Annuities

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Annuities primarily offer a source of income, either now or at a set future date, such as retirement. An annuity can also have a tax advantage. For example, a deferred annuity accumulates tax-deferred interest until you withdraw the funds.

An annuity is a series of payments that acts similarly to a savings plan to provide primary or supplementary retirement income. An insurance company pays annuity benefits while you are alive (except for fixed-period annuities). You can convert some life insurance policies into annuities by taking the cash value of the insurance policy and buying the annuity contract that best suits your needs. An annuity also has a tax advantage. For example, a deferred annuity accumulates tax-deferred interest until you withdraw the funds. DFS regulates life insurance agents and companies that sell annuities.

With access to a myriad annuities/ life insurance companies we have the ability to find the annuity that fits your needs. Let us find you the perfect annuity fit.

Types of Annuities:

	What are the most common types of Annuities?
	Common Annuity Product Provisions
	Benefit Payment Plans
	Group Versus Individual Annuities
	Other Types of Annuities
	What to Consider Before Buying an Annuity
	Your Rights and Responsibilities
	Glossary
	What is a maturity date?
	Is an Annuity right for you?
	FAQ:

What are the most common types of Annuities?

Single Premium: An annuity that is purchased by paying one lump sum to the insurance company as premium.
Flexible Premium: An annuity that is purchased by paying multiple premiums to the insurance company.
Immediate Annuities: With an immediate annuity, you pay a single premium and immediately start receiving payments at the end of each payment period, which is usually monthly or annually.
Deferred Annuities: A deferred annuity is established by you paying one or more premiums over what is referred to as accumulation period. The premiums you pay and the interest credited to the premiums goes into a fund called an accumulation fund. There may be a minimum guaranteed interest rate at which your money will accumulate during the accumulation period. The annuity payments you will receive begin at a future point in time called the maturity date. You will receive payments during a time period called the payout period. You do not pay income taxes on the interest earned during the accumulation period unless you withdraw funds from its cash value. These taxes are deferred until the payout period.
Fixed Annuities: A fixed annuity provides fixed-dollar income payments backed by the guarantees in the contract. You cannot lose your investment once your income payments begin. The amount of those payments will not change. With fixed annuities, the company bears the investment risk.
Equity Indexed Annuities: Is an annuity, either immediate or deferred, that earns interest or provides benefits that are linked to an external equity index, such as Standard and Poor's 500 Composite Stock Price Index. When you purchase an equity-indexed annuity, you own an insurance contract not shares of any stock or index.
Variable Annuities: Variable annuity investments are securities, which tend to fluctuate with economic conditions. The value of a variable annuity depends upon the value of the underlying investment portfolios associated with the annuity. The owner bears the investment risk for the value of the security. The value of the annuity will increase with a favorable investment performance of the security. The annuity's value will decrease with a poor investment performance. In fact, you can lose your investment. A product receives the classification of a variable annuity if the value during either the accumulation period or the payout period depends on the value of the security. Some variable annuities provide a choice of either a variable payout or a fixed payout.

Common Annuity Product Provisions

You should carefully compare the following features, depending on the type of annuity you are considering.

Accumulation period: Time between the purchase of the annuity contract and the payout period when annuity premiums are paid-be sure that the contract will allow the annuity payouts to begin when you will need them.

Administrative/maintenance fees: Deductions taken from premiums or the accumulation fund.

Agent commissions: Level of commission earned by agents who sell the annuity-this level is usually a percentage of the annuity premium. In general, a higher commission results in less money to provide your benefits, and a lower commission results in greater benefits, such as a higher credited interest rate or lower surrender charges.

Annuitization phase: Period of time when you receive payments, defined by the annuity contract.

Bailout provision: Provision offered by some companies that allows you to withdraw all your money without penalty if the interest rate drops below a specified rate.

Contractually guaranteed bonuses: Bonus interest credit offered by some annuities. Make sure you understand the conditions necessary to earn the credits.

Expense charges, fees and loading: Administrative fees the company deducts from your premiums or the accumulation fund.

Free withdrawal provisions: Allowance provided by deferred annuity contracts to withdraw a limited amount of funds on an annual basis without a surrender penalty- the IRS Code may charge a penalty for those younger than 59 ½ who make such withdrawals. Decisions to make an early withdrawal may include early retirement or a financial need.

Guaranteed minimum interest rate: Lowest interest rate a company may credit to a fixed annuity accumulation fund, as stated in the contract.

Initial credited interest rate: Interest rate the insurance company credits to your premium when first issuing the policy-the company may guarantee this rate for an initial guarantee period of one or more years. Otherwise, the rate is not guaranteed, which means it may change at the company's discretion.

Interest rate credited on renewal: Interest rate credited on the premium dollars paid into a policy after the first year-companies may advertise a high initial interest rate, but after the first anniversary credit a much lower interest rate. Ask your agent how the renewal interest rate compares with the initial interest rate.

Issue age range: Age range during which the company will issue a policy to a consumer. Market value adjustment (MVA): A feature of some annuity contracts in which the value could be affected by changing interest rates on other investments.

Minimum premium required: Minimum premium level required by some annuities for initial and subsequent premiums. Monthly income per $1,000: Rates for annuity payout plans in terms of a monthly income per $1,000 applied-the company multiplies the value of the accumulation fund by this rate to determine the monthly payments that you will receive during the annuitization phase or payout period.

Surrender charge schedule: Penalty imposed by most annuity contracts for withdrawals or surrenders made during the early years of the policy-the amount of these charges varies widely among insurance companies and may change over the life of the contract. Penalties can be as high as 25 percent or as low as 1 percent. Also, these penalties may be assessed any time during what is known as the "surrender period," which can be applicable for as long as 20 years. Because of the wide variation in charges and time periods, you should consider carefully whether a specific annuity policy is suitable for you.

Transfer privileges: Generally, the issuer of the variable annuity will permit a limited number of money transfers among the underlying investment portfolios free of charge.

Tax-qualified annuity: Contract that allows you to defer income taxes on the interest earned in an annuity-it also allows you to deduct your premium payments from your taxable income when filing your tax return with the IRS.

Waiver of surrender charges if confined to a nursing home: Rider or policy provision allowing you to withdraw your money without penalty if you become disabled and confined to a hospital, nursing home or extended care facility for a specified period-policies usually require that you purchase them before you reach a certain age to be able to use this option. Ask your agent and check your contract for restrictions.

Note: Many companies will now allow the date that you may begin to receive payments to be changed. For more information please ask your agent or refer to your contract.

Benefit Payment Plans

Payments for annuities come in four basic plans: life income, fixed period, fixed amount, and joint and last survivor. These appear in deferred annuities, as well as some life insurance contracts, usually as options for payments of the death benefit proceeds.

Life Income

This payout plan includes three basic variations:

Life Only:

Payments are made only until your death.
Pays the most income for each dollar of premium paid into the fund.
Payments stop when the annuitant dies. If you die before payment of all the funds, the company keeps the excess.

Certain and Life:

Payments are made during a predetermined time frame, called the period certain
If you die before this period expires, your beneficiary receives payments until the end of the period.
If you live beyond this time frame, payments will continue until your death.

Installment Refund:

You, the annuitant, receive a lesser payment amount than you'd receive with the "life only" variation.
The beneficiary receives the balance of the unpaid account value, if any, upon your death.

Fixed Period

With this plan, the company guarantees payments for the number of years allowed by your contract and selected by you. This number is called the years certain and is frequently 10 or 20 years. If you die before the specified number of years, the company pays the remainder of the contract to your beneficiary or estate.

Fixed Amount

With this plan, you receive payments in the amount you choose until the funds are exhausted. If you die before the payment of all funds, the company pays the remaining proceeds to your beneficiary or estate in a lump sum.

Joint and Last Survivor

This plan makes payments as long as the two people named in the policy are alive. When one dies, the amount of the payments may diminish according to the terms of the contract.

Group Versus Individual Annuities

Insurance companies are marketing an increasing number of annuities on a group basis. Group annuities typically benefit from economies of scale, which means the insurer passes on cost savings for marketing and administering the product to the consumer. Group annuities fund many tax-sheltered retirement programs. These programs, whether sponsored by employers, unions or other groups, often draw a multistate membership. Differences in state laws, however, sometimes create difficulties for groups providing benefits for members from different states under a single contract. Many states, including Florida, enacted laws to eliminate conflicts that might prevent a group from providing benefits to its members. These laws allow out-of-state contracts in which groups may issue contracts in one state and send coverage certificates to members in other states.

The terms of such annuities are subject to the laws of the jurisdiction where the master contract is issued, not Florida law. The annuities are then marketed to individuals in Florida. To be permitted to issue individual annuity certificates through such a group, the insurer is required by law to provide proof to DFS that some savings can be expected. But the amount saved may or may not offset the loss of the protections of Florida law. Be very careful when you are offered an annuity as part of an out-of-state group.

Other Types of Annuities

Market Value Adjustment Annuities

These annuities contain a provision that changes the amount of money you can withdraw from the policy by a formula in the contract. This formula reflects changes in the investment environment.

No Cash Value Annuities

These annuities do not provide any cash surrender values until the maturity date. You should not consider this type of annuity unless you feel certain you will not need your money in a lump sum but as monthly income beginning at the maturity date.

What to Consider Before Buying an Annuity

Annuity products primarily offer a source of income, either now or at a set future date, such as your retirement. If this is not what you are seeking, then you should consider other types of investments. An annuity involves a long-term commitment. Other more appropriate investments exist for those seeking short-term opportunities (i.e., less than a decade). You might wish to consult a trusted financial adviser who has no vested interest in your investment choice. Many annuity marketing programs encourage you to move funds from maturing certificates of deposit into annuities. These are not comparable investment instruments because they have different purposes and time frames. Be sure you invest your money in a way that best suits your needs.

Recent legislative changes now require insurance companies and agents offering annuity products to seniors older than 65 to clearly document the basis for selling the product, including consideration of a senior's financial and tax status, as well as investment objectives. You should consider all of the consequences if you currently have funds in an annuity and the opportunity arises to move the funds into a new annuity with a new surrender charge schedule. Also, the guaranteed minimum interest rate in the new contract may be lower. Be sure you consider both the advantages and disadvantages of the replacement purchase. You should review the complete plan, considering such factors as the guaranteed interest rate, the surrender charges, and the administrative and maintenance fees. A high interest rate during the first year is not always the better choice. This is especially true if the interest rates drop to a low minimum rate the next year with high surrender charges and additional fees. Ask your agent for the company's history on crediting its interest rates and check to see how credited interest rates vary between new issues and renewal years. Ask for the required disclosure material used with the plan that interests you.

The advertising material should reflect the actual payouts of the contract. Most companies will offer you computer generated sales illustrations that provide a customized projection for the contract under consideration. Be sure that you receive all pages of the illustration and that you read and understand all the features. Also, be sure you understand which values the contract guarantees and which values are not guaranteed, but are merely projections or estimates. Ask the agent or broker about the type of investments offered by the company and whether these are secure. The company may also address this in its advertisements.

Your Rights and Responsibilities

Your Rights

You have the right to receive a policy summary that includes a "Cost Index" and a "Buyer's Guide to Life Insurance" from a company or agent. Both publications fully explain the use of cost and payment indexes. This does not apply to variable life insurance policies.

You have the right to receive either a policy summary or a "free look" period (at least 10 days) to decide whether to keep a life insurance policy or annuity. (This does not include variable life insurance or annuity policies.) You may still receive a full refund if you have paid a premium and decide to return the policy during this period. You should return the policy to the company by certified mail within the specified period. As of January 1, 2009, all life insurance and annuity policies will include a 14-day free look period.

You have the right to a 30-day grace period during which you may pay overdue premiums. Your policy remains in force during this grace period. This provision applies to life insurance only.

You have the right to receive a prospectus when considering a variable life or annuity contract. Upon request, an agent or company must provide you with a prospectus that contains extensive information about the investments backing the variable life or annuity contract you are considering.

Your Responsibilities

You are responsible for evaluating your needs and making sure the insurance company and policy contract you choose can fit those needs. You are responsible for shopping around and comparing costs and services.

You are responsible for reviewing and understanding the surrender charges that may be imposed if the policy is surrendered.

You are responsible for finding out the licensure status of an insurance or securities agent and company.

You are responsible for buying only the amount of life insurance you need and can afford.

You are responsible for reading your policy or contract and making sure you understand what it covers.

You are responsible for keeping your insurance and annuity policies and records at home. Keep copies in a safe deposit box or with a friend or attorney.

You are responsible for telling your beneficiaries about the kinds and amounts of life insurance you own and where you keep your policies.

You are responsible for reviewing your coverage periodically to be sure it meets your needs.

You are responsible for filling out your application truthfully and disclosing all pertinent information.

Glossary

Accelerated Death Benefit

Allows the owner to receive a percentage of the face amount of a policy if the insured is diagnosed as "terminally ill" or confined to a nursing home and wants to use proceeds of the policy for immediate needs. (Terminally ill usually means that a person is expected to live for a short period of time. Individual policies will have their own definition of "terminally ill.")

Accidental Death Benefit

Also known as a "double indemnity," this policy provision pays an additional amount should the insured's death occur by accident. In some circumstances, policies will pay up to three times the face amount should death occur by a specific type of travel accident, such as a plane crash. Some pay a partial benefit for dismemberment, i.e., loss of an eye or limb.

Amendment

An attachment that modifies certain policy benefits.

Annuitant

The person who receives the annuity payments during his or her lifetime.

Automatic Premium Loan

An optional provision that allows for the automatic payment of unpaid premiums by a policy loan. You may only obtain such a loan if your life insurance policy has sufficient cash value. This feature acts as a safeguard if you forget or cannot make a particular payment.

Beneficiary

The person or entity who receives the insurance money when the insured dies.

Benefit

The payment made by the insurance company in accordance with your policy.

Cash Value(or Cash Surrender Value)

The money available to borrow as a life insurance policy loan or withdraw upon surrender of the policy before maturity.

Churning

A fraudulent practice in which insurance agents mislead consumers into giving up the cash value of, or taking loans against, current life policies to buy new coverage with the same company. These schemes usually include the misrepresentation or omission of pertinent information about the consumer's existing policy and how it will be affected by the use of its value to fund the new policy.

Cost Index

A system for comparing the costs of similar life insurance plans. A policy with a smaller index number is usually a better buy than a comparable policy with a larger index number.

Disappearing (or Vanishing) Premiums

A provision that enables the policyholder to use excess cash deposits to allow for the discontinuance or disappearance of premium payments at some future date. It offers no guarantees, however, as to when you will have enough excess deposits to allow for this occurrence. The rate of return on the policy affects its ability to pay for itself.

Dividend

Money paid annually to a policyholder as a partial return on the paid premium. Many times, you may use the dividends to increase cash values and death benefits.

Endorsement

An addition to a policy that modifies its benefits.

Evidence of Insurability

A signed health questionnaire or a physical examination, depending on a company's requirement.

Excess Interest

Interest credited beyond the contractual guarantee. Please note that this can change at the company's discretion.

Extended Term Insurance

A nonforfeiture option where the cash value is used to buy term insurance equal to the face amount of the original policy for as long a period of time as the cash value will provide (see "nonforfeiture options").

Face Amount (Face Value)

The dollar amount stated on the specification page of a policy and paid by the company upon policy maturity or death. It does not include dividends or additional amounts payable under special provisions, such as an accidental death.

Free Look

A 10-day or longer period that allows you to decide whether to keep a life insurance policy or annuity. You can receive a full refund if you change your mind during this period. Be sure to return the policy by certified mail within the free look period to obtain the refund. (This might not apply to variable life and variable annuity policies.) However, as of January 1, 2009, all life insurance and annuity policies will include a14-day free look period.

Grace Period

A 30-day period in which you may pay an overdue premium while keeping your policy in force.

Guaranteed Insurability

An option that allows you to buy additional life insurance at specified times without evidence of insurability, such as a questionnaire or physical exam.

Lapsed Policy

A policy terminated for nonpayment of premium following the grace period.

Level Premium Insurance

A policy with a fixed payment plan over a specified period.

Loading

Administrative fees you pay when buying life insurance or an annuity.

Maturity

The period when the insurance contract becomes payable to the policyholder.

Mortality Charge

The cost of a life insurance risk based upon a mortality table used by the insurance company.

No-Lapse Guarantee

A feature of flexible premium (universal) life contracts that sets a minimum premium requirement for guaranteed death benefits.

Nonforfeiture Options

Policy values you may choose if there is still cash value after stopping payment of premiums. These include cash surrender value, reduced paid-up insurance (RPU) and extended term insurance (ETI).

Nonparticipating Insurance

Insurance on which you are paid no dividends.

Participating Insurance

Insurance that entitles the policyholder to share in the company's surplus earnings.

Policy Loan

The amount that you can borrow against a life insurance policy's cash value.

Premium

The amount of money, usually in installments, a policyholder pays for an insurance policy or annuity. Payment plans vary depending on the type of policy or annuity.

Premium Waiver Provision

A contract provision that takes effect if the named insured (or in some policies, the person paying the premiums) becomes disabled. The disabled party will not have to pay premiums for the duration of the disability, even for a lifelong one.

Prospectus

A statement about a security (such as most variable insurance plans) disclosing extensive information about a company's investments and investment strategies.

Reduced Paid-Up Insurance

A nonforfeiture option where the cash value is used to buy a reduced amount of insurance with no further premiums while still continuing coverage for the same length of time as the original policy. This is required in every cash value policy issued in Florida.

Reinstatement

The restoration of a lapsed policy to its original premium-paying status after you pay past-due premiums and interest.

Rider

An attachment to an insurance policy that adds benefits to the original contract for an additional cost.

Stock Life Insurance Company

A publicly traded company whose board of directors is elected by its stockholders. A stock company's policies may or may not pay dividends, depending on the terms of the contract.

Stock Mutual Life Insurance Company

A life insurance company owned by its policyholders, who elect a board of directors. Policyholders usually receive dividends from the company's surplus earnings.

Surrender

Turning in a policy to the company in exchange for its cash value.

Surrender Charge

A charge you pay if you cash in your policy. Certain annuities and life insurance policies are subject to surrender charges upon cash surrender.

Twisting

A fraudulent practice in which insurance agents mislead consumers into giving up the cash value of current life policies to buy new coverage with a different company. Like churning, these schemes usually involve the misrepresentation or omission of pertinent information about the consumer's existing policy.

Viatical Investor

The individual(s) who buys and agrees to a viatical purchase agreement contract.

Viatical Settlement Contract

A written agreement between a viatical settlement provider and a policyholder (viator) that establishes terms under which the provider will pay the policyholder in exchange for the cancellation rights of the policyholder.

Waiver of Surrender Charges

A policy provision allowing the annuitant or owner of an annuity to surrender the contract with no penalty or surrender charges if he or she becomes terminally ill, disabled and/ or confined to a hospital, nursing home or extended care facility for a specified period.

What is a maturity date?

The maturity date is determined when you purchase an annuity. It is the date on which you can begin receiving payments from your annuity. You will be asked at the time of maturity to select a settlement option. The settlement option determines how you will receive payments from your annuity.

Questions you should ask your agent or the insurance company

What is the guaranteed minimum interest rate?
Are there additional charges included in my premium?
Are there any charges deducted from my contract value and when?
What are the surrender charges or penalties if I want to end my contract early and take out all of my money?
How many years will I be subject to surrender charges?
Can I make a partial withdrawal without paying charges or penalties or losing earned interest?
Does my annuity waive withdrawal charges if I am confined to a nursing home or diagnosed with a terminal illness?
What are my income options when my annuity reaches its maturity date?
What is my death benefit?
Can the annuity or earned interest decline in value?
Is interest compounded during the term of the contract?
What is your commission on this product?

Is an Annuity right for you?

You should review the complete plan, considering such factors as the guaranteed interest rate, the surrender charges, and the administrative and maintenance fees. A high interest rate during the first year is not always the better choice. This is especially true if the interest rates drop to a low minimum rate the next year with high surrender charges and additional fees.

Important facts to know about annuities:

Do not place monies in a deferred annuity if you need the funds within a year or two, or for emergencies.
Seek the advice of an impartial third party such as a tax attorney, CPA or other financial professional before purchasing an annuity.
Consider the financial risks, including surrender charges, early withdrawal penalties and tax consequences.
Make sure the agent and company you are dealing with is licensed in Florida.
Ask the agent to put in writing and sign their name to any claims made as to interest rates, bonuses or other benefits of the product they are recommending.
Never sign blank insurance forms or other documents. Demand copies of anything you sign.

FAQ:

I need to make a decision on whether to purchase the annuity right away since the special rates will expire soon.
There are no time-limited special offers with insurance products. Interest rates do change with the market conditions, but should not justify a rushed decision or high pressure sales tactics.

My current investments provide monthly income. An agent says I should cancel my investments and purchase a deferred annuity.
Annuities can provide income right away (an immediate annuity) or at a later date (a deferred annuity). Be sure you understand the provisions of the annuity product presented to you.

If I purchase a deferred annuity and then need access funds to pay for a medical emergency, can I withdraw money without a penalty?
Some annuities will waive surrender charges if you become disabled and confined to a hospital, nursing home or extended care facility for a specified period. Ask your agent or check your contract for any restrictions.

Will I have to pay a surrender charge if I sell my annuity or exchange to another one?
A surrender charge and penalty for early withdrawals often apply during the early years of the policy. Read your contract carefully.