In 2012, LIMRA reported the lowest fixed annuity sales in a decade and sales in the first half of 2013 declined another 1 percent year-over-year.
However, with interest rates now creeping up, it may be worth looking at a small but fast-growing niche of the fixed annuity universe: deferred income fixed annuities (DIFAs).
Sales of DIFAs increased 151 percent in the first half of 2013, compared to the same period of 2012. Introduced by New York Life in 2011, DIFAs are expected to exceed $1 billion in sales this year.
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A DIFA represents a long-term commitment aimed at steady retirement income. The buyer deposits $10,000 or more now and gives up access to the principal long-term. In return, the insurance company guarantees a stated monthly income beginning at a point in the future, usually from two to 30 years away.
The deferral period is chosen at purchase but may be changed once over the life of the contract, and the income start date can be deferred for up to five years. Most contracts allow premiums to be added after initial purchase.
The DIFA market is becoming competitive, which gives advisors more products to evaluate and compare. The big drawback of DIFAs is their long-term nature, which makes future income vulnerable to inflation. One contract, Principal Deferred Income Annuity, offers a CPI-U-linked payout.
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