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Chapter 28

Common provisions in annuity contracts include administrative fees, withdrawal privileges, surrender charges, contract loans, guaranteed minimum returns of premiums paid, guaranteed settlement option rates for annuity payouts, and death benefits that return any remaining premiums to beneficiaries. Some contracts also offer features like bailout provisions that waive surrender fees if interest rates fall below a certain level, medical bailouts for nursing home care, and bonuses to encourage keeping funds with the company. Contract terms can vary by issuer so buyers should carefully read the specific provisions in their agreement.

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63 views

Chapter 28

Common provisions in annuity contracts include administrative fees, withdrawal privileges, surrender charges, contract loans, guaranteed minimum returns of premiums paid, guaranteed settlement option rates for annuity payouts, and death benefits that return any remaining premiums to beneficiaries. Some contracts also offer features like bailout provisions that waive surrender fees if interest rates fall below a certain level, medical bailouts for nursing home care, and bonuses to encourage keeping funds with the company. Contract terms can vary by issuer so buyers should carefully read the specific provisions in their agreement.

Uploaded by

radislamy
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
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Common Provisions

Common Provisions
Different annuity options meet the needs of The charge is usually a percentage of either the
different people. Other than the provisions funds accumulated value or the total premiums you
described on the previous pages, annuities have paid. Surrender charges are generally waived under
additional positive and negative features you certain circumstances:
should consider. The provisions described here The death of the annuitant
are all common but each one is not available in
every contract. Also note the descriptions here are Disability of the annuitant
examples only any features included in your Annuitization
contract will be defined in the contract.
Contract Loans
Administrative Fees A loan provision may be included in an annuity
Every insurer that sells annuities charges fees which contract. In general, this feature allows you to
are connected to the contract. These fees cover the borrow up to a specified amount of the annuitys
companys costs of administering the annuity. accumulated value. Since it is a loan, interest
will accumulate and it most likely will be to your
Withdrawal Privilege
advantage to repay it.
Many deferred annuities offer limited withdrawal
privileges during the accumulation phase. Like the withdrawal privilege, a loan provision can
give some liquid features to an annuity.
This feature generally allows the owner - after the
first year - to take out a small percentage (such as A contract loan normally will be subject to current
10%) of the annuity fund each year without penalty. taxes. (Review Using pre-tax vs. after-tax dollars on
In other words, you would not pay a surrender page 19.)
charge. If you withdraw a larger percentage than the Return of Principal Guarantee
contract allows, however, you will pay surrender
charges. Surrender of the contract should be avoided
whenever possible, but circumstances may leave
Although the insurance company will not charge you no choice.
you for limited withdrawals as specified in the
contract, you may be required to pay tax penalties If you must surrender your annuity, this feature
on at least a portion of the money. (Review Using assures you that the company will pay you no less
pre-tax vs. after-tax dollars on page 19.) than the total dollars youve paid in premiums -
minus any prior partial withdrawals youve taken. It
Surrender Charge applies even if the amount is greater than the cash
Most deferred annuities carry a surrender charge. surrender value defined by the contract.
A typical contract could have a surrender charge
in effect over the first 10 years, but decreasing in
amount each year. Read your contract - it will explain
how the surrender charge applies to your annuity.
A deferred annuity is a long-term investment. The
surrender charge encourages growth of your fund.
It also allows the insurer to cover the expense of
selling and issuing you the contract.

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Common Provisions
Guaranteed Settlement Option Rates Bailout Provision
Nearly every annuity offers guaranteed settlement Some fixed annuities include a bailout provision
option rates for the available payout choices (see which waives the surrender charge if the contracts
How long benefit payments continue on pages 17- declared renewal interest rate falls below a point
19). These rates are fairly low. called the bailout rate. This feature protects you and
At the time you annuitize, most companies will helps force companies to offer competitive rates.
pay current (higher) settlement option rates. Other If the declared renewal rate drops below the bailout
companies may offer the rates currently available on rate, you can surrender the contract for the full
their single premium immediate annuities. annuity value without paying a surrender charge.
The time during which a waiver of surrender charge
applies could be:
OLHIGA For a specified period of time after the declared
No annuity is risk free or guaranteed renewal rate falls below the bailout rate
safe. A contract is only as sound as the Until an interest rate exceeding the bailout rate
company that sells it. The Ohio Life and is declared
Health Insurance Guarantee Association For as long as you hold the contract
(OLHIGA) provides some protection if your
Medical Bailout
insurance company goes out of business. If your annuity contract has a medical bailout, any
OLHIGA pays part or all of the companys surrender charge is waived in the event you are
unpaid claims. The limit paid for annuities confined to a nursing home or other long-term care
is $250,000. Thats the total amount you facility. This feature may also waive the surrender
could collect from OLHIGA no matter how charge if you are diagnosed as terminally ill.
many annuities you had purchased from
that company.
Note: Variable products are not covered.

Read your contract!


Your contract will list all its features
and provisions. Read and understand
its terms and conditions. If you
dont understand something in the
contract, ask for help from the agent,
the company, or your attorney.

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John Kasich Mary Taylor


Governor Lt. Governor / Director
Common Provisions
Death Benefit In general, equity-indexed annuities have several
Annuities usually include a death benefit feature. features in common, including:
This provision applies if the annuitant or the contract Contracts are divided into periods of time or terms
owner dies before the payout phase starts. Certain features can be renewed from one term to
The death benefit provided by an annuity contract the next
is not like that in a life insurance policy. An annuitys Your gain each term is limited to a percentage of the
death benefit returns the premiums (less any indexs increase or a dollar amount
withdrawals and company charges) to the beneficiary.
The company may calculate your earnings in many
If the contracts accumulated value is greater than different ways
the total premiums paid, the beneficiary receives the
The value of any index varies from day-to-day and
accumulated value.
cannot be predicted. When you buy an equity-
If the annuitant dies after benefit payments have indexed annuity, you own an insurance contract. You
started, further payments depend on the payout are not buying shares of any stock or index.
option that was selected.
Account Value Enhancement (Bonus)
While not a common feature, some contracts offer
enhancements to the account value.
These enhancements can include:
An annuitization bonus: encourages you to keep Note: Companies can tie
your funds with the company at maturity
their equity-income annuity
A persistency bonus: encourages you to keep
contracts to many different
your funds with the company regardless of
annuitization stock and bond indices. One
A large account value bonus: encourages you to that is commonly used is the
make larger payments to the annuity Standard & Poors 500 Index
Types of Annuities also called the S & P 500.
Equity-Indexed Annuity
The equity-indexed annuity earns interest or provides
benefits which are linked to an external stock or bond
index.
Equity-indexed contracts combine two features not
found together in other annuity types: a guaranteed
minimum interest rate and the potential for higher
earnings based on the performance of the external
index.

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