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Older annuity contracts likely have more generous payout rates making them a valuable source of income for policyholders.

Older annuity contracts likely have more generous payout rates making them a valuable source of income for policyholders.

When advisors come across an old annuity contract, their first instinct, typically, is to replace it with a newer, more feature-rich, and possibly cheaper one. After all, newer is better, right? Not always.

Old annuity contracts have one very important advantage: They were designed with vastly different assumptions about mortality and interest rates. If the contract is old enough – 15 to 20 years old – these assumptions can be beneficial to the policyholder because the older the contract, the more potentially valuable it is.

For example, despite recent Federal Reserve interest rate policies, rates remain below where they were at the turn of the century. In May 2000, 10-year U.S. Treasury notes were yielding 6.51% compared with “just” 3.6% today.1 This means that insurance companies were basing their annuitization rates for these contracts at that time on the assumption they could earn much more interest than contracts issued over the last 15 years. This, in turn, means that these contracts likely have much more generous payout rates than offered in the market today.2

Adding to the potential advantage is the fact that older policies are based on older mortality tables. Since life expectancy has increased over time, the older the mortality table that is used, the lower the assumed life expectancy, which in turn generally means a higher rate of annuity income.3

While insurance companies update their mortality tables over time, it can often be many years after the National Association of Insurance Commissioners (NAIC) establishes the latest tables. For example, the 2001 Commissioners Standard Ordinary (CSO) tables weren’t required to be used until 2009.4 This means that annuities issued prior to 2009 could have issued with mortality tables created in 1980.5

Stop and think about that for a second. Life expectancy in 1980 was just 73.7 years, compared with 76.1 years today.6,7 But more importantly, think about interest rates in 1980. U.S. 10-year Treasury notes hit 12.86% in March of 1980, before peaking at over 15.5% just 18 months later.1

The point is that the older the annuity contract, the greater the amount of income the policyholder can likely receive by doing something that very few policyholders actually do – annuitize the contract. Financial professionals should consider contacting the insurance company and asking for an annuitization quote for clients with annuities contracts that are at least 15 years old. I expect you will be surprised at how much income that annuity can generate.

But are there a lot of contracts that old? Haven’t most of them been either cashed out or moved to a newer contract? You’d be surprised at just how many there are. After filtering through the 1 million+ annuities sitting in SIMON from iCapital’s Annuities Platform for contracts issued prior to February of 2008, there were over 240,000, or just under 25%, that are at least 15 years old. Almost 10% are 20 years old or older.

I don’t know about you, but I would have never guessed that there were that many old policies. But, if I stopped to think about it, I shouldn’t have been surprised. A lot of annuities are funded with money the policyholder never really needs; therefore, they just leave the money in the contract to avoid the taxes. They simply don’t realize how valuable the policy could be as a retirement income generation tool. I would suggest you educate them.

Annuities and insurance services provided by SIMON Annuities and Insurance Services LLC, an affiliate of iCapital, Inc. Structured investment and certain annuities products and services may be offered through SIMON Markets LLC (“SIMON”). SIMON is a registered broker/dealer, member FINRA and SIPC, and is affiliated with iCapital, Inc. and its subsidiaries. Please see the disclaimer at the end of this document for more information about these entities.

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1. Macrotrends, “10 Year Treasury Rate – 54 Year Historical Chart”.
2. Charles Schwab, “The Case for Income Annuities When Rates Are Up,” Rob Williams, April 13, 2023.
3. Investopedia, “Annuitization Definition,” Julia Kagan, Aug. 12, 2022.
4. Society of Actuaries, Article from: Product Development News, Issue 56, “2001 CSO Table—The Road to 2009,” William Carroll, July 2003.
5. NAIC, Project History, “Recognition of The 2001 CSO Mortality Table For Use in Determining Minimum Reserve Liabilities and Nonforfeiture Benefits Model Regulation (#814),” 2002.
6. Center for Disease Control and Prevention, U.S. Department of Health and Human Services, “Vital Statistics of the United States,” 1980.
7. Center for Disease Control and Prevention, “Life Expectancy in the U.S. Dropped for the Second Year in a Row in 2021,” Aug. 31, 2022.


This is not intended to be an offer or solicitation to purchase or sell any security or to employ a specific investment strategy. This material is intended as general background information, for educational purposes only, and should not be used as a primary basis to make a decision to purchase an annuity contract. This material is being provided for informational purposes only and does not take into account any specific investment objectives or financial situation of any investor. The information is not intended as investment advice and is not a recommendation about managing or investing retirement savings. Actual annuity contracts may differ materially from the general overview provided.

Prior to making any decision with respect to an annuity contract, purchasers must review, as applicable, the offering document, the disclosure document, and the buyer’s guide which contain detailed and additional information about the annuity. Any annuity contract is subject in its entirety is to the terms and conditions imposed by the carrier under the contract. Withdrawals or surrenders may be subject to surrender charges, and/or market value adjustments, which can reduce the owner’s contract value or the actual withdrawal amount received. Withdrawals and distributions of taxable amounts are subject to ordinary income tax and, if made prior to age 591⁄2, may be subject to an additional 10% federal income tax penalty. Annuities are not FDIC-insured. All references to guarantees arising under an annuity contract are subject to the financial strength and claims-paying ability of the carrier. This does not constitute legal, accounting or tax advice, and the recipient should consult with his or her legal, accounting or tax adviser regarding the instruments described in this material.

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Annuities and insurance services provided by SIMON Annuities and Insurance Services LLC, an affiliate of iCapital, Inc. Structured investment and certain annuities products and services may be offered through SIMON Markets LLC. Alternative investment products and services may be offered through iCapital Securities, LLC. iCapital Securities LLC and SIMON Markets LLC are each a registered broker/dealer, member FINRA and SIPC, and an affiliate of Institutional Capital Network, Inc. (“iCapital”). These registrations and memberships in no way imply that the SEC, FINRA, or SIPC have endorsed the entities, products or services discussed herein. iCapital and iCapital Network are registered trademarks of Institutional Capital Network, Inc.

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Scott Stolz, CFP, RICP

Scott Stolz, CFP, RICP

Scott is a Managing Director on the Annuities Solutions team. He previously was Head of Insurance Solutions at SIMON Markets LLC, a financial technology company acquired by iCapital in August 2022. Previously, Scott served as the President at Raymond James Insurance Group, where he leveraged his 40 years in the annuities industry to manage the due diligence, sales, and operational functions for annuities and life insurance distribution. A frequent speaker and panelist on any topic related to annuities, Scott has also authored two books on annuities: Unlocking the Annuity Mystery: Practical Advice for Every Advisor (2020) and Rest-Easy Retirement (2023). He received both his MBA and BSBA in Finance from Washington University in St. Louis and holds his CFP and RICP certifications.