Illinois Insurance Continuing Education - Variable V. Equity Index Annuities
Monday, February 23rd, 2009edward hulse asked:
Of course Variable Annuities share many of the same provisions other annuities, but there are some provisions that are unique to the VAs that should be known to the agent.
Fixed Account? It is about half “Yes” and half “No.” Of course this is of prime importance to the marketer of Variable Annuities.
Current Credited Interest Rate. Most credit 3%, but one company credits 4%, another 0%.
Minimum Guaranteed Interest Rate. Most are at 3%, but some are only 1.5%.
Market Value Adjustment? This ranges from “None” to 3-5-7-10 year.
Investment Option - Fund Management Firm. This separates the “men from the boys” and is at the heart of the Variable Annuity. Each of the Options should be broken down into
Annualized Rate of Return
Investment Advisory Fee
Fund Operating Expense
12b-1 Fees.
Total Number of Funds Offered. 21 to 63 funds offered.
Mortality and Risk Charge. .9% to 1.6% Apply this is a sample premium of $20,000 and notice the difference - $180 to $320.
Asset Based Administrative Charge (if separate from M&E). .15% to .2 %
Guaranteed Minimum Death Benefit (GMDB). Most are reset up only, annually, with accumulated benefit of 5%. There are some that have Return of Premium, and reset benefit every 6 years.
Policy Fee. Ranges from zero to $30 that is waived at $50,000. Has there ever been an agent who hasn’t lost a sale because they “forgot” the policy fee, small though it may be?
GMDB Cap, Max. age, Additional Cost (if Rider). This also varies greatly by company and by product and policy form. The agent must become proficient in interpreting accumulation benefit, ratchet & ratchet rider, annual step-up, contract value for return of premium, etc., as they are all used by various policy forms.
Annuitization Options. Variable Annuities generally allow variable annuitization option and/or fixed annuitization option.
EQUITY INDEX ANNUITIES
EIAs have a lot of similarity to Variable Annuities in respect to important provisions, but with some differences.
Index Values Available for Free Partial Withdrawals. An unique feature of an EIA. Most companies allow this, but some do not.
Method for Determining Surrender Values. Nearly always the contract can be surrendered during index term. The amount varies widely and each annuity contract must be studied carefully in this respect.
Waivers. Waivers range from after year one and confinement in a nursing home over a minimum of 5 years, to nursing home and/or terminal illness which will allow for more than 10% to be withdrawn but with penalty fee. This varies so widely also that each contract needs to be carefully reviewed.
Index to Which Product is Tied. Usually this is S&P 500, but some companies specify Dow Jones Averages, or some companies give a choice of 3-4 indexes.
Indexing Method. The indexing methods will be discussed in the Chapter on EIAs. Most companies at this time use the annual ratchet method or annual point-to-point. Some companies offer a wide choice of methods with different plans.
Caps on Annual Earnings &/or Cap on Total Return Over Contract Term. Some annuities do not have a cap, others have caps on annual earnings and total return. These caps are based upon various options, so these caps, MUST be known and reviewed periodically in case there are changes in new products.
Current Participation Rate. Extreme important. As discussed later in the text, this is the percentage of premiums that will be invested from the premiums paid and can range from 100% to 55%, usually depending upon the indexing method.
Participation Rates for the Past 12 Months. This is another “MUST” and can be quite informative as it can range from 100% each month, down to range of around 55% each previous month.
Value at Death or Annuitization. For those not familiar with this product, it is rather interesting to see the varying death and annuitization benefits. Most pay full index value at death, but some do not. The professional agent must pay attention to this also.
Illinois Insurance Continuing Education
Randy
Of course Variable Annuities share many of the same provisions other annuities, but there are some provisions that are unique to the VAs that should be known to the agent.
Fixed Account? It is about half “Yes” and half “No.” Of course this is of prime importance to the marketer of Variable Annuities.
Current Credited Interest Rate. Most credit 3%, but one company credits 4%, another 0%.
Minimum Guaranteed Interest Rate. Most are at 3%, but some are only 1.5%.
Market Value Adjustment? This ranges from “None” to 3-5-7-10 year.
Investment Option - Fund Management Firm. This separates the “men from the boys” and is at the heart of the Variable Annuity. Each of the Options should be broken down into
Annualized Rate of Return
Investment Advisory Fee
Fund Operating Expense
12b-1 Fees.
Total Number of Funds Offered. 21 to 63 funds offered.
Mortality and Risk Charge. .9% to 1.6% Apply this is a sample premium of $20,000 and notice the difference - $180 to $320.
Asset Based Administrative Charge (if separate from M&E). .15% to .2 %
Guaranteed Minimum Death Benefit (GMDB). Most are reset up only, annually, with accumulated benefit of 5%. There are some that have Return of Premium, and reset benefit every 6 years.
Policy Fee. Ranges from zero to $30 that is waived at $50,000. Has there ever been an agent who hasn’t lost a sale because they “forgot” the policy fee, small though it may be?
GMDB Cap, Max. age, Additional Cost (if Rider). This also varies greatly by company and by product and policy form. The agent must become proficient in interpreting accumulation benefit, ratchet & ratchet rider, annual step-up, contract value for return of premium, etc., as they are all used by various policy forms.
Annuitization Options. Variable Annuities generally allow variable annuitization option and/or fixed annuitization option.
EQUITY INDEX ANNUITIES
EIAs have a lot of similarity to Variable Annuities in respect to important provisions, but with some differences.
Index Values Available for Free Partial Withdrawals. An unique feature of an EIA. Most companies allow this, but some do not.
Method for Determining Surrender Values. Nearly always the contract can be surrendered during index term. The amount varies widely and each annuity contract must be studied carefully in this respect.
Waivers. Waivers range from after year one and confinement in a nursing home over a minimum of 5 years, to nursing home and/or terminal illness which will allow for more than 10% to be withdrawn but with penalty fee. This varies so widely also that each contract needs to be carefully reviewed.
Index to Which Product is Tied. Usually this is S&P 500, but some companies specify Dow Jones Averages, or some companies give a choice of 3-4 indexes.
Indexing Method. The indexing methods will be discussed in the Chapter on EIAs. Most companies at this time use the annual ratchet method or annual point-to-point. Some companies offer a wide choice of methods with different plans.
Caps on Annual Earnings &/or Cap on Total Return Over Contract Term. Some annuities do not have a cap, others have caps on annual earnings and total return. These caps are based upon various options, so these caps, MUST be known and reviewed periodically in case there are changes in new products.
Current Participation Rate. Extreme important. As discussed later in the text, this is the percentage of premiums that will be invested from the premiums paid and can range from 100% to 55%, usually depending upon the indexing method.
Participation Rates for the Past 12 Months. This is another “MUST” and can be quite informative as it can range from 100% each month, down to range of around 55% each previous month.
Value at Death or Annuitization. For those not familiar with this product, it is rather interesting to see the varying death and annuitization benefits. Most pay full index value at death, but some do not. The professional agent must pay attention to this also.
Illinois Insurance Continuing Education
Randy
