20 years in retirement. According to Census Bureau data, during the end of those years (when individuals are aged 80 and over), 71 percent had a disability, 56 percent had a severe disability and 30 percent required assistance with daily living.
DIAs are in a distinct position to alleviate burdensome expenses incurred in advanced age and carriers are in a distinct position to market these products to the droves of Baby Boomers
retiring in coming years.
Carriers may have found the sweet spot they have been looking for with DIAs. Their predecessor, Advanced Life Deferred Annuities, had longer deferral periods and left clients with little to no options to access liquidity if an emergency were to arise. DIAs are much more flexible, with many different contacts available, allowing them to be marketed much easier in a pre-retirement strategy, retirement strategy or as a component of a laddering strategy.
As recently as 2012, only six companies offered DIA products. The IRI
report found that at least 12 companies are offering or have filed to offer a DIA product with an average deferral period of eight years.
Although DIA sales volume accounts for less than 1 percent of total annuity sales, with the constant tweaking of products and the advent of new distribution outlets, the IRI anticipates robust growth in coming years.
Originally published on LifeHealthPro.com