Why wouldn't someone assume that the more years in which they have a relationship with the insurer, the more they are paying in fees to the insurer? The difference in mortality credits is more subtle, but that is not a free lunch-- it is paid by a reduced expected value of the annuitant's estate. Heirs will de facto pay it if the annuitant dies young.GoWithTheCashFlow wrote: It may be perfectly reasonable to pay an insurance company to manage one's assets for current income, just like it may be perfectly reasonable to pay an advisor to manage one's assets. As long as one understands that is what is happening, then who am I to say they shouldn't?
But the annuitant is not just paying the insurer to manage the annuitized asset portfolio-- the insurer also is absorbing its risk. The annuitant may have the ability to match duration of the asset to the liabilities, but the insurer may include bonds with credit risk in the portfolio, providing a higher return even after taking their fees out, while absorbing the credit risk. The risk of the insurer becoming insolvent likely is not compensated in that return, but idiosyncratic solvency risk can be covered through a state insurance guaranty pool.