Low Interest Rate Environment
Throughout most of the 70’s, 80’s, and 90’s, annuities provided a minimum interest rate guarantee of 4%, then 3.5%. You would think that having a product with an interest rate guaranteed for the life of the contract would have been very popular. However, when your initial interest rate is 15.75% guaranteed for 3 years with a surrender charge free bail-out clause if the rate decreased below 15.75%, little attention, unfortunately was given to minimum interest rates. Then, all of a sudden, interest rates began to fall and fall and fall. Consumers and financial professionals quickly learned that the fixed annuity could provide something that few, if any, other financial products could deliver, a guaranteed interest rate for the life of the policy. Needless to say, the insurance industry also realized that their minimum interest rates had to decrease.