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IOVA – A Perilous Term?

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About a month ago I was catching up via phone with a longtime industry contact, who gave me a little food for thought I figured I’d share with you.

We were discussing recent annuity product trends and I brought up what some industry people are calling “investment-only variable annuities” or IOVAs. Forgive me if most of you already know this, but, to be clear, IOVA contracts offer no guaranteed living benefits, and are, in my view, just one manifestation of the de-risking activity insurers are engaging in these days.

My contact, who, as per request, will be unnamed, had misgivings about the acronym, cautioning it might provide an opening for Washington legislators on the hunt for tax dollars to take a crack at removing the deferral component from these annuities. Such officials might argue that, if the product is indeed investment only and not going to be used for retirement income, it begins to look like a tax shelter.

I thought my contact made a good point, because in our industry, semantics matter. For years the industry used the term equity index annuity, only changing it to fixed index annuity after regulators sought to require those products to be registered as securities. The industry managed to fight off that threat. My contact also pointed out that over the years insurance tax lawyers have even worried about less notable descriptions and features.

After our conversation I decided to ask other industry people what they thought of “ IOVA” and got a mix of answers. Some thought that the fact “annuity” is in the mix should counter any objections. Others had their own concerns about the implication of the word “only.” During an informal conversation at a recent conference, an attendee told me that at least one major insurer (which I won’t name here as the person was not from that company) has problems with using IOVA, although no one there has said so publicly, to my knowledge.

In my view the coining of a term like IOVA speaks to the fact that guaranteed benefits have become such a driving force in VA sales that any contract that does not contain them seems to warrant new jargon. And yet the upshot is that insurers are simply going back to what the VA looked like before such benefits existed.

What’s my take? I think it might be a good idea to come up with an alternative catchphrase, such as investment-focused or accumulation-focused VAs, just to be on the safe side. What do you think? I would welcome any thoughts and feedback on this topic.

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