The History of Annuities in the United States

James M. Poterba

NBER Working Paper No. 6001
Issued in April 1997
NBER Program(s):Economics of Aging, Asset Pricing, Corporate Finance, Public Economics

This paper summarizes the development of private annuity markets in the United States. Annuities constituted a small share of the U.S. insurance market until the 1930s, when two developments contributed to their growth. First, concerns about the stability of the financial system drove investors to products offered by insurance companies, which were perceived to be stable institutions. Flexible payment deferred annuities, which permit investors to save and accumulate assets as well as draw down principal, grew rapidly in this period. Second, the group annuity market for corporate pension plans began to develop in the 1930s. The group annuity market grew more rapidly than the individual annuity market for several decades after World War II. The most recent development in the annuity marketplace has been the rapid expansion of variable annuities. These annuity products combine the investment features of mutual funds with the tax deferral available for life insurance products. Variable annuity premium payments increased by a factor of five in the most recent five years for which data are available.

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Document Object Identifier (DOI): 10.3386/w6001

Published: Published as "Comparing the Cost of Capital in the United States and Japan: A Survey of Methods", FRBNY, Vol. 15, nos. 3/4 (1990): 20-32.

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