The former head of a major annuity issuer has an idea for life insurers: Rise above the individual fixed indexed annuity market fray by bringing an old retail product out of the attic.
Bob MacDonald, who founded and ran LifeUSA from 1987 through 1999, and who was CEO of Allianz Life of North America from 1999 through 2002, says the current fixed indexed annuity market is too complicated and too expensive.
Issuers could escape from annuity product problems by resurrecting the endowment contract and using it as the basis for a new type of guaranteed income endowment (GIE) contract MacDonald writes in a recent blog article.
"The GIE would be introduced to the consumer as a true alternative to existing fixed annuity products," MacDonald says. "A product with more simplicity, flexibility and consumer control, but with the same protections against running out of money and income in retirement."
What It Means
If clients used endowments to establish streams of retirement income, you could point to Harvard University, and its $51 billion endowment, as a role model.
Annuities and Endowments
The kind of annuity that a life insurer sells to an individual consumer today in the United States is an insurance contract that converts a consumer's premium payment (or payments) into a series of one or more income payments, according to the National Association of Insurance Commissioners.
The NAIC defines an endowment contract as a form of insurance that pays one benefit amount if the insured dies while the contract is in effect, and the same benefit if the insured survives to the end of a specified period of time, or if the insured lives to a specified age.
Today, clients hear about institutional endowments in connection with efforts by universities and other nonprofit institutions to provide long-term financial support for student scholarships, or for extra income payments for top professors.
In the past, in the United States, parents used individual endowment contracts to save money for college expenses, MacDonald notes.
Sales of traditional endowment contracts fell sharply in 1984 when a change in the tax rules imposed federal income taxes on the buildup of assets inside new endowment contracts.
The GIE
MacDonald, who has worked as a consultant since he left Allianz Life, and who has been described as one of the architects of the modern retail annuity industry, says the new GIE could be a non-commissioned product that would exist in a parallel income planning product universe alongside the fixed indexed annuity.
A client would pay for the endowment contract with one premium payment. The contract could mature at the end of a term that might range from two years to three years.
