Compilation of Rules and Regulations of the State of Georgia › Department 120 - OFFICE OF COMMISSIONER OF INSURANCE, SAFETY FIRE COMMISSIONER AND INDUSTRIAL LOAN COMMISSIONER › Chapter 120-2 - RULES OF COMMISSIONER OF INSURANCE › Subject 120-2-73 - Appendix - .05 › Appendix - Appendix (120-2-73) Buyer's Guide to Annuities

Current through Rules and Regulations filed through June 27, 2024
The "Buyer's Guide to Annuities" exists in three versions.
				  Those versions are titled "Buyer's Guide for Deferred Annuities - Fixed,"
				  "Buyer's Guide for Deferred Annuities - Variable," and simply "Buyer's Guide
				  for Deferred Annuities." The last of these three versions addresses both fixed
				  and variable deferred annuity products. The annuity salesperson (the agent,
				  producer, broker, or advisor) is required to provide the consumer with at least
				  one of these three versions appropriate to the consumer's interests.
The information in the Buyer's Guide is meant to be helpful
				  to consumers but does not constitute legal, financial, or tax advice. Consumers
				  may want to consult independent advisors that specialize in those areas.
The information in the Buyer's Guide focuses on some of the
				  most common features of annuity products. An annuity selected may have unique
				  features that are not covered by the information provided.
It is important that consumers carefully read the material
				  provided and ask their annuity salesperson questions. Each version of the
				  Buyer's Guide contains questions that consumers should ask their annuity
				  salesperson. Consumers should be satisfied with their salesperson's answers
				  before purchasing annuity products. This overview of the Buyer's Guide is not
				  required to be distributed to consumers.
Table of Contents
What Is an
				  Annuity?................................................................................................
				  1
When Annuities Start to Make Income
				  Payments............................................. 1
How Deferred Annuities Are
				  Alike..................................................................
				  1
How Deferred Annuities Are
				  Different............................................................ 2
How Does the Value of a Deferred Annuity
				  Change?........................................... 3
Fixed
				  Annuities.................................................................................................
				  3
Fixed Indexed
				  Annuities...................................................................................
				  3
Variable
				  Annuities.............................................................................................
				  4
What Other Information Should You
				  Consider?.................................................... 4
Fees, Charges, and
				  Adjustments.......................................................................
				  4
How Annuities Make
				  Payments........................................................................
				  5
How Annuities Are
				  Taxed.................................................................................
				  6
Finding an Annuity That's Right for
				  You......................................................... 6
Questions You Should
				  Ask...............................................................................
				  7
When You Receive Your Annuity
				  Contract..................................................... 7
What Is an Annuity?
An annuity is a contract with an insurance company. All
				  annuities have one feature in common, and it makes annuities different from
				  other financial products. With an annuity, the insurance company promises to
				  pay you income on a regular basis for a period of time you choose-including the
				  rest of your life.
When Annuities Start to Make Income Payments
Some annuities begin paying income to you soon after you buy
				  it (an immediate annuity). Others begin at some later date you choose (a
				  deferred annuity).
How Deferred Annuities Are Alike
There are ways that most deferred annuities are alike.
* They have an accumulation period and a payout period.
				  During the accumulation period, the value of your annuity changes based on the
				  type of annuity. During the payout period, the annuity makes income payments to
				  you.
* They offer a basic death benefit. If you die during the
				  accumulation period, a deferred annuity with a basic death benefit pays some or
				  all of the annuity's value to your survivors (called beneficiaries) either in
				  one payment or multiple payments over time. The amount is usually the greater
				  of the annuity account value or the minimum guaranteed surrender value. If you
				  die after you begin to receive income payments (annuitize), your chosen
				  survivors may not receive anything unless: 1) your annuity guarantees to pay
				  out at least as much as you paid into the annuity, or 2) you chose a payout
				  option that continues to make payments after your death. For an extra cost, you
				  may be able to choose enhanced death benefits that increase the value of the
				  basic death benefit.
* You usually have to pay a charge (called a surrender or
				  withdrawal charge) if you take some or all of your money out too early (usually
				  before a set time period ends). Some annuities may not charge if you withdraw
				  small amounts (for example, 10% or less of the account value) each year.
* Any money your annuity earns is tax deferred. That means
				  you won't pay income tax on earnings until you take them out of the
				  annuity.
* You can add features (called riders) to many annuities,
				  usually at an extra cost.
* An annuity salesperson must be licensed by your state
				  insurance department. A person selling a variable annuity also must be
				  registered with FINRA 
				  1 as a representative of a
				  broker/dealer that's a FINRA member. In some states, the state securities
				  department also must license a person selling a variable annuity.
* Insurance companies sell annuities. You want to buy from an
				  insurance company that's financially sound. There are various ways you can
				  research an insurance company's financial strength. You can visit the insurance
				  company's website or ask your annuity salesperson for more information. You
				  also can review an insurance company's rating from an independent rating
				  agency. Four main firms currently rate insurance companies. They are A.M. Best
				  Company, Standard and Poor's Corporation, Moody's Investors Service, and Fitch
				  Ratings. Your insurance department may have more information about insurance
				  companies. An easy way to find contact information for your insurance
				  department is to visit
www.naic.org
and click
				  on "States and Jurisdictions Map."
* Insurance companies usually pay the annuity salesperson
				  after the sale, but the payment doesn't reduce the amount you pay into the
				  annuity. You can ask your salesperson how they earn money from the sale.
Sources of
								Information
Contract:
The
								legal document between you and the insurance company that binds both of you to
								the terms of the agreement.
Disclosure:
A
								document that describes the key features of your annuity, including what is
								guaranteed and what isn't, and your annuity's fees and charges. If you buy a
								variable annuity, you'll receive a prospectus that includes detailed
								information about investment objectives, risks, charges, and
								expenses.
Illustration:
A
								personalized document that shows how your annuity features might work. Ask what
								is guaranteed and what isn't and what assumptions were made to create the
								illustration.
How Deferred Annuities Are Different
There are differences among deferred annuities. Some of the
				  differences are:
* Whether you pay for the annuity with one or more than one
				  payment (called a premium).
* The types and amounts of the fees, charges, and
				  adjustments. While almost all annuities have some fees and charges that could
				  reduce your account value, the types and amounts can be different among
				  annuities. Read the Fees, Charges, and Adjustments section in this Buyer's
				  Guide for more information.
* Whether the annuity is a fixed annuity or a variable
				  annuity. How the value of an annuity changes is different depending on whether
				  the annuity is fixed or variable.
Fixed annuities guarantee your money will earn at least a
				  minimum interest rate. Fixed annuities may earn interest at a rate higher than
				  the minimum but only the minimum rate is guaranteed.
The insurance company sets the rates.
Fixed indexed annuities are a type of fixed annuity that
				  earns interest based on changes in a market index, which measures how the
				  market or part of the market performs. The interest rate is guaranteed to never
				  be less than zero, even if the market goes down.
Variable annuities earn investment returns based on the
				  performance of the investment portfolios, known as "subaccounts," where you
				  choose to put your money. The return earned in a variable annuity isn't
				  guaranteed. The value of the subaccounts you choose could go up or down.
If they go up, you could make money. But, if the value of
				  these subaccounts goes down, you could lose money. Also, income payments to you
				  could be less than you expected.
* Some annuities offer a premium bonus, which usually is a
				  lump sum amount the insurance company adds to your annuity when you buy it or
				  when you add money. It's usually a set percentage of the amount you put into
				  the annuity. Other annuities offer an interest bonus, which is an amount the
				  insurance company adds to your annuity when you earn interest. It's usually a
				  set percentage of the interest earned. You may not be able to withdraw some or
				  all of your premium bonus for a set period of time. Also, you could lose the
				  bonus if you take some or all of the money out of your annuity within a set
				  period of time.
How Does the Value of a Deferred Annuity Change?
Fixed Annuities
Money in a fixed deferred annuity earns interest at a rate
				  the insurer sets. The rate is fixed (won't change) for some period, usually a
				  year. After that rate period ends, the insurance company will set another fixed
				  interest rate for the next rate period. That rate could be higher or lower than
				  the earlier rate.
Fixed deferred annuities do have a guaranteed minimum
				  interest rate-the lowest rate the annuity can earn. It's stated in your
				  contract and disclosure and can't change as long as you own the annuity. Ask
				  about:
* The initial interest rate - What is the rate? How long
				  until it will change?
* The renewal interest rate - When will it be announced? How
				  will the insurance company tell you what the new rate will be?
Fixed Deferred Indexed
								Formulas
Annual Point-to-Point -
Change in index calculated using two dates one year apart.
Multi-Year Point-to-Point -
Change in index calculated using two dates more than one year
								apart.
Monthly or Daily Averaging -
Change in index calculated using multiple dates (one day of
								every month for monthly averaging, every day the market is open for daily
								averaging). The average of these values is compared with the index value at the
								start of the index term.
Monthly Point-to-Point -
Change in index calculated for each month during the index term.
								Each monthly change is limited to the "cap rate" for positive changes, but not
								when the change is negative. At the end of the index term, all monthly changes
								(positive and negative) are added. If the result is positive, interest is added
								to the annuity. If the result is negative or zero, no interest (0%) is
								added.
Fixed Indexed Annuities
Money in a fixed indexed annuity earns interest based on
				  changes in an index. Some indexes are measures of how the overall financial
				  markets perform (such as the S&P 500 Index or Dow Jones Industrial Average)
				  during a set period of time (called the index term). Others measure how a
				  specific financial market performs (such as the Nasdaq) during the term. The
				  insurance company uses a formula to determine how a change in the index affects
				  the amount of interest to add to your annuity at the end of each index term.
				  Once interest is added to your annuity for an index term, those earnings
				  usually are locked in and changes in the index in the next index term don't
				  affect them. If you take money from an indexed annuity before an index term
				  ends, the annuity may not add all of the index-linked interest for that term to
				  your account.
Insurance companies use different formulas to calculate the
				  interest to add to your annuity. They look at changes in the index over a
				  period of time. See the box "Fixed Deferred Indexed Formulas" that describes
				  how changes in an index are used to calculate interest.
The formulas insurance companies use often mean that interest
				  added to your annuity is based on only part of a change in an index over a set
				  period of time. Participation rates, cap rates, and spread rates (sometimes
				  called margin or asset fees) all are terms that describe ways the amount of
				  interest added to your annuity may not reflect the full change in the index.
				  But if the index goes down over that period, zero interest is added to your
				  annuity. Then your annuity value won't go down as long as you don't withdraw
				  the money.
When you buy an indexed annuity, you aren't investing
				  directly in the market or the index. Some indexed annuities offer you more than
				  one index choice. Many indexed annuities also offer the choice to put part of
				  your money in a fixed interest rate account, with a rate that won't change for
				  a set period.
How Insurers Determine Indexed
							 Interest
Participation Rate-
Determines how much of the increase in the index is used to
							 calculate index-linked interest. A participation rate usually is for a set
							 period. The period can be from one year to the entire term. Some companies
							 guarantee the rate can never be lower (higher) than a set minimum (maximum).
							 Participation rates are often less than 100%, particularly when there's no cap
							 rate.
Cap Rate-
Typically, the maximum rate of interest the annuity will earn
							 during the index term. Some annuities guarantee that the cap rate will never be
							 lower (higher) than a set minimum (maximum). Companies often use a cap rate,
							 especially if the participation rate is 100%.
Spread Rate -
A
							 set percentage the insurer subtracts from any change in the index. Also called
							 a "margin or asset fee." Companies may use this instead of or in addition to a
							 participation or cap rate.
Variable Annuities
Money in a variable annuity earns a return based on the
				  performance of the investment portfolios, known as "subaccounts," where you
				  choose to put your money. Your investment choices likely will include
				  subaccounts with different types and levels of risk. Your choices will affect
				  the return you earn on your annuity. Subaccounts usually have no guaranteed
				  return, but you may have a choice to put some money in a fixed interest rate
				  account, with a rate that won't change for a set period.
The value of your annuity can change every day as the
				  subaccounts' values change. If the subaccounts' values increase, your annuity
				  earns money. But there's no guarantee that the values of the subaccounts will
				  increase. If the subaccounts' values go down, you may end up with less money in
				  your annuity than you paid into it.
An insurer may offer several versions of a variable deferred
				  annuity product. The different versions usually are identified as share
				  classes. The key differences between the versions are the fees you'll pay every
				  year you own the annuity. The rules that apply if you take money out of the
				  annuity also may be different. Read the prospectus carefully. Ask the annuity
				  salesperson to explain the differences among the versions.
What Other Information Should You Consider?
Fees, Charges, and Adjustments
Fees and charges reduce the value of your annuity. They help
				  cover the insurer's costs to sell and manage the annuity and pay benefits. The
				  insurer may subtract these costs directly from your annuity's value. Most
				  annuities have fees and charges but they can be different for different
				  annuities. Read the contract and disclosure or prospectus carefully and ask the
				  annuity salesperson to describe these costs.
A surrender or withdrawal charge is a charge if you take part
				  or all of the money out of your annuity during a set period of time. The charge
				  is a percentage of the amount you take out of the annuity. The percentage
				  usually goes down each year until the surrender charge period ends. Look at the
				  contract and the disclosure or prospectus for details about the charge. Also
				  look for any waivers for events (such as a death) or the right to take out a
				  small amount (usually up to 10%) each year without paying the charge. If you
				  take all of your money out of an annuity, you've surrendered it and no longer
				  have any right to future income payments.
Some annuities have a Market Value Adjustment (MVA). An MVA
				  could increase or decrease your annuity's account value, cash surrender value,
				  and/or death benefit value if you withdraw money from your account. In general,
				  if interest rates are lower when you withdraw money than they were when you
				  bought the annuity, the MVA could increase the amount you could take from your
				  annuity. If interest rates are higher than when you bought the annuity, the MVA
				  could reduce the amount you could take from your annuity. Every MVA calculation
				  is different. Check your contract and disclosure or prospectus for
				  details.
Annuity Fees and
								Charges
Contract fee
-
A flat dollar amount or percentage charged once or
								annually.
Percentage of purchase payment
-
A front-end sales load or other charge deducted from each
								premium paid. The percentage may vary over time.
Premium tax
-
A
								tax some states charge on annuities. The insurer may subtract the amount of the
								tax when you pay your premium, when you withdraw your contract value, when you
								start to receive income payments, or when it pays a death benefit to your
								beneficiary.
Transaction fee
-
A charge for certain transactions, such as transfers or
								withdrawals.
* * *
Mortality and expense
								(M&E) risk charge
-
A fee charged on
variable
								annuities.
It's a percentage of the account value invested in
								subaccounts.
Underlying fund charges
-
Fees and charges on a
variable
annuity's subaccounts; may include an investment management fee,
								distribution and service (12b-1) fees, and other fees.
How Annuities Make Payments
Annuitize
At some future time, you can choose to annuitize your annuity
				  and start to receive guaranteed fixed income payments for life or a period of
				  time you choose. After payments begin, you can't take any other money out of
				  the annuity. You also usually can't change the amount of your payments. For
				  more information, see "Payout Options" in this Buyer's Guide. If you die before
				  the payment period ends, your survivors may not receive any payments, depending
				  on the payout option you choose.
Full Withdrawal
You can withdraw the cash surrender value of the annuity in a
				  lump sum payment and end your annuity. You'll likely pay a charge to do this if
				  it's during the surrender charge period. If you withdraw your annuity's cash
				  surrender value, your annuity is cancelled. Once that happens, you can't start
				  or continue to receive regular income payments from the annuity.
Partial Withdrawal
You may be able to withdraw some of the money from the
				  annuity's cash surrender value without ending the annuity. Most annuities with
				  surrender charges let you take out a certain amount (usually up to 10%) each
				  year without paying surrender charges on that amount. Check your contract and
				  disclosure or prospectus. Ask your annuity salesperson about other ways you can
				  take money from the annuity without paying charges.
Living Benefits for Fixed Annuities
Some fixed annuities, especially fixed indexed annuities,
				  offer a guaranteed living benefits rider, usually at an extra cost. A common
				  type is called a guaranteed lifetime withdrawal benefit that guarantees to make
				  income payments you can't outlive. While you get payments, the money still in
				  your annuity continues to earn interest. You can choose to stop and restart the
				  payments or you might be able to take extra money from your annuity. Even if
				  the payments reduce the annuity's value to zero at some point, you'll continue
				  to get payments for the rest of your life. If you die while receiving payments,
				  your survivors may get some or all of the money left in your annuity.
Payout Options
You'll have a choice about
								how to receive income payments. These choices usually include:
*
For your
								lifetime
*
For the longer of your
								lifetime or your spouse's lifetime
*
For a set time
								period
*
For the longer of your
								lifetime or a set time period
Living Benefits for Variable Annuities
Variable annuities may offer a benefit at an extra cost that
				  guarantees you a minimum account value, a minimum lifetime income, or minimum
				  withdrawal amounts regardless of how your subaccounts perform. See "Variable
				  Annuity Living Benefit Options" at right. Check your contract and disclosure or
				  prospectus or ask your annuity salesperson about these options.
Variable Annuity Living
								Benefit Options
Guaranteed Minimum
								Accumulation Benefit (GMAB)
-
Guarantees your account value will
								equal some percentage (typically 100%) of premiums less withdrawals, at a set
								future date (for example, at maturity). If your annuity is worth less than the
								guaranteed amount at that date, your insurance company will add the
								difference.
Guaranteed Minimum Income
								Benefit (GMIB)
-
Guarantees a minimum lifetime income. You
								usually must choose this benefit when you buy the annuity and must annuitize to
								use the benefit. There may be a waiting period before you can annuitize using
								this benefit.
Guaranteed Lifetime Withdrawal
								Benefit (GLWB)
-
Guarantees you can make withdrawals for the
								rest of your life, up to a set maximum percentage each year.
How Annuities Are Taxed
Ask a tax professional about your individual situation. The
				  information below is general and should not be considered tax advice.
Current federal law gives annuities special tax treatment.
				  Income tax on annuities is deferred. That means you aren't taxed on any
				  interest or investment returns while your money is in the annuity. This isn't
				  the same as tax-free. You'll pay ordinary income tax when you take a
				  withdrawal, receive an income stream, or receive each annuity payment. When you
				  die, your survivors will typically owe income taxes on any death benefit they
				  receive from an annuity.
There are other ways to save that offer tax advantages,
				  including Individual Retirement Accounts (IRAs). You can buy an annuity to fund
				  an IRA, but you also can fund your IRA other ways and get the same tax
				  advantages. When you take a withdrawal or receive payments, you'll pay ordinary
				  income tax on all of the money you receive (not just the interest or the
				  investment return). You also may have to pay a 10% tax penalty if you withdraw
				  money before you're age 59 1/2.
Finding an Annuity That's Right for You
An annuity salesperson who suggests an annuity must choose
				  one that they think is right for you, based on information from you. They need
				  complete information about your life and financial situation to make a suitable
				  recommendation. Expect a salesperson to ask about your age; your financial
				  situation (assets, debts, income, tax status, how you plan to pay for the
				  annuity); your tolerance for risk; your financial objectives and experience;
				  your family circumstances; and how you plan to use the annuity. If you aren't
				  comfortable with the annuity, ask your annuity salesperson to explain why they
				  recommended it. Don't buy an annuity you don't understand or that doesn't seem
				  right for you.
Within each annuity, the insurer may guarantee some values
				  but not others. Some guarantees may be only for a year or less while others
				  could be longer. Ask about risks and decide if you can accept them. For
				  example, it's possible you won't get all of your money back or the return on
				  your annuity may be lower than you expected. It's also possible you won't be
				  able to withdraw money you need from your annuity without paying fees or the
				  annuity payments may not be as much as you need to reach your goals. These
				  risks vary with the type of annuity you buy. All product guarantees depend on
				  the insurance company's financial strength and claims-paying ability.
Questions You Should Ask
* Do I understand the risks of an annuity? Am I comfortable
				  with them?
* How will this annuity help me meet my overall financial
				  objectives and time horizon?
* Will I use the annuity for a long-term goal such as
				  retirement? If so, how could I achieve that goal if the income from the annuity
				  isn't as much as I expected it to be?
* What features and benefits in the annuity, other than tax
				  deferral, make it appropriate for me?
* Does my annuity offer a guaranteed minimum interest rate?
				  If so, what is it?
* If the annuity includes riders, do I understand how they
				  work?
* Am I taking full advantage of all of my other tax-deferred
				  opportunities, such as 401(k)s, 403(b)s, and IRAs?
* Do I understand all of the annuity's fees, charges, and
				  adjustments?
* Is there a limit on how much I can take out of my annuity
				  each year without paying a surrender charge? Is there a limit on the total
				  amount I can withdraw during the surrender charge period?
* Do I intend to keep my money in the annuity long enough to
				  avoid paying any surrender charges?
* Have I consulted a tax advisor and/or considered how buying
				  an annuity will affect my tax liability?
* How do I make sure my chosen survivors (beneficiaries) will
				  receive any payment from my annuity if I die?
If you don't know the answers or have other questions, ask
				  your annuity salesperson for help.
When You Receive Your Annuity Contract
When you receive your annuity contract, carefully review it.
				  Be sure it matches your understanding. Also, read the disclosure or prospectus
				  and other materials from the insurance company. Ask your annuity salesperson to
				  explain anything you don't understand. In many states, a law gives you a set
				  number of days (usually 10 to 30 days) to change your mind about buying an
				  annuity after you receive it. This often is called a free look or right to
				  return period. Your contract and disclosure or prospectus should prominently
				  state your free look period. If you decide during that time that you don't want
				  the annuity, you can contact the insurance company and return the contract.
				  Depending on the state, you'll either get back all of your money or your
				  current account value.
1 . FINRA (Financial Industry
				  Regulatory Authority) regulates the companies and salespeople who sell variable
				  annuities.