Data & Research March 31, 2009

In Life Crises, Professional Financial Guidance Might Help

In times of life crisis, family finances might suffer significantly, according to a nationwide survey by AARP Financial Inc.
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Asked where they turn to for help managing the financial implications of a life crisis, immediate family was the number one response, followed by friends or colleagues, according to a press release of the survey results. However, 45% of those who had experienced a life crisis said it was hard to trust the financial information/guidance they were receiving.

Of respondents who sought professional advice in times of life crisis, 66% said they had a “very positive experience,” and another 24% said they had a “somewhat positive experience,” the survey found.

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More than half (57%) of the 1,200 adults surveyed said they had already experienced a major life crisis such as job loss, divorce, death of a spouse, or serious illness or disability of an immediate family member or themselves, and in the vast majority of cases, the event had a significant impact on their finances, according to the survey. Of those Americans who experienced long-term job loss, six in 10 said that it had a very significant impact on their finances, and 47% of respondents who experienced a serious illness or long-term disability echoed the same sentiment.

Additional emotional and psychological factors can make things worse. According to the results, more than half of those surveyed (54%) said it was hard to keep their emotions in check during a major life event, and 42% said it was at least somewhat difficult to stay focused.

When it came to respondents’ finances, “overwhelmed” was the most frequently cited emotion in instances of divorce (48%), death of a spouse (65%), serious illness/disability of self, a spouse or life partner (75%), or serious illness/disability of a child (79%). Fear of the future was the most frequently cited emotion in cases of long-term job loss (66%), followed closely by “overwhelmed” (57%).

 

AARP Financial created an online resource to deal with financial implications of a life crisis at www.aarpfinancial.com/lifecrisis.

 

Data & Research March 31, 2009

GLBs Dominate Variable Annuity Offerings

A survey by Milliman of leading U.S. variable annuity (VA) carriers revealed that about 96% of variable annuities offered include some form of a guaranteed living benefit (GLB).
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According to a press release of the results, sales of VAs that offered a GLB during calendar year 2004 averaged 87% of total VA sales, increasing to 95% in 2005 and 2006. Such benefits continued to be popular in 2007 and during the first half of 2008, with 96% of total VA sales offering a GLB.

The purchase of GLBs by policyholders also continued to increase, as during calendar years 2004 through 2007, the average election rate of GLBs was 52%, 62%, 63%, and 62%, respectively. During the first half of 2008, the comparable figure jumped up to 69%, according to the results.

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Various combinations of four types of GLBs are generally offered in the VA marketplace: guaranteed minimum income benefits (GMIB), guaranteed minimum withdrawal benefits (GMWB), guaranteed lifetime withdrawal benefits (GLWB), and guaranteed minimum accumulation benefits (GMAB). Election rates reported by survey participants for GLWBs from 2004 through the first half of 2008 ranged from 61% to 93%, on average, of total sales of VAs that offered a GLWB.

The election rates of GMWBs reported by survey participants for the first half of 2008 averaged about 14%, down from 25% reported for calendar year 2004. An increasing percentage of total VA sales have been offering combination GMWB/GLWBs, but average election rates have declined from 58% in 2005 to 37% during the first six months of 2008.

GMIB election rates decreased, on average, from 49% in calendar year 2004 to 25% during the first six months of 2008. Average election rates of GMABs have decreased from 21% in 2004 to 10% during the first half of 2008.

The portion of total VA sales in which no GLB was elected dropped from 48% during 2004 to 37% to 38% during 2005 through 2007, and to 32% during the first six months of 2007.



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