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Annuities to Get Less Complicated?

By JLP | July 30, 2008

From yesterday’s Wall Street Journal:

Imagine flipping through a jargon-free annuities-offering document.

The day is inching closer when that might be possible.

Industry groups are banding together to present prospective buyers of annuities with streamlined, plain-English descriptions of the basic features and costs of annuities, much like those now offered by some mutual-fund companies. Those shopping for an annuity also may be able to go online and compare the costs and features of one annuity to those of another.

As part of a pilot program, a simplified, 2½-page document is being tested in Iowa and West Virginia. The document was developed by the American Council of Life Insurers, or ACLI, in Washington, in conjunction with the National Association for Variable Annuities, or NAVA, in Reston, Va.; insurance-agent groups; and others in the industry.

Annuity Papers, Please. Hold the Jargon ($)

How much information will be available?

“We want to provide useful information, not an overwhelming amount of information,” says Carl Wilkerson, vice president and chief counsel, securities and litigation at the ACLI [American Council of Life Insurers]. The idea is to help consumers be “better equipped to make apples-to-apples comparisons,” he says.

My question is: if people can actually understand them, will they buy them? LOL! Once they know how expensive they can be, will they still want them? Will brokers be able to sell them once there is no longer a scary prospectus to hide behind? Will the broker’s compensation from the product be readily available?

Let’s face it, the insurance industry loves the complexity of annuities. They are hard to compare to each other and very hard to fully understand. Heck, lots of insurance salesmen don’t even fully understand them.

I’m interested to see how this plays out. Oh, and if anyone has access to the new 2½ page document mentioned in the article, I’d love to see it.

Topics: Business News | 5 Comments »


5 Responses to “Annuities to Get Less Complicated?”

  1. advisor Says:
    July 30th, 2008 at 1:03 pm

    i’m convinced that (in a very long time) annuities will just become optional add-on features to investment products and accounts. “now that we’ve decided on an investment strategy, would you like to add an account feature that says you’ll eventually get all your money back?” or “you’ll be guaranteed to get X for X number of years, no matter how well these investments do?”

    sure, that’s simplifying a complex insurance contract, but i do believe the annuity concept will significantly simplify.

  2. muddlehead Says:
    July 30th, 2008 at 4:16 pm

    “Let’s face it, the insurance industry loves the complexity of annuities.” one man’s complexity is another’s obfuscation.

  3. Kirk Says:
    July 30th, 2008 at 5:27 pm

    They may simplify the documentation, but I am sure they will hide or water down the parts that would detract folks from buying them.

  4. JLP Says:
    July 30th, 2008 at 5:31 pm

    Kirk,

    Yeah, I’m actually looking forward to seeing this new document.

  5. Bob MacDonald Says:
    August 3rd, 2008 at 12:24 pm

    The goal of simplified annuity documentation is a wonderful goal but acheiving it will at best be elusive. Annuities are in fact simple products — they are an insurance contract that allows individuals to accumulate funds on a tax-deferred basis for later pay-out as an income that cannot be outlived.
    However, in an effort to one-up the competition companies have tacked on so many features as to make the product extremely complicated to understand and explain.
    In addition, any “short-form” explanation of the product becomes a open invitation for the plaintiff’s bar to claim the insurance company did so in order to hide important information from the consumer.
    The answer is for the insurance companies to stop adding gimmicks to the product and develop creative and innovative value-added products that are easy to understand. This may require more effort than insurance companies have been will to expend, but such an approach is possible and it will highlight the very real value of annuities in a person’s retirement planning and security.

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