WHAT ARE SOME FIXED DEFERRED ANNUITY CONTRACT BENEFITS?

Annuity Income Payments

One of the most important benefits of deferred annuities is your ability to use the value built up during the accumulation period to give you a lump sum payment or to make income payments during the payout period. Income payments are usually made monthly but you may choose to receive them less often. The size of income payments is based on the accumulated value in your annuity and the annuity's benefits rate in effect when income payments start. The benefit rate usually depends on your age and sex, and the annuity payment option you choose. For example, you might choose payments that continue as long as you live, as long as your spouse lives, or for a set number of years.

There is a table of guaranteed benefit rates in each annuity contract. Most companies have current benefit rates as well. The company can change the current rates at any time, but the current rates can never be less than the guaranteed benefit rates. When income payments start, the insurance company generally uses the benefit rate in effect at that time to figure the amount of your income payment.

Companies may offer various income payment options. You (the owner) or another person that you name may choose the option. The options are described here as if the payments are made to you.

Life Only - The company pays income for your lifetime. It doesn't make any payments to anyone after you die. This payment option usually pays the highest income possible. You might choose it if you have no dependents, if you have taken care of them through other means, or if the dependents have enough income of their own.
Life Annuity with Period Certain - The company pays income for a long as you live and guarantees to make payments for a set number of years even if you die. This period certain is usually 10 or 20 years. If you live longer than the period certain, you'll continue to receive payments until you die. If you die during the period certain, your beneficiary gets regular payments for the rest of that period. If you die after the period certain, your beneficiary doesn't receive any payments from your annuity. Because the "period certain" is an added benefit, each benefit, each income payment will be smaller than in a life-only option.
Joint and Survivor - The company pays income as long as either you or your beneficiary lives. You may choose to decrease the amount of the payments after the first death. You may also be able to choose to have payments continue for a set length of time. Because the survivor feature is an added benefit, each income payment is smaller than in a life - only option.

WHAT CHARGES MAY BE SUBTRACTED FROM MY FIXED DEFERRED ANNUITY?

WHAT CHARGES MAY BE SUBTRACTED FROM MY FIXED DEFERRED ANNUITY?

Most annuities have charges related to the cost of selling or servicing it. These charges may be subtracted directly from the contract value. Ask your agent or the company to describe the charges that apply to your annuity. Some examples of charges, fees, and taxes are:

Surrender or Withdrawal Charges

If you need access to your money, you may be able to take all or part of the value out of your annuity at any time during the accumulation period. If you take out part of the value, you may pay a withdrawal charge. If you take out all of the value and surrender, or terminate, the annuity, you may pay a surrender charge. In either case, the company may figure the charge as a percentage of the value of the contract, of the premiums you've paid or of the amount you're withdrawing. The company may reduce or even eliminate the surrender charge after you've had the contract for a stated number of years. A company may waive the surrender charge when it pays a death benefit.

Some annuities have stated terms. When the term is up, the contract may automatically expire or renew. You've usually given a short period of time, called a window, to decide if you want to renew or surrender the annuity. If you surrender during the window, you won't have to pay surrender charges. If you renew, the surrender or withdrawal charges may start over.

In some annuities, there is no charge if you surrender your contract when the company's current interest rate falls below a certain level. This may be called a bail-out option.

In a multiple-premium annuity, the surrender charge may apply to each premium paid for a certain period of time. This may be called a rolling surrender or withdrawal charge.

Some annuity contracts have a market value adjustment feature. If interest rates are different when you surrender your annuity than when you bought it, a market value adjustment may make the cash surrender value higher or lower. Since you and the insurance company share this risk, an annuity with an MVA feature may credit a higher rate than an annuity without that feature.

Be sure to read the Tax Treatment section and ask your tax advisor for information about possible tax penalties on withdrawals.

Why your annuity may have a limited free withdrawal feature.

Your annuity may have a limited free withdrawal feature. That lets you make one or more withdrawals without a charge. The size of the free withdrawal is often limited to a set percentage of your contract value. If you make a larger withdrawal, you may pay withdrawal charges. You may lose any interest above the minimum guaranteed rate on the amount withdrawn. Some annuities waive withdrawal charges in certain situations, such as death, confinement in a nursing home or terminal illness.

Contract Fee

A contract fee is a flat dollar amount charged either once or annually.

Transaction Fee

A transaction fee is a charge per premium payment or other transaction.

Equity Index Annuity - Uncertainty and speculation that exists as a result of the SEC Release of 151A

NAFA Wire - July 11th 2008
NAFA is aware of the uncertainty and speculation that exists as a result of the SEC Release of 151A. We understand and appreciate your desire for immediate action. NAFA strongly disagrees with the SEC proposal and will pursue all available avenues of recourse. The SEC process for adopting this rule is as follows:
1. Release of the proposed Rule – Occurred on June 28th, 2008
2. Comment period for the proposed Rule – June 28th through September 10th, 2008
3. Once the comment period closes the SEC Commissioners vote on whether to adopt the proposed rule in its original form, to adopt a revised proposed rule or not to adopt the proposed rule.
4. If adopted, issuing insurance companies and sales agents would be required to comply with the registration requirements within the time frame specified by the rule. The proposed rule specifies a time frame of 12 months following adoption.
5. If adoption is unsatisfactory to any party, the adopted rule may be challenged via the judicial system
NAFA has always agreed with the stated motivation of the proposed rule which is to ensure consumer protection and enforce suitability standards for selling and buying fixed annuities. However, NAFA supports the many state regulators, insurance commissioners and insurance companies who have enacted and are enforcing suitability and disclosure standards, are monitoring product marketing and selling activities in their state, and continue to prosecute fraudulent, misleading or unsuitable practices or sales. NAFA and its member companies, as well as state insurance regulators, are committed to removing individuals and parties who violate the laws and requirements set forth by the laws. NAFA believes that it is important to the outcome to be fully engaged and committed to the process and to participate in all activities that will affect a positive outcome for all members of our industry and for consumers.
NAFA’s Board of Directors will meet weekly to coordinate the following activities:
1. Hire a Public Relations firm and Legal firm with established Washington contacts and demonstrated performance in insurance regulatory/legislative matters, business and public affairs and market regulation/compliance. The firms will assist NAFA to:
- Propose a complete withdrawal of the proposed Rule 151A
- Develop NAFA’s formal response to proposed Rule 151A
- Penetrate the policy debate with key decision makers and legislators
- Coordinate NAFA activities and communications with state regulators, ACLI, NAIC, NAIFA, NAILBA, American Academy of Actuaries, and Committee of Annuity Insurers
- Escalate media campaign to promote the value of fixed annuities
2. Establish ongoing member communications via the web, teleconferences and blogs with information related to NAFA’s ongoing activities
3. Utilize member carriers and their resources on communication, lobbying and legal activities. To accomplish this we will be pursuing legal and public relations assistance from our partnering associations, carriers and private firms as well as working with industry associations and NAFA members.

The value of the fixed indexed annuity - now more than ever in these turbulent economic times – is self-evident. If any of NAFA’s members need information to help communicate the value and benefits of a fixed annuity, please do not hesitate to visit www.nafa.us or www.fixedannuityinfor.com. Advisors and producers who have questions about their state’s suitability or disclosure regulations please call your insurance company or state insurance department. If you need help locating that contact information do not hesitate to call NAFA.

We are grateful for the financial support and participation of NAFA members and will continue to keep you informed. With the uncertainty of today’s economic outlook – the mortgage crisis, gas prices, auction-rate securities and stock market instability - selling the guaranteed insurance of fixed annuities could not be more important to your customers, clients, family and friends.

Fixed indexed annuities offer the guarantee of minimum interest and the opportunity for additional interest while also promising that owners cannot lose their principal or any prior interest. Visit www.nafaexpo.com for information on the NAFA Annuity Solutions Expo in Fort Myers, Florida where you will find the latest information on product, regulations and marketing!

HOW IS THE INTEREST RATE DETERMINED FOR MY FIXED DEFERRED ANNUITY?

During the accumulation period, your money (less any applicable charges) earns interest at rates that change from time to time. Usually what these rates will be is entirely up to the insurance company.

Current Interest Rate

The current rate is the rate the company decides to credit to your contract at a particular time. The company will guarantee it will not change for some time period.

The initial rate is an interest rate the insurance company may credit for a set period of time after you first buy your annuity. The initial rate in some contracts may be higher than it will be later. This is often called a bonus rate.
The renewal rate is the rate credited by the company after the end of the set time period. The contract tells how the company will set the renewal rate, which may be tied to an external reference or index.
Minimum Guaranteed Rate

The minimum guaranteed interest rate is the lowest rate your annuity will earn. This rate is stated in the contract.

Minimum Interest Rates

Some annuity contracts apply different interest rates to each premium you pay or to premiums you pay during different time periods.

Other annuity contracts may have two or more accumulated values that fund different benefits options. Theses accumulated values may use different interest rates. You get only one of the accumulated values depending on which benefit you choose.

Immediate annuity in retiree’s portfolio increases amount heirs receive

Immediate annuity in retiree’s portfolio increases amount heirs receive

By HUMBERTO CRUZ
Tribune Media Services

Do you want to spend the most you can in retirement? Or would you rather pass something on to your kids?

Maybe you can do both.

One way, according to the actuarial firm Milliman Inc. in Seattle, is to include an immediate fixed income annuity in your retirement portfolio. Although the finding is counterintuitive, including the annuity increases the amount retirees can pass on to our heirs on average, compared with putting all their money in a portfolio of mutual funds, a study by Milliman indicates.

An immediate annuity is an insurance product that, in return for a lump-sum premium, guarantees an income for life. Many studies have shown that income annuities on average provide higher lifetime income than we can get on our own from high-quality fixed-income investments.

But with income annuities, we give up or at least seriously limit access to our principal. Unless we opt for “period certain” or minimum guaranteed payments, our heirs get nothing when we die. Many people shy away from immediate annuities because they don’t want to disinherit their children.

So, how can including an immediate annuity in a retiree’s portfolio actually increase the amount heirs receive?

“It was a bit surprising, but the annuity provided a higher bequest on average because the mutual funds are largely left untapped in the early years,” said Tim Hill, a Milliman consulting actuary and principal. As a result, the mutual funds can grow to bigger amounts on average than if retirees make regular withdrawals to generate income.

The Milliman study was commissioned by NAVA, formerly the National Association for Variable Annuities and now the Association for Insured Retirement Solutions. NAVA’s membership includes insurance companies that sell annuities.

Study findings depend heavily on assumptions. In one case study, a 65-year-old couple with $500,000 in savings sought $20,000 in annual income, increasing by 2.5 percent a year for inflation, to supplement Social Security benefits. They could get an immediate annuity paying $6,739 a year for every $100,000 of premium until the second spouse died, assumed to happen on average in 31 years.

Under those assumptions, the best way to satisfy income and bequest goals was to use $300,000 to buy an immediate annuity that paid $20,200-plus a year for life and to split the other $200,000 in a 60-40 stock-bond fund mix.

Under other scenarios and investing more aggressively, the couple could have increased the bequest to as much as $1,338,000 with an annuity, compared with $945,000 without one.

Of course, if the couple died right after spending $300,000 for this annuity with no “period certain” payments, the heirs would receive just the $200,000 in the mutual funds. If there is any “rule of thumb” I derive from this study, it is to have enough sources of predictable income — whether from annuities or other sources — to cover expenses at least the first few years in retirement, without having to depend on uncertain investment returns

Annuity

Equity Index Annuity - Regulation isn’t a cure-all

YOUR MONEY: Regulation isn’t a cure-all / QCTimes.com

By Chuck Jaffe

Regulation doesn’t stop people from making lousy investment choices.

You can improve disclosures, enhance transparency, increase the height of the bar an issuer has to climb over to get to the public, and give greater consumer protection, but people will still make choices that are less than ideal for their financial future.

So when the Securities and Exchange Commission announced a rules proposal to regulate equity-indexed annuities, an insurance-based product that has been growing both in popularity and problems in recent years, consumer activists were pleased, insurance companies were angered and investors should have come away with another warning to live by the code of “Buyer beware.”

An equity-indexed annuity, or EIA, is a contract between a buyer and an insurer that gives the investor a certain amount of money at a pre-determined time. The key with an EIA, however, is that it has certain provisions that allow buyers to participate in some of the upward moves of a stock market index and, typically, to avoid any negative performance delivered by the same index.

That has made it wildly popular recently, offering protection against the nerve-wracking downward twists of the market while enhancing returns at times when volatility pushes the market up.

Because the annuities offer a fixed minimum rate of return guaranteed by the insurer, they have been treated like an insurance product, rather than a security. Variable annuities, by comparison, are regulated like investments expressly because of the variability of returns.

Equity-indexed annuities can have similar variance — being tied to a market index, they have a risk component that arguably makes them more investment than insurance — so critics have suggested they be regulated like investments. Not surprisingly, the insurance industry is opposed to this idea.

The insurance industry began springing EIAs on the public in the mid-1990s, and they really took off once investors lived through the end of the Internet bubble and the ensuing bear market. According to SEC estimates, sales of equity-indexed annuities reached $25 billion in 2007, and more than $120 billion total is invested in these products.

Equity-indexed annuities have been in the news lately because of several proposals — both in Congress and in the regulatory world — to protect senior citizens. EIAs are frequently pitched to seniors, often through “free lunch” seminars where an investor is sold a complex product they barely understand — frequently without complete awareness of long maturity periods and severe early withdrawal penalties — that is clearly the right move only for a small segment of the population.

Ironically, many financial advisers believe equity-indexed annuities are best used by the people who never get a pitch for them. For an older person of modest means — looking for some market participation, but also potentially in need of the money in an emergency — EIAs are a common sales pitch and, all too often, a bad choice. For someone who is young and rich, they can be a pretty good tax-deferred investment option.

Industry supporters acknowledge that the business is likely to become less profitable because any federal law would probably force insurers to clearly tell buyers how much they charge for the product, a disclosure which isn’t required now.

Commissions on EIAs are currently regulated by state insurance commissioners and they tend to average around 8 percent, compared to commissions on variable annuities — already overseen by the SEC — where the typical sales charge is closer to 5.5 percent.

If nothing else, putting securities regulators on EIAs will drive down commissions, which is good for consumers. It also will increase the licensing requirements on the sellers — currently, agents selling EIAs do not need a securities license — and the career-ending threat of a lost license is enough to keep most securities dealers on the straight and narrow.

“If this proposal becomes law, it’s a much stronger deterrent against misconduct,” says Karen Tyler, the securities administrator for North Dakota and the president of the North American Securities Administrators Association. “We’re constantly seeing new investment products created, and this should help manage the evolution of many products to the advantage of the consumer.“

In truth, regulation won’t prevent people from buying investments that may not be well-suited for them.

“It’s not going to stop the sale of these things — these are sold by high-pressure salesmen who know what they are doing and who know what appeals to the market, and regulation really isn’t going to change the sales pitch much — but increased transparency and information is a good thing,” says David Schiff of Schiff’s Insurance Observer, an industry newsletter. “Let’s face it, these things sound really good, especially to nervous investors. That’s not going to change.”

One other key consideration is the way that many traditional investment products are morphing toward the annuity, promising certain payouts or giving certain guarantees against market declines and the alike. For a consumer and/or an adviser looking through myriad new options and trying to come up with an optimal solution for their money, having a level regulatory playing field will make comparison-shopping a whole lot easier.

That’s the plus no one is discussing, but clearly having all investments examined on the same kind of platform is far superior to having competing products looked at under different microscopes.

That said, none of it will save the foolhardy consumer from buying a bad product, or simply purchasing something where they don’t know the rules and requirements.

“Regulation doesn’t protect people from making stupid investments,” Schiff says. “It doesn’t change the fact that before you buy anything, you need to know if it’s right for you, and if you can’t determine that — or can’t get all of your questions answered to your satisfaction — you shouldn’t buy it, no matter what it is.”

Chuck Jaffe is senior columnist for MarketWatch and host of Your Money Radio (yourmoneyradio.com). He can be contacted at cjaffe@marketwatch.com or at Box 70, Cohasset, MA 02025-0070

Annuities

Boom Fades for Variable Annuities

Boom Fades for Variable Annuities - ANNUITIES - Los Angeles Times - calendarlive.com.

By LIZ PULLIAM WESTON, Times Staff Writer

For nearly a decade, variable annuities have been one of the hottest retirement savings products around--both in terms of sales and controversy.

The controversy shows no sign of abating. But sales of variable annuities are plummeting as falling stock markets, increased attention from regulators and a flood of lawsuits by disgruntled annuity owners take their toll.

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That's bad news for insurers that had pinned high hopes for profit on ever-growing sales of the popular retirement savings vehicles, which soared from near obscurity a decade ago to almost $1 trillion in assets last year. Others cheer the trend. For many financial planners and unhappy investors, the fewer Americans who own variable annuities, the better.

"I detest them," said Laura Tarbox, a Newport Beach financial planner who thinks variable annuities are suitable only for certain wealthy individuals.

"People are really not told the whole story, and once they realize what they've got they say, 'Oh, my gosh, I want out!' "

Don and Julie Propp of Irvine wish they hadn't purchased variable annuities for their individual retirement accounts four years ago. The Propps say they were misled about the nature and the cost of the annuities.

"What makes me so angry is that it's really hard for us to get out of [the annuities] without paying a lot of money," said Julie Propp, 54, a government secretary.

Industry proponents defend variable annuities, saying they are an excellent way to save for retirement--offering investors flexibility, tax deferment and protection of their principal if investors die while the stock market is down.

"Variable annuities have features that no other investment has," said Tom Connor, general counsel for the National Assn. for Variable Annuities, a trade group.

A variable annuity is a combination of an insurance contract and an investment in which gains can grow tax-deferred. The insurance company selling the annuity guarantees that if the investor dies before withdrawing the money, his or her heirs will receive at least as much as the investor originally contributed--a feature known as a death benefit.

Meanwhile, investors can take advantage of stock market gains. They can allocate their annuity contributions among stocks, bonds or cash using so-called subaccounts that resemble mutual funds. And they can move their money between subaccounts without triggering income or capital gains taxes.

Variable annuities often cost more than comparable mutual funds, however, and usually have surrender charges that can make withdrawing money expensive.

Those disadvantages weren't much of a deterrent for most of the 1990s, as the stock market soared, baby boomers tucked away more money for retirement and investors found their stock market gains could be protected from taxes in a variable annuity.

Insurance companies discovered variable annuities were good for their bottom lines, as well. Los Angeles-based SunAmerica Inc., which sold its life insurance business to concentrate on annuities in the late 1980s, racked up big profits and saw its shares soar more than 11,000% in the 1990s, making it the best-performing stock on the New York Stock Exchange.

Other insurers quickly followed SunAmerica's lead, and assets of variable annuities exploded from less than $176 billion in 1991 to a record $973 billion last year, according to the VARDS Report, which tracks industry trends.

Now the tide has turned.

As the stock market has fallen over the last 18 months, so have variable annuity sales. Since peaking in early 2000, the amount of money contributed to variable annuities in the first six months of 2001 fell 21.2% to $57.7 billion, according to LIMRA International, an insurance industry research firm.

The fall is cutting into insurance company profits. On Aug. 7, financial services company Conseco Inc. cut its earnings forecast by more than 10%, blaming the weak stock market's effect on variable annuity sales, while an analyst downgraded John Hancock Financial Services Inc. on similar concerns. Skandia, a Swedish insurance firm, reported that its second-quarter sales of variable annuities in the U.S. fell 56%, to $2.5 billion.

Investors Suing Insurers Over Annuity Sales

Meanwhile, companies are battling in court and with regulators over annuities sold during the boom times.

Consumer advocates and many financial planners had long complained they were seeing variable annuities sold to people who did not understand or who could not benefit from their features.

Variable annuities' costs and complexity make them best suited for long-term investors, but some products were sold to people with short-term financial needs or to elderly people unlikely to live long enough for the tax benefit to outweigh the extra costs.

Other buyers didn't even realize they were purchasing variable annuities.

The Propps of Irvine said they thought they were buying mutual funds when they purchased two variable annuities from SunAmerica in 1997 for their IRAs.

Don Propp, a disabled 50-year-old engineer, said their financial advisor falsely told them their accounts couldn't lose money. The Propps say they weren't toldthey were paying extra for a feature--tax deferment--that they couldn't use because IRAs already are tax advantaged.

SunAmerica officials declined to comment.

The Propps are among legions of investors who have sued insurance companies over the sale of variable annuities in retirement plans.

Last year, American Express Financial Corp. paid $215 million to settle three lawsuits involving the sale of annuities and other insurance products to more than 2 million investors. Lawsuits are pending against SunAmerica, Nationwide Financial Services Inc., American United Life Insurance Co. and VALIC (Variable Annuity Life Insurance Company), a subsidiary of American General Financial Group.

The companies are fighting the lawsuits, saying annuities are an appropriate investment for retirement plans because of the protection offered by the death benefit.

The controversy has prompted regulators to step up their investigations of variable annuity sales.

The National Assn. of Securities Dealers launched a probe of annuities sales two years ago "after many years of benign neglect" of the industry, Andrew A. Favret, regional chief counsel for the NASD's New Orleans office, told a variable annuity industry conference in late June.

What regulators found is that many companies hyped variable annuities' advantages without discussing their possible disadvantages--or making it clear that annuities are an insurance product. Some companies had procedures in place to identify and prevent unsuitable sales, but others did not.

In February 2001, the NASD announced settlements with an agent and four companies--Prudential Securities Inc., First Union Brokerage Services Inc., Allmerica Investments Inc. and Lutheran Brotherhood Securities Corp.--for improperly marketing and selling variable annuities.

The fines involved were minimal--$10,000 to $32,500 per case--but the actions put companies on notice that regulators were watching, Favret said.

Another wave of enforcement actions is expected in the fall, he said, with more to follow.

The NASD is paying especially close attention to how companies promote variable annuities in tax-deferred retirement plans.

"We're nowhere near taking a position that it's per se unsuitable," Favret said. "We are concerned about the routine selling [of variable annuities in retirement plans]. . . . We'd expect some degree of disclosure that it could be redundant in a qualified plan."

Last Year SEC Issued an Investor Alert

The Securities and Exchange Commission took a stronger position. The SEC issued an "investor alert" in June 2000 warning that variable annuities' costs may outweigh their benefits.

The SEC said most investors should avoid purchasing a variable annuity for an IRA, 401(k) or other tax-qualified retirement plan, and instead make the maximum contributions to those plans before considering an annuity.

But retirement contributions are big business for the annuity industry. More than half the money contributed to variable and fixed annuities in 1999 went into retirement plans. Of the $163.5 billion in contributions that year, $50.7 billion went to IRAs and $32.9 billion to 401(k)s and other employer-sponsored retirement plans.

Insurers say the increased regulatory scrutiny, and the sales declines, are temporary setbacks. Americans' need for retirement savings will continue to feed variable annuity sales, said Connor of the National Assn. for Variable Annuities.

Regulatory scrutiny has helped responsible insurers review and improve many of their sales practices, he said.

American Express, for example, has greatly increased the legal disclosures given to each customer before a variable annuity purchase, said Paul Bruce, the company's vice president for market conduct practices. The company also is improving its internal controls and reviews to catch unsuitable sales, he said.

The NASD's Favret agrees that insurers seem to be taking the regulatory issues seriously.

"Our sense is a very positive response from the industry as a whole," Favret said. "They want to fix the industry as much as we do."

AnnuityDefinition.com

"With Summit II, Allianz offers them an opportunity to increase the value of their annuity even when the blended index is down."

Summit II can create a win-win situation for the consumer. The amount of indexed interest a Summit II annuity earns during the first 10 contract years is determined through 5-year point-to-point crediting. For this method, Allianz captures the value of the blended index the day before the first day in the five-year period and on the last day during that same period.

If the index change during the five year crediting period is positive, then it is multiplied by the upside participation rate to get the indexed interest rate. In other words, if the blended index gains 20% and the participation rate is 100%, then the indexed interest credited to the annuity would be 20%.


Index Annuities

A.M. Best Comments on Securities and Exchange Commission's Proposal to Regulate Indexed Annuities as Securities

A.M. Best Comments on Securities and Exchange Commission's Proposal to Regulate Indexed Annuities as Securities - MarketWatch

OLDWICK, N.J., Jul 11, 2008 (BUSINESS WIRE) -- At its open meeting on June 25, 2008, the Securities and Exchange Commission (SEC) outlined a proposed rule that would change the interpretation of the exclusion for annuities under the Securities Act of 1933 and require the registration of newly-issued indexed annuities as securities. The motivation for the new rule appears to be driven in part by ongoing concerns over abusive sales practices, as well as inadequate disclosure. Such a change would result in a clear mandate for the Financial Industry Regulatory Authority (FINRA) to supervise indexed annuities and those who sell them. Should this proposed rule change be formally adopted, the implication for some indexed annuity writers could be significant, as the lion's share of current indexed annuity sales are through independent marketing organizations (IMOs)--many of whom utilize agents who are not registered representatives.
As currently proposed, the final rule would take effect 12 months after publication in the Federal Register. Given the time necessary to collect and digest public comments, initial estimates suggest that the effective date of implementation is unlikely to be earlier than the beginning of calendar year 2010. Additionally, A.M. Best notes that both the timing and content of the final rule could be materially influenced by the lobbying and legal efforts of various industry constituents including industry organizations, independent marketing organizations, indexed annuity writers and insurance industry regulators.
At present, A.M. Best does not anticipate any immediate rating actions resulting directly from the SEC's proposed rule change. Given that the initial proposal would not impact business written prior to implementation, the near-term impact on the financial statements of indexed annuity writers is likely to be de minimus. Furthermore, even if it were ultimately to be implemented in its current form, companies currently writing significant amounts of indexed annuity business would have a substantial amount of lead time to prepare and reposition their business models. However, A.M. Best notes that since IMOs are the dominant form of distribution for indexed annuities industry-wide, it may not be practical or cost effective for indexed annuity writers to get enough of their agents registered in order to maintain sales at current levels.
Nevertheless, despite expectations that the SEC's proposal is unlikely to have a material impact on indexed annuity writers over the short- term, A.M. Best's longer-term view is more guarded--particularly for those companies heavily committed to this business. A.M. Best will continue to monitor the progress of the SEC's proposal, as well as the development of strategic initiatives by insurers with a heavy sales concentration in indexed annuities targeted at mitigating the impact of the potential rule change on new business.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

Can this annuity ease the `yo-yo'?

In recent weeks, two friends have urged her to consider equity-indexed annuities (EIAs for short). "I don't know anything about these annuities, but I've certainly been pleased with the traditional annuities I've purchased," Nadine writes. Her friends have described the EIAs as practically risk-free, but Nadine knows from experience that no investment is without risk.
The financial picture

Nadine's current monthly income, from investments and a pension, is approximately $5,800. Her assets total roughly $1.8 million and include her paid-for $640,000 home, three annuities totaling $340,000, mutual funds, Treasury bills and savings. She recently received $70,000 from the sale of heirloom jewelry and wishes to invest, or "park" the money.

Plan of action

EIAs, issued by insurance companies, have been hailed by salespeople as one of the best investment-vehicle developments to emerge in recent years.

Equity Indexed Annuities

Fixed or Variable

Fixed or Variable

Fixed
During the accumulation period of a fixed deferred annuity, your money (less any applicable charges) earns interest at rates set by the insurance company or in a way spelled out in the annuity contract. The company guarantees that it will pay no less than a minimum rate of interest. During the payout period, the amount of each income payment to you is generally set when the payments start and will not change.

Variable
During the accumulation period of a variable annuity, the insurance company puts your premium (less any applicable charges) into a separate account. You decide how the company will invest those premiums, depending on how much risk you want to take. You may put your premium into a stock, bond or other account, with NO guarantees, or into a fixed account, with a minimum guaranteed interest. During the payout period of a variable annuity, the amount of each income payment to you may be fixed (set at the beginning) or variable (changing with the value of the investments in the separate account).

Annuity investors defrauded says Cueto class action suit

Layloff claims that employees of defendants "fraudulently represented" that she could invest in a MetLife variable annuity with the condition she had a 10-day free-look to cancel and have all of her principal returned. She was a customer at Regions Bank at 2400 Pontoon Road in Granite City.

Regions Bank and Morgan Keegan are wholly owned subsidiaries of Regions Financial.

The complaint states that Layloff's lawyers are experienced in complex and class action litigation.

She is represented by Lloyd M. Cueto of the Law Office of Lloyd M. Cueto and Christopher Cueto of the Law Office of Christopher Cueto.

According to the ARDC website, Lloyd M. Cueto was admitted to practice law in November 2007. He is the son of St. Clair County Circuit Judge Lloyd A.

Annuity Quotes

Annuities - NAVA and IBM join to standardize VA sales

The standards include automated processes to ensure annuity sales suitability, uniform processes for e-signatures, electronic forms, privacy policies and records management.
STP-compliant annuity sales processes will give the industry "seamless interoperability" between distributors and insurance carriers, improving "in good order" business, providing customers with greater transparency and improving the overall consumer experience, the Reston, Va.-based insurance industry association said in a statement.

Currently, STP implementations are under way at several providers, including Fidelity Investments of Boston, LPL Financial of Boston, Merrill Lynch & Co Inc. and Morgan Stanley, both of New York, National Planning Holdings Inc. of Santa Monica, Calif., Pershing LLC of Jersey City, N.J., Raymond James Financial Inc. More>>

What are the pros and cons of annuities, and how can I evaluate them?

Annuities are something to consider, particularly if you are facing a long retirement, since they can provide periodic income payments to supplement or replace savings. However, they can have drawbacks, including high fees and long surrender periods to get out of a contract. Let members of the Financial Planning Association of Greater Indiana help you decide what to do. Visit the group's Web site at www.fpagrindiana.org.

Brent Walker
RJP Investment Advisors

Immediate or Deferred Annuities

Immediate or Deferred

With an immediate annuity, income payments start no later than one year after you pay the premium. You usually pay for an immediate annuity with one payment.

The income payments from a deferred annuity often start many years later. Deferred annuities have an accumulation period, which is the time between when you start paying premiums and when income payments start.

How to save some for now and some for later

How to save some for now and some for later -- chicagotribune.com

Do you want to spend the most you can in retirement? Or would you rather pass something on to your children?

Maybe you can do both.

One way, according to the actuarial firm Milliman Inc. in Seattle, is to include an immediate fixed-income annuity in your retirement portfolio. Although the finding may seem counterintuitive, including the annuity increases the amount retirees can pass on to our heirs on average, compared with putting all their money in a portfolio of mutual funds, a study by Milliman indicates.

An immediate annuity is an insurance product that, in return for a lump-sum premium, promises an income for life. Many studies have shown that income annuities on average provide higher lifetime income than we can obtain on our own from high-quality fixed-income investments. In effect, the premiums from annuity buyers who die relatively young subsidize the lifetime payments received by those who live a long life.

But with income annuities, we give up or at least seriously limit access to our principal.

Unless we opt for "period certain" or minimum guaranteed payments, our heirs receive nothing. Many people shy away from immediate annuities because they don't want to disinherit their children.

So, how can including an immediate annuity in a retiree's portfolio actually increase the amount heirs receive?

"It was a bit surprising, but the annuity provided a higher bequest on average because the mutual funds are largely left untapped in the early years," said Tim Hill, a Milliman consulting actuary and principal. As a result, the mutual funds can grow to bigger amounts on average than if retirees make regular withdrawals to generate income.

The Milliman study was commissioned by NAVA, formerly the National Association for Variable Annuities, now known as the Association for Insured Retirement Solutions. NAVA's membership includes insurance companies that sell annuities. "Milliman does not intend the results to benefit any specific parties," the study stated. "In particular, Milliman is not recommending any particular insurance purchase."

Study findings depend heavily on assumptions. In one case study, a 65-year-old couple with $500,000 in savings sought $20,000 in annual income, increasing by 2.5 percent a year for inflation, to supplement Social Security benefits. They could obtain an immediate annuity paying $6,739 a year for every $100,000 of premium until the second spouse died, assumed to happen on average in 31 years, given today's longer lifespans.

Under those assumptions, the best way to satisfy income and bequest goals was to use $300,000 to buy an immediate annuity that paid more than $20,200 a year for life and to split the other $200,000 in a 60-40 stock-bond fund mix. The couple had a 93 percent probability of meeting their income goals while leaving an average bequest of $892,000.

Under other scenarios and investing more aggressively, the couple could have increased the bequest to as much as $1,338,000 with an annuity, compared to $945,000 without one.

Of course, if the couple died right after spending $300,000 for this annuity with no "period certain" payments, their heirs would receive just the $200,000 in the mutual funds.

If there is any "rule of thumb" I derive from this study, it is to have enough sources of predictable income—whether from annuities or other sources—to cover expenses during at least the first few years in retirement, without having to depend on uncertain investment returns.

"What people are concerned about right now is retiring in a down market," Hill said. With predictable income, they can give their investments time to grow, or recover if needed.



Humberto Cruz is a columnist for Tribune Media Services. E-mail him at yourmo ney@tribune.com.

Tune Out Bad Financial Advice for Summer Tune-Up: John F. Wasik

Bloomberg.com: Opinion

(Bloomberg) -- Normally this is the time I recommend a midyear financial tune-up.

While saving more, paying down debt and investing in your retirement plan are my usual chestnuts, this year I'm advising that you start by tuning out bad advice.

This is surprisingly difficult when we are solicited with advertisements from computers, cell phones and supermarkets around the clock. And these messages are tough to resist once salesmen have us ensnared in their office or free seminar.

Sometimes knowing what to avoid is half the battle. The first deceptive lure is the free meal sponsored by an investment firm. I know it's a cliche that there is no free lunch, but many people fall prey to spider-and-fly setups to lure new clients.

Newspapers are loaded with ads for ``free'' pitch fests. Lately I have seen a lot of promotions for making a fortune through buying foreclosures. Almost all of them are at fancy hotels, restaurants or conference centers.

The North American Securities Administrators Association looked into these prospecting sessions and discovered that all of them were sales presentations, even though they were advertised as ``educational workshops'' in which ``nothing would be sold.''

Almost 60 percent of these events were ``poorly supervised, 50 percent featured exaggerated or misleading advertising claims, 23 percent involved possibly unsuitable recommendations and 13 percent appeared to be fraudulent.''

Wrong Adviser

Of course, there is nothing wrong in approaching a financial professional for advice.

Yet to get the kind of service that's in your best interest, you should be willing to pay for it. And you need to check credentials. Keep in mind that ``financial adviser/consultant'' and ``wealth manager'' are largely unregulated designations.

You would be better served to ask if they are fiduciaries. These professionals take full legal responsibility for their advice and can be sued if they are guilty of wrongdoing.

Most advisers are securities and insurance brokers who make you sign an industry-sponsored arbitration agreement. You forfeit your right to go to court in the event of a dispute.

Ideally, you should look for a state- and federally registered investment adviser and fee-only certified financial planner.

The latter professional charges only for his time, has at least three years of financial-planning training and experience and won't sell anything on commission. That's a good start because you won't have a salesman who needs to meet quotas.

Annuity Sales

You can find fee-only planners through the National Association of Personal Financial Advisors and certified planners through the Financial Planning Association.

Another overpowering pitch to tune out involves commissioned variable and equity-indexed annuities.

Most people don't need them because they tend to be overpriced, oversold and can perform poorly when you subtract all commissions and fees. Relentlessly hawked by a $1 trillion industry, they are retirement-income products with mutual funds inside them.

If you need an annuity, consider a low-cost, no-commission, fixed, immediate one. The best type isn't sold by salespeople and will guarantee a retirement income for life.

It's worth a look if you have a lump sum from a 401(k) plan or you want to supplement your retirement income.

Worst Pitch

You can buy no-commission annuities through Vanguard Group and T. Rowe Price, or through Napfa members, who have access to immediate fixed annuities at low institutional pricing.

Among the most awful pitches is something that's being touted as an employee benefit: the 401(k) debit card.

This allows you to treat your retirement fund as a cash account to withdraw money. Don't even think about it.

Debited withdrawals are treated as loans, subject to interest and fees and must be paid back within five years, warns the Financial Industry Regulatory Authority, the securities industry regulator.

What happens if you don't pay back these funds? Unlike a checking account-linked debit card, you will owe income taxes plus a 10 percent penalty if you are younger than 59 1/2.

The stinger is that you have to pay back your account with after-tax dollars within five years. Your initial contributions were free of income taxes, so there's a double and possibly quadruple penalty involved when you add taxes, interest and fees.

If anything, you should contribute fully to a 401(k)-type account, at least enough to get the employer match, if there is one. It nets you a 100 percent return on your initial investment.

Also consider starting a Roth 401(k) account, which is funded with after-tax dollars, although retirement withdrawals aren't subject to income tax.

Boosting basic savings is always a prudent pitch, although one you will rarely hear from a broker. To get that message, listen to your inner saver -- and tune out the noise.

(John F. Wasik, co-author of ``iMoney,'' is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: John F. Wasik in Chicago at jwasik@bloomberg.net.

The Risk of Annuities

The Risk of Annuities - WSJ.com

By JANET PASKIN

Variable annuities are hot among baby boomers, thanks to new variations on the products that promise a steady stream of income regardless of how their underlying investments perform.

But some industry watchers and insiders fear that, in a bid to attract that boomer business, companies have made promises they can't afford to keep.

Guaranteed Income

Over the past decade, annual sales of variable annuities have more than doubled, to about $200 billion in 2007, according to NAVA, the industry's trade association. There are more than 1,100 different annuities on the market, up from 295 a decade ago.

A big reason for the recent growth is the fact that the industry has relaxed some of the old restrictions on its income-for-life promise.

The money used to purchase one of these new annuities gets invested in a handful of mutual funds picked by the customers. Whenever they choose, the investors can start receiving a minimum monthly payment for life. If the investments take off, the payments could grow higher. But they will never fall below a certain minimum.

And with the new products, investors can choose at any time to withdraw the money or pass it on to heirs. With traditional annuities, once investors start receiving payments, they can't get their initial investment back.

Too Much Risk?

In the eyes of some industry watchers, however, this is too generous a set of benefits. Critics wonder where the money to fund the payouts will come from if the underlying investments don't pan out.

Insurance traditionally works by gathering a large group together, so risk is spread around. Premiums from one customer can go toward the payout to another. But with the newer annuities, a falling market would presumably hurt all the customers at the same time, leaving the insurers' accounts short of funds to make payments.

This has already happened in one case, involving a British insurer that sharply reduced its payments to customers after the company's investing strategies failed.

Moshe Milevsky, a finance professor at York University in Toronto who has studied annuities for decades, says he likes the new products, but believes that even with their high fees, their prices don't cover the cost of protecting investors in a crash.

"These companies are going to have to think more carefully about risk," he says.

Credit-rating agencies are worried as well. Three years ago, credit analysts at Moody's raised red flags, writing in a report that "many companies have not done an effective job of quantifying risk" that the insurance companies were taking on in "plausible" worst-case scenarios.

Today, says Moody's analyst Scott Robinson, "we still have the same concerns."

Making Assumptions

Insurers point out that no U.S. company has ever defaulted on an annuity payment. They are aware, though, that they're in new territory.

Glenn Lammey, chief financial officer at Hartford Life, says that the new annuities simply don't have a long enough track record for companies to know what to expect.

"We make assumptions -- and that's the risk to us," Mr. Lammey says

Annuities can provide a reliable source of retirement income

Annuities can provide a reliable source of retirement income | lansingstatejournal.com | Lansing State Journal

It was the height of the dot-com boom, when workers were retiring early on their double-digit tech-stock winnings and day trading was all the rage.
Advertisement

There stood Kelli Hueler, before an audience of financial professionals, explaining the urgent need for affordable annuities so future retirees won't run out of money.

"We were painfully ahead of our time," she said, chuckling as she recalled the day that dull, dependable, unfashionable annuities became her passion.

Since then, Hueler, who runs her six-person Hueler Associates out of an office park in Eden Prairie, Minn., has created a unique one-stop shop for retirees wanting to turn 401(k) assets into an income stream.

Think of Hueler's annuity marketplace, called Income Solutions, as the Travelocity or Orbitz of annuities. The Web site at www.incomesolutions.com is a place where 401(k) participants with access through their employee benefits can compare monthly payouts promised by various insurers and select the best.

Hueler and her team are setting out on a gargantuan task - to convince a generation of do-it-yourself investors who don't trust annuities to embrace them as a way to ensure they won't outlast their money. In recent years, annuities have only made headlines as unsuitable investments sold to the elderly.

But Hueler and other experts argue that good annuities are an idea whose time is now. With pension plans and Social Security benefits on the decline and retirees living longer with inadequate 401(k) balances, running out of retirement money is a top fear of the baby boom generation.

Jody Strakosch, MetLife's director for institutional income annuities, said the company doesn't typically compete against other insurers as it does through Income Solutions. But MetLife believes "income annuities are really, really critical for baby boomers."

In five years, Income Solutions has attracted 10 insurance companies, large retirement plan providers such as Hewitt Associates, Citigroup's Citistreet and T. Rowe Price, plus companies such as IBM and Boston University. As many as 250 retirement plans are either offering Hueler's comparison tool to employees or considering its adoption.

Currently, Income Solutions is available only to individuals whose employers or retirement-plan providers offer it, or clients of financial advisers that belong to the National Association of Personal Financial Advisers.

New funds can provide payments in retirement

New funds can provide payments in retirement | Dallas Morning News | News for Dallas, Texas | Personal Finance | Dallas Business News

By PAMELA YIP / The Dallas Morning News
pyip@dallasnews.com

If you've saved enough money to retire, congratulations. You're far ahead of many others.

Now your challenge is to make that money last.

Some consumers use annuities, which are contracts sold by insurance companies, and create an income stream at a later point in time, typically at retirement, to provide steady cash flow.

But there's a new kid in town called a managed-payout mutual fund, which is similar to annuities but definitely not the same.

These funds aim to provide regular income payments through a professionally managed, diversified portfolio.

Annuities can pay an income that can be guaranteed to last as long as you live. If you choose a "joint and survivor" feature, the annuity pays income as long as either you or your beneficiary lives.

"Payout funds are not guaranteed," said Steve Utkus, principal of the Vanguard Center for Retirement Research. "They're designed to help people who don't want to annuitize to come up with some type of financial structure to spend their money."

Payout funds also don't have the tax advantages that annuities do. In an annuity, your money grows tax-deferred as long as you leave it there.

But payout funds are taxed like any other mutual fund. That is, each time you take money from a mutual fund account, you're selling shares, so you have to report a gain or loss from that sale on your income tax return.

Because of how they're treated tax wise, managed payout funds are best used in an Individual Retirement Account or something similar.

As with mutual funds in general, you should pick a payout fund with a low expense ratio, which is a fund's cost of doing business, expressed as a percent of its assets.

"Some are considerably over 1 percent, which I would consider expensive," said Dan Culloton, senior analyst at Morningstar, a fund research firm. "I would treat them like a regular mutual fund and get more suspicious the further they go over 1 percent."

Read the fund's prospectus and understand how it invests.

For example, Fidelity Investments' Income Replacement Funds are similar to target-date retirement funds.

They have preprogrammed asset allocations that gradually shift from stock funds to bond funds as their target dates approach.

At the beginning of each year, the payment rate increases based on a predetermined schedule and is designed so that the payments, while not guaranteed, can keep pace with inflation.

When the fund reaches its target year, all of your remaining principal, including any investment gains, will be returned to you, and the fund will close.

Unlike Fidelity's, the Vanguard Group's managed payout funds don't eventually liquidate.

Vanguard's managers hope to earn enough on the funds' asset allocations to ensure that they meet their payments without dipping into shareholders' principal.

Since payout funds are still relatively new, you should do more homework on them.

"This is an area where investors have to walk and not run," said Mr. Culloton of Morningstar. "Take your time, understand what the fund is doing, figure out how to use it to your advantage and make sure you're going to be in this for the long haul.

"These things really need to prove themselves before anyone can endorse them as a must-have solution for a retirement plan."

Still, if you have an annuity, you could use a payout fund to complement the annuity.

"There is nothing that says that these products can't co-exist in a retirement income plan," said Viktor Szucs, a certified financial planner at Quest Capital Management in Dallas. "Retirees may combine these strategies and use their managed income funds to cover discretionary expenses, while using Social Security, pensions, and annuities to cover fixed ones."

But it's going to take a lot more tools to ensure that you don't outlive your money.

"Managed payout funds can be a good alternative for do-it-yourself investors," said Michael Busch, a certified financial planner and president of Vogel Financial Advisors LLC in Dallas. "They can help you avoid investing too aggressively or too conservatively relative to your cash flow needs in retirement, but it is important to remember that they are a blunt tool, not a precision instrument."

Although payout funds give you monthly income, the payments will fluctuate up and down because you're subject to the volatility of the stock market. In today's investment climate, that's especially important to remember.

It will take you and a financial adviser to figure out many other details, including at what rate you should withdraw money each year from your retirement income portfolio so you don't deplete your assets. The recommended withdrawal rate typically is no more than 4 or 5 percent a year when planning for a 30-year retirement.

Inflation also is a huge factor.

"The two questions the baby boomers must all eventually answer are how much income can they get from their portfolio in retirement, and how large of a nest egg they will they need to get the income they want?" Mr. Szucs said.

Variable Annuity Assets Drop

Assets held in variable annuities fell 6%, to $1.4 trillion, during the first quarter from the end of 2007 and rose 0.5% compared with last year's first quarter, according to Nava. Variable annuity total sales, also known as premium flows, rose 1.7%, to $41.6 billion, in the quarter compared with the year-earlier period, according to the company's quarter data. Net sales, also known as net flows, rose 12.3%, to $7.2 billion. Assets held in equity accounts made up 56.1% of the total, down 6.1% from a year earlier, 18.8% of assets, or $262.9 billion, were in fixed accounts. Nava, which is a nonprofit association in Reston, Va., released the quarterly data Monday. Originally published in American Banker.

NAIC soon to consider working group on annuity disclosure

Supporters of simplified disclosures for variable annuities may get a boost from a proposal that state insurance regulators will soon consider.
The National Association of Insurance Commissioner's life insurance and annuities committee is in coming weeks likely to approve a new working group that will consider updating model disclosure regulations for annuities. In its deliberations, the working group may include variable products as well as annuity "illustrations."

The current NAIC model disclosure regulation, adopted in 1999, applies only to fixed and individual annuities. It does not cover variable annuities and illustrations, information packets the life insurance industry often gives clients to show how much annuities and policies are likely to pay under different scenarios.

Annuities

How Safe Are Fixed Annuities?

Legal Reserve System, How Annuities Are Safe

Through devastating world wars, financial recessions and depressions, sweeping epidemics, earthquakes and fires, inflation and deflation, the life insurance industry has protected people to a degree unmatched by any type of financial institution in the history of the world.

Today the life insurance industry provides more than a trillion dollars of death protection to American consumers.

The financial reliability of the life insurance industry, even in times of financial panic, was demonstrated convincingly during the Great Depression of 1929-38 when some 9,000 banks suspended operations while 99% of all life insurance in force continued unaffected. Reinsurance, acquisitions, and mergers protected virtually all policyowners in the affected companies against personal loss.

Unlike most industries where size is a major measure of financial stability, life insurance's unique series of safeguards can make even the smallest company a tower of strength. In 1949 Mr. Leroy A. Lincoln, then president of the world's biggest life insurance company, Metropolitan Life of New York, stated: "You're as safe, as well protected and the cost is just as cheap if you buy from a small insurance company as from the largest."

The State Insurance Department

The State Insurance Department is a most vital department in each of our fifty states. Acting on its own state's insurance laws and regulations, it supervises all aspects of an insurance company's operation within that state. In addition, the State Insurance Department licenses all companies and agents to sell insurance within its boundaries. It must also approve all policy forms and in some cases, sales materials before they can be offered to the public. The Departments review complaints from consumers and mergers of companies which do business within its boundaries.

Required Reserves Ensure Payment of Policyholder Benefits

A large percentage of each premium dollar calculated by actuaries for each company goes into the policyowner's reserve fund. This policy reserve (Legal Reserve) fund is a liability to the life insurance company. The fund is established as a way of determining or measuring the assets the company must maintain in order to be able to meet its future commitments under the policies it has issued.

The reserve liabilities are established as financial safeguards to ensure the company will have sufficient assets to pay its claims and other commitments when they fall due. These assets are kept intact for payment of living and death benefits to the insureds. Life companies that comply with the legal reserve requirements established by the state insurance laws are known as legal reserve life insurance companies.

Periodic Company Examinations

Every year all legal reserve life insurance companies submit annual statements to the insurance departments of each state in which they are licensed to do business. The format and contents of the forms used are prescribed by the State Insurance Commissioners and they are a detailed report of an insurance company's financial status that is important in evaluating the company's solvency and compliance with the insurance laws. Every few years, depending on a company's home state law, all companies operating in more than one state undergo a detailed home office zone examination of its financial position. This audit is conducted by a team of State Insurance Department Examiners representing the various zones in which the company is licensed to do business. Companies licensed in only one state are subject only to an annual home office examination by their State Insurance Department.

Additional Security Safeguards

1. Reinsurance: Nearly every legal reserve life insurance company further protects its policyholders by reinsuring part of the coverage with a life reinsurance company. This is done when the company will not or cannot undertake a risk alone. Reinsurance prevents relatively sizable claims from depleting a company's policy holder reserves. The amount reinsured depends on many factors such as the size of the individual claim and the number of claims a company can expect.

2. Surplus: The surplus is the amount by which a company's assets exceed its liabilites. The surplus protects the policyholders and third parties against any deficiency in the insurer's provisions for meeting its obligations. The determination of the optimum amount of surplus that a company will retain must be based on experience, current conditions, and an awareness of the primary goal of maintaining a strong company that is always able to pay claims as they arise.

Mergers

In the unlikely event that a company's annual statement or its own examination reveals possible financial weakness, one of several avenues is open to the company: (1) Produce additional operating capital; (2) Sell its business to another life company; (3) Merger into another financially stable life company. A legal reserve life insurance company simply does not close its doors and go out of business declaring that all policies are null and void. Legal reserve life policyholders enjoy personal security safeguards unknown by other types of business.

Yours for Life

Another unique advantage of legal reserve life insurance is that if one company is purchased or merged into another, there is no change whatsoever in the policy benefits or premiums. Legal reserve life insurance companies have established a public responsibility to respect both the letter and the spirit of laws and regulation so the interest of their policyholders are always protected.

Policyholders Protection Comes First

Today, as has been the case for many years, it is unlikely for the policyowner of legal reserve life insurance companies to lose their policy benefits. Through strict state insurance department regulations, the establishment of many state insurance guaranty associations and because of the insurance industry's history of financial stability and public responsibility to operate in a manner not detrimental to the welfare of the community, your policy is secured by industry safeguards.

Consider Jeffrey Scott McLeod As Your Fixed Annuity Agent. 800-286-1812

Annuities

Annuities exposed: Is your insurer acting?

As part of Financial Mail's campaign to get companies to encourage people to shop around for the best annuity, we publish the findings of our survey into what major insurance companies claim they are doing to make shopping around second nature.
We also publish previously unreleased data on the number of customers who are still being railroaded by their pension providers into taking out their annuities, even though they often represent poor value.

We also shame those companies - the 'miscreants' - who refuse to reveal how little they are doing to help customers.


WHAT CONSUMERS DO WITH THEIR MATURING PENSIONS

What should happen: A majority of people with maturing pensions should be encouraged by their pension provider into using the open market option (OMO)- simply, shopping around.

Annuities

Single Premium or Multiple Premium Annuities

Single Premium or Multiple Premium

You pay the insurance company only one payment for a single premium annuity. You make a series of payments for a multiple premium annuity. There are two kinds of multiple premium annuities. One kind is a flexible premium contract. Within set limits, you pay as much premium as you want, whenever you want. In the other kind, a scheduled premium annuity, the contract spells out your payments and how often you'll make them.

What are the benefits of a 1035 exchange for my life insurance policy?

Section 1035 of the tax code provides for nontaxable exchanges of a life insurance policy to another life insurance policy, endowment or annuity contract.

With the many changes in life insurance policies and competition between quality companies in recent years, a person (or trust) may be able to exchange a policy for a new one that provides more protection, a lower premium, or both. The pricing structure of whole life, variable life, universal life and flexible premium adjustable life with secondary guarantees are all different. We oftentimes help people secure coverage today with lower premiums and/or a larger death benefit than what they had issued many years ago. This is due to people living longer, underwriting guidelines acknowledging medical advances and other factors.

Additionally, a life insurance policy purchased years ago may have provided the protection needed, but now there is a need to transfer the asset into an income-generating vehicle.


Annuity Rollover

Law adds rules for annuity sales

Charlie Crist has signed a bill containing new regulations on the sale of annuities.

The bill is aimed at the practice of inducing consumers to cash in funds from a current investment or insurance product in order to purchase another investment product, often referred to as twisting and churning.

The bill makes that practice a first-degree misdemeanor and makes willfully submitting a false signature a third-degree felony.

It also requires that people who are licensed to solicit or sell life insurance to complete three hours of continuing education on suitability in annuity transactions, increases the penalties for offenses involving twisting and churning to up to $250,000 from $100,000, increases the period of time allowed for an unconditional refund to 14 days, enhances regulation of the sale of annuities to senior consumers and requires an agent to use an approved form in performing a suitability analysis relative to a recommended investment. More>>


Annuity Quotes

Annuity sale illustrations get scrutiny from state

Her office said, however, there had been no uptick in complaints about annuities, only that more illustrations were being used.

Voss told annuities producers she wants to see illustrations that are being used, but didn't give a timeline for turning over documents.


Fixed Annuities

Annuities - Florida Has New Law to Protect Senior Citizens

Annuity sales have become a big business in Florida, and seniors in particular often have fallen victim to unethical sales practices. This new law will give Florida the enforcement power it needs to better protect our vulnerable senior population.

Thanks to the leadership of Sen. Bennett and Rep. Ford, Florida now will be a national leader in the effort to protect seniors when they purchase costly and complex annuity products."

The new law, named the "John and Patricia Seibel Act," increases penalties to as much as $250,000, up from $100,000, for specified willful unfair or deceptive life insurance and annuity sales practices. The law also requires an insurer or insurance agent to have an objectively reasonable basis for believing that an annuity recommendation to a senior consumer is suitable.

Annuity Rate

SEC Proposes Treating Indexed Annuities As Securities - proposed Rule 151A

Attached please find the June 30th National Underwriter article announcing the SEC Proposed Rule 151A and NAFA’s contribution to the article. NAFA continues to work for fixed annuities and will continue to communicate with members with the latest information available. As you know, the SEC published the proposed rule for public comment on June 26, 2008 and now must go through the standard rule-making process:

Interested parties now have until September 10, 2008, to review the proposed rule and submit comments, suggestions or proposals to change the rule.
Following the comment period, the SEC may revise the rule or adopt the proposed rule in its original form or choose to not adopt the proposed rule.
If adopted, issuing insurance companies and sales agents would be required to comply with the registration requirements 12 months following adoption.
NAFA wants to assure its membership that the association strongly disagrees with the SEC proposal that fixed indexed annuities should be regulated as securities products. NAFA continues to actively pursue all available channels during the rule-making process to oppose the SEC proposed rule. While NAFA fully supports industry efforts to ensure sales agents market and sell index annuity products ethically and meet suitability requirements, it does not believe that the securities industry understand the differences between fixed index annuities and securities products. Susan Nash’s (associate director of the SEC’s investment management division) comments that the “state law has a different focus” makes it clear that she is unaware or uninformed about the existing and newly enacted state laws that protect consumers from unsuitable sales and fraudulent and misleading sales practices, require full disclosure and free return of policies, provide non-forfeiture protection and more. The association is confident that the current state regulation and oversight of these products by insurance commissioners is not only appropriate but more effective in ensuring consumers understand the insurance elements of what they are buying and where to satisfy any concern, question or complaint.



We understand the uncertainty that SEC proposed rule 151A creates in the fixed annuity marketplace. NAFA believes strongly in the value of the fixed indexed annuity - now more than ever after the market just missed bear market status by a few percentage points. Fixed indexed annuities offer the guarantee of minimum interest and the opportunity for additional interest while also promising that owners cannot lose their principal or any prior interest. NAFA will continue to work with its member companies to analyze the release and will build a coalition of industry associations, carriers, and marketers that will band together to vehemently oppose the action of the SEC, FINRA, and NASAA.





SEC Proposes Treating Indexed Annuities As Securities

BY ALLISON BELL



Members of the U.S. Securities and Exchange Commission voted 3-0 to propose a rule that would define some indexed annuities as securities. The proposal would create a new rule, Rule 151A, that would change the way the SEC treats indexed annuities under Section 3(a)(8) of the Securities Act of 1933. If the rule were adopted, the SEC would treat an annuity as a security if its performance were linked to the performance of a security, group of securities or securities index, and if “the amounts payable by the insurer [were] more likely than not to exceed the amounts guaranteed under the contract,” officials said June 25 at an SEC meeting.



If adopted as written, the proposed rule would apply to indexed annuities starting 12 months after a final rule was published in the Federal Register, officials said.



SEC staff members believe insurers have responded to the current ambiguity in the status of indexed annuities by relying on their own analysis of the rules, and the staffers do not want the proposed rule to expose the insurers to new legal risk, several staffers said at the hearing.



Staffers at the meeting argued that the change in definition could offer consumers the benefits of protection by federal suitability and antifraud laws. The commission started the meeting by playing a portion of an NBC Dateline segment that looked into indexed annuity sales practices.



The producers of the segment show one indexed annuity purchaser stating that the indexed annuity markets are selling the products to people who have “one foot on the grave and the other on a banana peel.” The segment and SEC commissioners also talked about the complexity of indexed annuities, the difficulty of comparing different indexed annuity contracts, and features such as surrender periods that expose purchasers to the risk of loss of assets.



One SEC commissioner, Paul Atkins, asked staff members at the hearing about how well state law has handled indexed annuity concerns. “State law has a different focus,” said Susan Nash, associate director of the SEC’s investment management division. State insurance regulators have been working with the Financial Industry Regulatory Authority, Washington, to deal with suitability issues, but their primary emphasis has been focused on ensuring insurers’ ability to meet their obligations, Nash said.



Atkins also asked about the proposal provision that would define some indexed annuities as securities but might let some indexed annuities continue to be regulated under state insurance laws. “Will that create investor confusion?” Atkins asked. Atkins said he looks forward to hearing the many comments he expects the SEC to get on the proposed regulations. Atkins noted that he would rather see the SEC define the status of indexed annuities through rule making than through enforcement actions.



In related news, the SEC also has proposed a change in regulations that would exempt about 24 indexed annuity issuers from the current Securities Exchange Act of 1934 filing requirements.



To qualify for the exemption, an indexed annuity issuer would have to file annual statements and be monitored by its home state insurance regulator.



The insurer also would have to take steps to keep the annuities from trading on any kind of exchange or electronic trading system, staffers said.



Iowa Insurance Commissioner Susan Voss, the chief insurance regulator in a state with a large indexed annuity industry, took time away from flood disaster recovery efforts to express disappointment with the SEC proposal.



“At no time have any of the securities commissioners engaged insurance regulators in the nature of our regulation,” Voss says in a statement. “Letters have been sent to Commissioner Cox, and I’m hopeful for a meeting.”



State insurance regulators have passed intensive suitability standards and continuing education requirements, Voss says. “We take very seriously our consumer protection role, including [issuing] bulletins restricting use of senior designations that are without merit,” Voss says. “We monitor our companies very closely.” In addition, an insurer backs an indexed annuity with its general fund, and the contract is not a security, Voss says. “Of course there can be unsuitable sales with any product, including mutual funds, life insurance variable annuities and stock purchases,” Voss says. “It would appear that those criticizing the most are those that don’t regulate [indexed annuities] or don’t sell them. We should all be working to protect consumers in regard to the products we regulate, not spending time arguing over who regulates what.”



The National Association for Fixed Annuities, Milwaukee, says the SEC should provide an adequate comment period on proposed Rule 151A. SEC officials at the June 25 meeting “provided very little information pertaining to the legal analysis and precedents that were relied upon to construct the proposed rule,” NAFA says. When the SEC releases the exact language of proposed Rule 151A, NAFA will work with NAFA members, other industry associations and lawyers at Jorden Burt L.L.P., Washington, to develop its response, NAFA says.



The American Council of Life Insurers, Washington, says it needs more time to evaluate the proposed indexed annuity regulations but wants to “encourage the SEC to provide a sufficient and meaningful period of comment on any regulatory or interpretive actions.”

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