The annuity/long-term care insurance (LTCI) combination is one of the more entrenched annuity hybrids, though it remains a niche product. Typically built on a fixed immediate annuity chassis, this class of hybrid is designed to capitalize on provisions in the Pension Protection Act of 2006 that give tax-free status to distributions from combination annuities used to cover long-term care costs, and another that permits owners of life insurance and annuity contracts to move into a combo annuity via a tax-free 1035 exchange (benefits that apply only to non-qualified annuities).
HYBRIDIZING TO FORTIFY GUARANTEES
The fixed index annuity (FIA) has long been viewed as a hybrid of its fixed and variable cousins. But another instrument known as a hybrid annuity is also carving out a niche for itself. Essentially it’s an insurance contract that allows the investor to allocate funds to both fixed and variable annuity sub-accounts by purchasing units of a variable annuity and units of a fixed annuity.
HYBRID HEDGES AND OTHER NEW TWISTS
To afford investors access to derivative investment vehicles while protecting them from downside risk, AXA Equitable has integrated elements of a structured note into its Structured Capital Strategies variable annuity. It’s built primarily for investors seeking exposure to domestic, international and commodities indices over varying time horizons. Through the product’s structured investment option, contract holders design a portfolio from among 15 equity and commodity index-linked segment types, with upside caps and downside buffers customized to individual time horizons. The built-in downside buffer reduces the negative impact of market volatility to the first 10 percent to 30 percent of loss in index value, depending upon the investment option makeup. That’s balanced by a performance cap rate on upside appreciation.