Life and Annuities Forecast: What’s Ahead Through 2027?

February 2025

Economic factors play a heavy role in life and annuity product sales trends. They impact not only overall growth but also determine the mix of products and which types of insurance and annuities are popular during a given period. The past few years have seen slow growth for individual life, following the COVID-19 public health emergency — although some life products have seen spectacular growth over the past few years. Contrast this with strong increases in the annuity market, driven by favorable short-term interest rates and a strong equity market.

Economic Factors

Economic predictions are difficult in general and become even more challenging during a period of policy change. Forecasting in the current environment is difficult, as the continuation of the trends we’ve seen — moderating inflation, interest rate cuts and stock market growth — depend heavily on future policy decisions by the incoming administration.

At this point, Moody’s economic forecast assumes that the status quo will continue. The consumer price index is expected to remain moderately low as inflation is forecast to remain around 2 percent, with a slight jump in 2026. This could change as proposed tariffs could restart inflation growth. That would impact interest rate trends, which have had a major impact on life and annuity trends.

The Federal Reserve cut interest rates in December again, but additional cuts in 2025 are in question, and higher inflation might lead to a pause or even increases. Consumer spending power isn’t expected to increase as household income levels are expected to increase at or slightly faster than inflation.

Noneconomic Factors

There are other noneconomic influences that will impact sales over the next few years.

Regarding individual life, consumer demand continues to soften from the heightened levels experienced during the peak of the COVID-19 pandemic. There are no major regulatory changes on the horizon for 2025. Currently, provisions of the Tax Cuts and Jobs Act are set to expire at the end of 2025, including deductions for pass-through entities and a return of the estate tax to prior levels. The incoming administration has discussed extending the cuts.

Demographic assumptions are a key influencer for annuity sales over the next few years. More than 4.1 million Americans will turn 65 each year through 2027. This will help drive demand for annuity products that offer the core value proposition of protection with guaranteed income.

All of this leads to some uncertainty, which in itself tends to put a damper on life insurance sales as buyers tend to put off survivorship purchases when the estate tax level is uncertain.

Individual Life Forecast

Unemployment levels and inflation impact term sales as this more middle-market-focused product is more dependent on consumer disposable income. If economic forecasts remain favorable, we expect low to moderate growth in 2025 and 2026, with a slowdown in 2027. If unemployment or inflation increases or the country enters a recession, growth will fall to the lower end of our projected ranges with flat sales for the next few years.

Interest rates have negatively affected recent whole life (WL) sales, shifting them toward products with longer premium payment periods that have a lower annual premium. Interest rates also have an impact on the mix of permanent product sales. WL policies are often tied to portfolio rates, which are based on the overall return of the investment portfolio and tend to be more stable. The inverted yield curve in 2023 hurt WL sales. Buyers shifted away from short-pay policies toward lifetime pay with lower premiums. They perhaps invested the premium difference in other permanent products or fixed investment vehicles with a higher return. WL sales are expected to show declines through the end of 2024. If the yield curve reverts to normal, we expect WL sales to return to positive growth in 2025. 

Fixed universal life (FUL) had a spectacular rebound in 2024. While it is tempting to credit this to interest rate increases, life carriers are conservative when reacting to interest rate shifts, and credited rates have not risen significantly. The product may have picked up some customers from the WL line. FUL sales are dominated by the top carriers and heavily influenced by life/long-term-care combination products. This makes predicting future growth difficult. We expect sales to remain strong through the end of 2024. After that, interest rate declines will have a negative impact. Carriers that had strong growth in 2024 will likely see a leveling off of sales as short-term product-related competitive influences reach the end of their impact. We expect FUL sales to grow more slowly in 2025 and return to declines in 2026.

The indexed universal life (IUL) market is experiencing a split between two distinct market segments. Traditional indexed life carriers and distributors have experienced a decrease in premium sales over the past few years. This is partially driven by a reset after the large increases propelled by changes to section 7702 of the tax code and several rounds of illustration regulation.

Rising interest rates also had an impact, as the increases made premium financing strategies more difficult, inhibiting some larger face amount sales. At the same time, some carriers and distributors focusing on simplified products with a lower face amount have had significant success, resulting in policy sales growth, but for policies with lower face amounts and premiums. The net result is that IUL premiums decreased in 2023 and had low growth through 2024. Continued interest rate cuts would lead to moderate growth going forward. If anticipated interest rate cuts do not occur, growth will fall to the lower end of our projected range, increasing a percentage point or two annually.

Variable universal life (VUL) sales have been very strong over the past few years. Given the volatility in interest rates recently, some companies have shifted their focus to VUL to manage risk. The market has also seen growth through protection-focused products with death benefit guarantees and among cash-accumulation products that benefited from section 7702 changes. Strong stock market growth also made this product more appealing. Many carriers saw growth in 2024; however, a few top carriers drove increases to a much higher level through private placement sales. If the stock market continues to increase as expected, barring any unforeseen regulatory impact, we expect continued moderate growth in this product line in subsequent years. The impact of the private placement market is harder to predict and will determine how high sales of this product will go.

All of this portrays a picture of strong growth for some products and more moderate growth for others. Product mix may change, impacted by interest rates, equity markets and other economic factors. Overall individual life sales have averaged around a 3 percent increase in nonrecessionary years. With no expected recession on the horizon, predicted low inflation and no indication of a significant increase in policy sales, we expect overall individual life premium growth to remain in this range.

Individual Annuity Forecast

The annuity industry has experienced an unprecedented increase in sales from 2022 to 2024, marking a historic period of growth that culminated in over $1.1 trillion in total sales. This remarkable performance was driven by a confluence of economic factors, including historically high short-term interest rates and robust equity market performance.

As the industry looks at 2025 and beyond, a nuanced landscape of opportunities and challenges emerges. LIMRA anticipates a measured slowdown in individual annuity sales, reflecting the dynamic economic environment. While short-term interest rates are expected to decline, favorable demographic trends and potentially improving equity markets are projected to provide underlying support for the annuity market through 2027.

The macroeconomic environment presents a complex backdrop for financial products. The U.S. economy stands at a critical juncture, confronted by several systemic challenges including geopolitical uncertainties, global economic volatility and persistent recessionary undertones. In response, the Fed is poised to implement a strategic approach to monetary policy, with planned rate cuts designed to stimulate economic growth and restore market equilibrium.

Financial market projections suggest a fascinating yield curve dynamic. Short-term Treasury yields are anticipated to retreat, while the 10-year Treasury is expected to maintain relative stability at around 4.1 percent. This monetary strategy signals a potential normalization of market conditions, with the yield curve's configuration potentially indicating broader economic recalibration and emerging market confidence.

Within this economic framework, the annuity market is set to experience strategic shifts. Fixed-rate deferred (FRD) annuity sales are projected to decline in 2025. However, fixed indexed annuities (FIAs) and registered index-linked annuities (RILAs) are forecast to maintain strong market momentum, demonstrating the sector's adaptability and continued attractiveness to investors.

Looking ahead to 2027, although the environment looks promising for annuity products, economic factors could be volatile and uncertain. However, if current trends continue, steady increases in equity markets coupled with relatively stable interest rates would create a promising environment for financial products. Notably, demographic trends underscore the market's potential, with projections indicating more than 12 million additional Americans reaching the age of 65 within a three-year span.

This demographic shift presents a critical opportunity for insurance companies and distribution networks. To capitalize, firms must prioritize technological innovation and process optimization. Enhancing advisor experiences and creating more sophisticated, user-friendly solutions will be paramount in expanding the advisor base and deepening annuity product utilization.

An additional layer of complexity emerges from the substantial volume of FRD annuities sold between 2023 and 2024 — approximately $330 billion. As these shorter-duration products exit surrender periods, significant market movement is anticipated. A considerable portion of this business is expected to remain within the annuity ecosystem, with investors seeking products that offer continued growth potential and robust asset protection.

The annuity industry stands at a transformative period, balancing economic uncertainties with innovative product strategies and responsive market approaches. Success will depend on the ability to navigate systemic uncertainties while meeting evolving investor needs.

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