Life Insurance Companies Profit From Retiree Fears About Currency Values

In an effort to allay their fears, many U.S. retirees are buying up immediate annuities in record numbers. One of the reasons for this new trend may be because lifetime payments are guaranteed by American insurance companies.

These immediate annuities work by allowing the policyholder to pay a lump sum up front, which will then be used to pay a period fixed payment for the lifetime of the customer.

According to New York Life Insurance, there has been a 80% increase in overall sales for these type of contracts during the first quarter of 2009 versus the amount reported the previous year.

With more baby boomers seeking a way to transform assets to income, the number of those who choose income annuities as a guarantee that they will meet basic necessity will continue to grow.

Other sources report that the sales of immediate annuities, which begin paying investors in just over a year from the time of purchase, increased by 30% in 2008 to an estimated $8.6 billion. Interestingly enough, variable annuities experienced a 15% decrease in sales while fixed annuities increased by 50%.

Many U.S. insurers are hoping that revenue received from these annuities will help to balance the huge investment write-offs caused by the implosion of the American mortgage market. The industry as a whole has lost well over $190 billion since the start of 2007. The S&P has downgraded 30 life insurance companies since last year; in some cases, there have been multiple downgrades.

The purchase of these immediate annuities with the fixed payouts, has led retirement investors to issue a word of caution to retirees. With a fixed payout, there may be a loss of control over those initial investments. Therefore, it may be wise to diversify your source of savings.

With life expectancies on the rise, older Americans want to have money to live on in their golden years and protection from ups and downs of the market.