Misjudged Annuity Guarantees May Cost Life Insurers Billions was the headline in the Wall Street Journal.
Life insurers in the U.S. face charges against earnings potentially totaling billions of dollars from miscalculations about the number of customers who would exercise lifetime-income guarantees sold with the retirement products known as variable annuities, according to a new report from Moody’s Investors Service.
Variable annuities are a tax-advantaged way to invest in stock and bond funds, and these particular guarantees promise steady payouts if owners’ fund accounts become depleted.
What the article points out is that insurance companies misjudged the lapse rate (the rate at which customers would drop policies) of variable annuities that came with income guarantees that would continue even if the value of the assets in the contract dropped to zero. Investors with these policies should check with their insurance company to make sure that they retain their guaranteed income benefits.