Two-Tier Fixed Annuities Encourage Annuitization
Annuity Market News (09/01/02) p.9; Toland, Tomiko

Two-tier fixed annuities offer higher annual yields and lower cash-surrender values than standard fixed annuities, which means investors tend to hold them longer, but the gap between the contract values has brought up some ethical questions about sales practices--whether investors realize that cashing out means they forfeit the higher rate, and whether the high rates tempt insurers to take undue risks. Supporters of the annuities say they help carriers retain assets longer and that they could become a large market, and regulators are investigating such products. The National Association of Insurance Commissioners almost outlawed them in 1994, and is now considering lowering the minimum yield of 3 percent. Opponents say that lawsuits may result from investors who do not understand the products, but they could help keep the elderly funded.


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