The Drivers of the Efficiency of Protected Lifetime Income Benefit (PLIB) Strategies: Part 3

In my previous articles, I first introduced a new type of longevity product, which I referred to as protected lifetime income benefits (PLIBs) and then compared the PLIB structure to other strategies, such as a SPIA, DIA, and GLWB, based on some previously released research.

The PLIB was remarkably efficient versus SPIAs and DIAs, which may surprise some readers. In this piece, I explore some of the factors driving these outcomes, in particular lapsation, mortality experience differences, accessing the equity risk premium, and the marginal role of annuities as part of a retirement strategy.

PLIBs are likely to appeal to retirees and provide income that is optimal and protected for life, but not necessarily fixed. In the final piece in this series (next week), I will provide some context on optimal risk levels for PLIBs.


SPIAs and DIAs require an irrevocable election, whereby the annuitant cedes the premium in return for guaranteed income for life. The annuitant has no access to the money, like they would for a GLWB or PLIB. This is good and bad for the annuitant and for the insurance company.

Lapsation is the surrender of an investment product before its final, scheduled payment. It is common in the insurance industry; for example, only 50% of level-term life insurance policyholders hold their policies to the end of the term period. The exhibit below shows lapse rates for various life insurance policies.

Lapse rates for individuals with GLWBs vary by a number of factors, but average 6.8% per year after a policy is out of its surrender period. While some of this reflects poor decision making among annuitants/insureds for not using the benefit (since they paid for a benefit they didn’t use), this was not true in all cases. For example, a GLWB gives the annuitant a choice of how to use those assets most effectively versus other strategies that require an irrevocable election (e.g., an immediate annuity). A GLWB also provides an opportunity to “cash out” the policy and buy income at an even higher rate should the markets do well and/or interest rates rise.