Few names are more closely associated with retirement than AARP. So Andrew Tignanelli, president of Financial Consulate, a Lutherville (Md.) financial-planning firm, figured the retirement products AARP offered were sure to be winners. But after comparing the nonprofit's new mutual funds and annuity, plus older life insurance offerings, with those of rivals, Tignanelli reached a surprising conclusion: "The majority of people can get a better deal elsewhere."AARP is best known for its advocacy on behalf of those 50 and over. But AARP also has a thriving business licensing financial and health insurance products. AARP, through a for-profit subsidiary, teams up with companies including New York Life and UnitedHealth Group (UNH), which pay it a royalty on each sale—in some cases up to 3.7%. In 2006, the latest year for which figures are available, such royalties contributed about $400 million to AARP's $1 billion budget, or almost twice the income from member dues.
A big chunk of those revenues came from Medigap health-insurance policies, which cover expenses Medicare does not. This is an area where the association tends to offer bargains. Premiums for AARP-UnitedHealth policies are among the lowest in many states, according to a BusinessWeek analysis of rates filed most recently with state insurance departments for Plan F, a comprehensive Medigap policy. Among the 14 such policies offered in Connecticut, AARP's policy is second-cheapest. In New York, AARP's Plan F is generally the cheapest. In the Chicago area, its premiums are lower than some two-thirds of competitors.
AARP's retirement and estate-planning offerings are far less attractive. For those without serious health problems, its permanent life insurance, which pays heirs regardless of when the insured dies, and its term life insurance policies, which provide temporary coverage, charge high premiums when stacked up against those of rivals. AARP-branded mutual funds are twice as expensive as offerings from Vanguard. (Both use index funds.) And AARP's immediate annuity, which converts a lump-sum payment into guaranteed monthly income for life, generates a lower payment stream than an investor 75 or younger could get elsewhere. "Just because it says AARP doesn't mean it's a good deal," says Mark Maurer, vice-president of Low Load Insurance Services, a Tampa broker that advises fee-only financial planners looking for insurance products on behalf of clients.
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