Source: Wall Street Journal | Date: February 3, 2013
With millions of baby boomers headed to retirement without
old-fashioned pension plans as safety nets, here is a product that would seem
to have big appeal: a guarantee of lifetime income from a portfolio of ordinary
mutual funds—however long the investor lives and even if the stock market
That's what the life-insurance industry thinks. For years it
has sold income guarantees on variable annuities, but relatively high fees have
limited the popularity of those products. Now, insurers are starting to offer a
cheaper guaranteed-income product that they hope will sell better. But there
are lots of issues for potential buyers, including questions about
cost—still—and the ability of insurers to fulfill the promises they make.
Regulators in some of the biggest states have yet to approve
these "contingent deferred annuities." They are worried that
lifetime-income guarantees sold on a mass scale could be harmful to insurers'
financial health if markets were to slide as they did in 2007-09, putting
insurers on the hook for massive payouts.
"Regulators want to make sure the companies have
reserved properly and have enough capital" to make good on the guarantees
in 20, 30 or 40 years, says James Mumford, a senior Iowa regulator. He is one
of a group of officials at the National Association of Insurance Commissioners
that for the past year has been devising rules for the new products.
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