Myth #14: Never mix investments with insurance
- David H. Kinder, RFC®, ChFC®, CLU®
- Nov 6, 2020
- 2 min read
Updated: Jan 20, 2023
For today's article, I want to talk about something that I'm seeing as an ongoing trend. Large insurance companies that were offering variable annuity contracts with lifetime income benefits... are leaving the marketplace.
The biggest of these was The Hartford back in 2010 or so. They were the proverbial "800lbs gorilla" in the industry.
Ohio National (my preferred whole life insurance company) stopped selling lifetime income benefit riders on their annuities and was looking to offer to "bail out" policyholders in order to cut potential losses.
Yesterday, Prudential stopped offering their lifetime income benefits on their variable annuities. https://www.thinkadvisor.com/2020/11/05/prudential-to-stop-variable-annuities-with-guaranteed-living-benefits/
So I'm seeing a trend regarding the mixing of SECURITIES within insurance products. In these market fluctuation times and period of low interest rates... they're problematic.
Of course, I am a huge proponent of non-volatile cash values in these contracts, whether it be whole life, IUL, fixed annuities, or fixed indexed annuities (especially when viewed in context of the tax code). By having stable assets in these contracts, the insurance companies know that the asset isn't going anywhere by outside market forces. In the case of life insurance, the cash values are available to borrow by the policyholder at any time while securing the reserve for the death benefit. In the case of annuities, the original premiums made are there to help fund the promises made by the contract. The policyholder benefits as well as the insurance company.
Let me be clear though: I'm not saying to replace your contracts or that the companies can't keep their promises. All I'm saying is that there are other risk factors that insurance companies may not have initially considered in the pricing and structure of their contracts... and they're beginning to see that. If there wasn't that risk of market volatility AND longevity... these companies wouldn't be trying to exit that business or shift that risk elsewhere.