Just as buying any insurance creates a pool of capital from which claims can be paid to those who experience losses (i.e., risk shifting and risk sharing); life contingent annuities
continue to pay the claims of those who live inordinately long lives.
Contingent annuities function in a very similar manner to products with guaranteed lifetime withdrawal benefit (GLWB), with the basic framework already in place at the state level for them to be regulated as annuity products, according to a report by the American Academy of Actuaries (AAA) during a recent NAIC teleconference.
Guideline 43, (AG 43) the statutory risk-based capital requirements for contingent annuities are also addressed by current requirements and both are generally risk-managed through capital, markets hedging programs by life insurers, the AAA pointed out.
The AAA's own contingent annuities working group compared key risks and benefits of a contingent annuity to those of the widely accepted variable annuities with guaranteed living withdrawal benefits.
Moreover, DuPont noted that the then-New York Insurance Department (now the combined Department of Financial Services) asserted in 2009 that contingent annuities are financial, guaranty insurance under New York law.
Installment payment-fixed amount and installment payment fixed period are not life contingent annuities
. The potential buyer of the fixed income amount contract tells the insurance company how much she would like each annuity payment to be and for how long, and the insurance company calculates the cost.
For example, one can learn that there are only two basic types of insurance: term life and contingent annuities
. Other complicated policies are merely different combinations of these basic policies.
Particularly, life contingent annuities
and the increasing prevalence of liquidity and optionality will only make investing more challenging.
That is "by definition" because life contingent annuities not only guarantee income for life, they also provide a leveraging effect from their survivorship element.
Certainly people who are deficient in meeting their income needs should be focused more on life contingent annuities. In fact, studies show that well-crafted combinations of investments, including life contingent annuities put excluding GLWBs, are highly likely to provide income, access, and legacy benefits significantly superior to those offered by VAs with GLWBs.
Furthermore, insurers and distributors alike should remember that life contingent annuities can and do provide unique and unmatchable value, and they should put a priority on framing them to deliver their benefits more clearly and desirably.