A ‘hybrid annuity’ or ‘hybrid income annuity’ is simply a marketing term applied to a single annuity contract that combines multiple types of benefits into one contract. By combining the best elements of other annuities together, we have a new set of benefits that were unavailable in the market just a few years ago.
If you’ve researched annuities online, most likely you have heard the term bantered about as a one-stop solution to retirement planning, and portrayed in the proper noun sense as if it was a product class of its own. We’re glad you found us while looking for a straight answer, because it can be quite difficult for you to find a hard and fast definitions.
Now before making sweeping generalizations about hybrid annuities being ‘good’ or ‘bad’, take a minute to truly understand what these innovative annuities can do for you. Only then would it be appropriate to say if it’s right for you or not.
Annuities with lifetime income options certainly have a lot of great features, but many sales people either do not fully understand them, or worse, are pushing you into low credit quality carriers that don’t deserve your business.
Just What Is A Hybrid Annuity?
Generally speaking, most annuities that are referred to as ‘hybrids’ will combine the benefits of immediate and deferred contracts, and may often times add an additional life insurance component.
Allow us to show you some specific examples that can be considered a hybrid contract. Simply click the link on each subheading to be directed to the page that more accurately describes the product that may be marketed as a ‘hybrid income annuity’.
Hybrid Annuity #1- The Fixed Index Annuity With A Guaranteed Lifetime Income Rider
A Fixed index Annuity with a lifetime income rider is perhaps the most common annuity type referred to as ‘hybrid annuity’ product. The characteristics that make them a ‘hybrid’ are:
Potential Appreciation – This product type combines the safety of a fixed annuity with potential for market based growth linked to an exterior market index.
Your Account Value can go up, subject to your contract’s terms, but it WILL NOT LOSE MONEY.
Once interest has been credited to the account it cannot be reduced due to negative market performance, which makes this a great retirement income option,as a combination of the features of both a safe, fixed annuity and a lifetime income, immediate annuity.
Death Benefit- Many index annuity contracts add a supplemental death benefit in addition to other provisions. That is meant to add a slight life insurance element to the other benefits of the policy.
Lifetime Income Rider- The most common reason people select this type of annuity is for the lifetime income option. For a nominal fee- generally 1% or less- you can ensure a guaranteed, lifetime income with this type of contract. You income account (The base from which your income is calculated) will grow with every year of deferral, and once you start taking income, it can last for life.
Hybrid Annuity Type #2- Variable Annuity With Lifetime Income Riders
These tax-sheltered investments have various options that combine market growth with various safety features that should classify them as ‘hybrid annuities’, however they are much less frequently marketed this way.
High Water Mark Features- This allows the contract owner to lock in the highest contract value during the term for an additional fee. By offering this type of growth protection, the variable annuity takes on the growth preservation features of a fixed index annuity.Death Benefit- Often times, consumers choose to guarantee a certain level of the initial investment is guaranteed to heirs if death occurs during the surrender period. There a many ways this can be structured but no matter what, it adds a life insurance component to the variable annuity, and thus becomes a ‘hybrid annuity’ product.
Guaranteed Income Riders – Contract Options That Make Simple Index Annuities Into Hybrids:
Quite prevalent on fixed index and variable annuities, guaranteed income riders (often referred to as GLWB or GMIB) add the stability and longevity benefits of immediate annuities to a deferred growth contract. In their basic form, fixed index and variable annuities offer asset growth over time- at a fixed rate in the case of a fixed annuity, and at a market driven rate for index annuities.
However, a GMIB type income riders add additional features that are meant to ensure there is a guaranteed lifetime income benefit amount, regardless of account performance over the term of the contract.
Beware however that account value growth and income benefit growth are not the same! This is the single biggest misconception in the annuity marketplace, and is often glossed over. A thorough analysis is in The Annuity Report, free for our members in the signup box at the bottom of the page.
Again, hybrid annuities combine features from two types of annuity contracts to offer a larger overall set of benefits to a given product. There’s not a kind of annuity called a ‘hybrid’ per se.
We save the most comprehensive information for The Annuity Report, which is free for subscribers. Sign up today and dig into the details so you can determine exactly which type of annuity best suits you. For direct help from an annuity expert, don’t hesitate to call or email with specific questions.