In recent months, several insurers, including Hartford, Transamerica Life and AXA Equitable, have announced offers to buy out to certain of their variable annuity contract holders. The insurers are offering some of their annuity holders lump sum payouts greater than their current account values in return for surrendering their benefit riders.
According to InvestmentNews, Hartford is offering to increase certain annuitant’s account values in return for the client’s cancellation of their guaranteed-minimum-withdrawal benefit rider. Similarly, AXA Equitable has offered certain Accumulator variable annuity clients increased account values if they terminate their guaranteed-minimum death benefit riders.
In a filing with the SEC, AXA Equitable indicated it would benefit financially because it would no longer have to maintain the high cash reserves to pay for the guaranteed benefits. In addition, it claimed the insured would benefit by the increased account value and by not having to continue to pay death benefit charges.
Numerous financial advisers expressed concern to InvestmentNews that the notices of the offers were sent by insurers directly to annuitants. The advisers claim the notices didn’t highlight the potential risks of accepting the deals, such as possible tax consequences, or suggest that the insureds consult financial or tax professionals to help them assess the terms of the offers.
The insurers offering these contract buyout deals claim the deals are a win-win situation for the insurer and the insured. However, clients need to carefully consider whether guaranteed lifetime income and/or death benefit is worth more than an immediate lump sum payout. One of the biggest question marks in evaluating the value of the offer is life expectancy. Annuitants should carefully review any annuity contract buyout offers with a financial adviser, CPA or other investment professional prior to making a decision.