Though insurance companies' sales of on-line annuity offerings have proven disappointing, one underwriter is taking a new tack with a product that it says is the first purely on-line annuity.

Lincoln National Corp. of Fort Wayne, Ind., introduced eAnnuity in late September. The variable annuity, which is sold only over the Internet, boasts fees about three-quarters of a percentage point lower than those charged by financial advisers on the average variable annuity.

To succeed on the Internet, "you need to distribute product for a cost similar to no-load mutual funds," said Shane A. Chalke, vice president of Internet marketing for Lincoln Life, a unit of Lincoln National.

Though the product has been on the market for two months, Mr. Chalke declined to discuss how it is selling.

To tailor the product to the Internet, Mr. Chalke eliminated the death benefit feature-the most complicated component of most an nuities. Lincoln's research showed that that feature is not popular with customers, though brokers like it, he said.

Lincoln has also eliminated the fixed account, the portion of an annuity that uses low-risk investments to guarantee principal. That frees more capital for better yielding though potentially riskier investments.

The annuity offers 14 underlying investments from fund companies such as Putnam Investments, Janus, and Delaware Investments.

The annuity's annual fees are 122 basis points, compared with the industry average of 197, the company said. The eAnnuity has a surrender charge of 3% in the first year, 2% in the second, and 1% in the third.

Customers can buy the annuity with a paper check, but the secured portion of Lincoln National's site also accepts electronic fund transfers from bank accounts or mutual funds.

When eAnnuity becomes available on several bank Web sites, which Mr. Chalke said he expects to happen within nine months, payments may be made through linked bank accounts. Mr. Chalke said eAnnuity is designed to achieve better results than other underwriters have had with Internet annuity sales.

Just two years ago Boston-based Liberty Financial Cos. had high hopes for a fixed annuity it designed for the Internet.

Its Websaver Annuity was touted as using the Internet to attract and educate investors and thereby lower sales and operating costs.

"It was very successful from a research standpoint, but it hasn't been from a commercial standpoint," said Jeremy C. Jaffe, vice president electronic commerce at Liberty. In its first year of marketing, at a time fixed annuities were still selling well, Websaver attracted less than $10 million and has continued to do poorly, he said.

Mr. Jaffe said that Liberty is monitoring new products closely but has not decided whether it will further pursue Internet annuities.

One product he is watching is eAnnuity.

"What eAnnuity is trying to do is create a consumer-driven product, and I think they are on the right track with that," Mr. Jaffe said.

Though the Internet is visited by a broader spectrum of users today than when Liberty launched Websaver, Mr. Jaffe said, the demographics are stacked against annuity sales there.

"You look at the profile of a person buying an annuity, and generally they have been older and not as independent in their decision-making," Mr. Jaffe said. They are generally older than mutual fund buyers, he said.

Mr. Chalke disagrees with this thinking.

"Our customers are defined more by attitude," he said. Any age group, including Generation Xers, that tends its own finances and uses monitoring products such as Microsoft Money or Quicken contains potential eAnnuity buyers, he said.

"That's 15 million consumers," he said. "We're looking for people currently buying taxable mutual funds."

In essence, aside from the annuitization feature, eAnnuity resembles a tax-free mutual fund, he added.

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