Cannex: Income Annuity Shoppers Are Asking for Lower Premiums

U.S. life insurers may be attracting more income annuity shoppers with small nest eggs.

Shoppers looking for single-premium immediate income annuities in the third quarter searched for contracts with an average premium of $313,599, down 16% from the average for the third quarter of 2022, according to new data from Cannex Financial Exchanges.

Shoppers seeking single-premium deferred income annuities solved for an average premium of $221,746, down 26% from the average for the year-earlier quarter.

The average premium "solves" dropped as activity increased: The number of quotes provided jumped to 391,562, from 213,633. Between the second quarter of 2022 and the second quarter of 2023, quote volume increased to 256,336, from 171,162.

What it means: Life insurers' efforts to persuade sponsors of 401(k) retirement plans to add annuitization options may be pulling more retirees with relatively small asset totals into the income annuity market.

Income annuities: Life insurers have designed multi-year guaranteed annuities, non-variable indexed annuities, registered index-linked annuities and other types of annuities to help clients accumulate assets.

Income annuities are contracts designed to help clients turn large sums of cash into streams of income.

An immediate annuity is an income annuity with benefits payments set to start within 13 months of the purchase date.

The issuer of deferred income annuity promises to begin paying benefits 13 or more months after the purchase date.

Immediate annuities: The average age of the clients shopping for immediate annuities through the Cannex system fell slightly, to 68.3 in the latest quarter, from 68.4 in the year-earlier quarter.

The average amount of income requested increased 2.9%, to $46,010.

The increase in the income solve that clients proposed for themselves is lower than the 3.2% cost-of-living adjustment that the Social Security Administration recently announced for 2024 Social Security retirement benefits.

Deferred income annuities: For deferred contracts, the average shopper age increased to 62, from 61.5.

The annual income requested increased 2.9%, to $48,895.

QLACs: A "qualified longevity annuity contract" is a deferred income annuity that qualify for special federal income tax treatment.

The Setting Every Community Up for Retirement Enhancement 2.0 Act, or Secure 2.0 Act, a law included in appropriations package signed in 2022, increased the QLAC contribution limit to $200,000, from $145,000.

Secure 2.0 also eliminates a rule that limited a retiree to investing 25% of a retirement account's value in a QLAC.

Secure 2.0 might be showing up in Cannex quote data.

At Cannex, the number of QLAC purchase results included increased to 8,979 in the latest quarter, from 2,450 in the third quarter of 2022.

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