New Products & Features.
Rates are changing all the time right now with inflation and the Federal Reserve increasing rates. But did you know that Annuity rates don’t necessarily change just because the Feds changed rates. That is why it is so important to stay up to date on New Products and Features. For example, when you are thinking about upgrading your phone or appliances, you wouldn’t start by looking at models from the early 2000s, right? While newer isn’t always better, it’s a good idea to become familiar with freshly developed products and features when building your portfolio. But when thinking about annuity products it’s important to look at the changes every quarter and always check rates that same day you are giving a presentation to a client.
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This year, the Federal Reserve keeps raising interest rates. To deter annuity holders from cashing in on their old annuities and investing in new ones with better rates, companies are releasing new products, such as floating rate fixed annuities, and riders that allow annuity holders to benefit from increasing rates. To understand why annuity rates, change, let’s consider how insurance companies invest. An insurer wants an investment that is going to be stable over a long period of time. After all, they are investing to cover the golden years of many retirees. For some people this could be 30 years or longer.
Fed declaring rate changes.
To do this, insurance companies invest a large percentage of their assets in high-quality bonds. They choose these types of investments for their predictable stability. Since annuities are long-term contracts, their payouts correlate with long-term rates. As a result, annuity rates closely follow bonds with a duration of 20 or more years.
You may hear about the Fed declaring rate changes and wonder if it will affect annuity payouts. The short answer is: not necessarily. Annuity rates aren’t directly affected by the Fed Rate. That’s because annuity rates reflect long-term rates, and the Fed rate is a short-term rate.
This doesn’t mean there isn’t any relationship between the two. The Fed Rate isn’t a strong indicator of imminent changes in annuity rates, but it may have a general effect on bond rates. When you look at charts showing the Target Federal Fund Rate and Average Annuity Rates. There’s a lot more variance in the Fed Rate. So, you may be surprised when annuity rates don’t move in lockstep with Fed Rate changes.
Additionally, it’s possible we could see companies develop more fee-based, low-commission, and zero-commission annuities because of the pending implementation of the fiduciary rule. Many see contracting with these types of products as the safest route for selling under its Best Interest Contract Exemption. The bottom line is there hasn’t been a better time to sell annuity products to your clients. The market is unstable and annuities are giving your clients a stable return in these uncertain market and possible recession.
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