This report, commissioned by Pacific Life Insurance Company, compares variable annuities with generous promises to those with seemingly lesser commitments and highlights for whom the different product types and features may be appropriate.
Consumers can pay considerable fees for the more generous guarantees on the market. Ironically, given the perceived value proposition of these products, payment often comes in the form of reduced total benefits. Over long periods, the drag of guarantee fees can cut deeply into investment values. Also, many investors simply may not need the extra income protection the products promise relative to simpler, less expensive designs.
Simpler, low cost guarantees can provide a happy medium for many investors. By reducing the negative impact of the drag from high fees, policyholders retain access to real market upside potential, while still obtaining a layer of income protection in a manner that is sustainable for the insurer. Total policy benefits - greater accumulated savings and guaranteed income combined - can be enhanced with lower cost benefits. To the extent that lower cost insurance features are attached to less expensive base policies, the advantages of lower fees can be further realized by the annuitant.