New York Codes, Rules and Regulations › Title 11 - INSURANCE › Appendices › Appendix 28

Current through Register Vol. 46, No. 28, July 10, 2024
NON-GUARANTEED INDEX ANNUITIES (AKA STRUCTURED ANNUITIES,
				REGISTERED INDEX ANNUITIES, BUFFER ANNUITIES,
				SHIELD® ANNUITIES, AND FLOOR ANNUITIES)
The following questions aim to help you understand how
				non-guaranteed index annuities work. They also highlight some of the risks with
				this type of annuity. You can use these questions when you talk with an
				insurance producer about whether this type of annuity is right for you. This is
				general information. Since there may be variations in how insurance companies
				design their annuities, you should ask the insurance producer to explain the
				details of the annuities you are considering buying and how the questions below
				relate to those annuities.
You should know:
*You could lose money.
* In exchange for some loss protection, you may sacrifice
				potential gain.
* In some instances, the potential loss may be much greater
				than the potential gain.
*There may be limits on gains that could delay or prevent you
				from earning back losses.
1. How does a non-guaranteed index annuity differ from a
				fixed annuity or a variable annuity?
* The chart below shows some differences. Sometimes an annuity
				may offer a combination of fixed, fixed index, non-guaranteed index, or
				variable investment options within the same contract.
Fixed Annuity
Fixed Index Annuity
Non-guaranteed Index Annuity
Variable Annuity
Direct Investment in Securities
No
No
No
Yes
Gain/Loss
Gain Only
Gain Only
Gain or Loss
Gain or Loss
Potential Loss of Principal
No
No
Yes
Yes
Limit on
Gains
Yes
Interest you earn is declared by the insurance
							 company each year.
Yes
Interest you earn may be limited by a
							 cap.
Yes
Interest you earn may be limited by a
							 cap.
No
Protection against Loss
Yes
Yes
Partial Protection (Buffer or Floor)
No
2. Do I benefit from dividends issued by companies that
				are part of an index with a nonguaranteed index annuity?
* No, non-guaranteed index annuities often use a version of an
				index that does not include these dividends when determining index performance.
				So, the amount the insurance company credits to your account may be based on
				lower gains than if you invested in an index fund (through a variable annuity,
				for example). For example, over the ten-year period ending December 31, 2020,
				the returns on the S&P 500 Index without dividends were lower by an average
				of 2% each year compared to the same index with dividends. The returns on
				indexes other than the S&P 500 are also lower without dividends.
3. Can I lose money with a non-guaranteed index
				annuity?
* Yes, the return may be positive, negative or zero. As a
				result, investment in this product may result in a loss of principal. In some
				instances, the potential loss may be significantly greater than the potential
				gain. See Question 8 below for examples. Fees in the contract can further
				reduce what you earn.
* The non-guaranteed index annuity generally offers greater
				potential for gain but less loss protection than a fixed annuity or fixed index
				annuity. Fixed annuities and fixed index annuities guarantee a minimum interest
				rate. They also have a guarantee of principal. If you are concerned about
				losing principal, ask the insurance producer about the fixed and fixed index
				annuities the producer offers.
4.
How does a "buffer" work?
* With a buffer, the insurance company will not reduce your
				account value if the loss in the index is within a stated percentage. However,
				the insurance company will reduce your account value for additional loss in the
				index beyond that initial percentage.
* For example, if the annuity has a buffer against loss of 10%,
				that means the insurance company will not reduce your account value if the loss
				in the index is between 0% and 10% over the period specified in your contract
				("index period"). However, if the index loses more than 10%, the insurance
				company will reduce your account value. If the index loses 30%, for example,
				the insurance company will reduce your account value 20%. Put another way, with
				a 10% buffer, the most you could lose for the index period is 90% if the index
				loses 100% over the index period.
* You may give up potential gain in order to have this loss
				protection. See Questions 7 and 8 below.
5. How does a "floor" work?
* With a floor, the insurance company will reduce your account
				value for any loss in the index up to a stated percentage. The insurance
				company will not further reduce your account value for additional loss in the
				index beyond that initial percentage.
* For example, if the annuity has a floor against loss of 20%,
				that means the insurance company will reduce your account for loss in the index
				between 0% and 20% over the index period. Loss beyond 20% will not be
				subtracted from your account. Put another way, with a 20% floor, the most you
				could lose for the index period is 20%.
* You may give up potential gain in order to have this loss
				protection. See Questions 7 and 8 below.
6. What is a "step credit"?
* For annuities that don't use a step credit, the amount the
				insurance company adds to your account depends on how much gain the index
				returns. The greater the gain, the greater the percentage credited to your
				account, up to any stated cap. However, a step credit works differently. With a
				step credit, the insurance company will credit your account the same preset
				percentage regardless of how much the index gains.
* For example, if the step rate is 6%, then the insurance
				company will credit you 6% if there is any gain in the index. If the index
				returns 1%, you still get 6%. However, if the index returns 15%, you still get
				6%.
* Some insurance companies will also credit the step credit if
				the index return is zero.
* If the index loses value, your account value will be reduced,
				subject to any buffer or floor you have on your annuity.
7. Are there limits on my potential gain with a
				non-guaranteed index annuity?
* Yes, insurance companies often limit the amount of money you
				can earn with a nonguaranteed index annuity.
* A "cap" is a common type of limitation. Caps limit the amount
				of gain. For example, if the insurance company sets a cap of 10%, then 10% is
				the most the insurance company will credit your account for the index period,
				regardless of how well the index performs. A step credit may also limit your
				potential gain.
* At the same time, the amount of loss protection from a buffer
				or floor is also limited. The cap levels will often differ based upon the level
				of buffer or floor protection.
* In some instances, the potential loss may be much greater
				than the potential gain. For example, if there is a cap on gain of 10% and a
				buffer against loss of 10%, that means that the most you could earn is 10% and
				the most you could lose is 90%, if the index loses 100% of its value over the
				index period.
* Example 1: Consider an annuity with a 10% cap and a 10%
				buffer.
Index Movement During the Index
							 Period
Impact on your Account Value
Index Gains 40%
10% Gain
Index Loses 40%
30% Loss
* Example 2: Consider an annuity with a 10% cap and a 15%
				floor.
Index Movement during the Index
							 Period
Impact on your Account Value
Index Gains 40%
10% Gain
Index Loses 40%
15% Loss
8. Could the limits on potential gain delay or prevent me
				from recouping losses?
* Yes, in some instances the potential loss may be much greater
				than the potential gain. This can make it difficult to earn back losses.
* For example, consider the table below that shows a series of
				losses and gains, without fees, over a four-year period with an initial
				$100,000 contribution to the annuity. Fees, such as variable annuity separate
				account fees, underlying fund fees, and other charges can impact
				performance.
Year
Index
Movement
Variable A nnuity
Buffer Annuity
7% Cap
10% Buffer
Floor Annuity
7% Cap
15% Floor
Floor Annuity
7% Cap
25% Floor
1
20% Loss
$80,000
$90,000
$85,000
$80,000
2
25% Gain
$100,000
$96,300
$90,950
$85,600
3
20% Loss
$80,000
$86,670
$77,308
$68,480
4
25% Gain
$100,000
$92,737
$82,719
$73,274
Overall
0% Break Even
$7,263 Loss
$17,281 Loss
$26,726 Loss
* If you want exposure to the stock market or other investments
				included in an index and are willing to go without the limited loss protection
				in order to have greater potential gain, ask the insurance producer about the
				variable annuities the producer offers.
9. Will the same caps and index options always be
				available after the initial index period?
* Not always. The insurance company can change the caps when it
				renews the index options at the end of each index period. Caps could be higher
				or lower.
* The insurance company may temporarily suspend renewal index
				options (both the indexes offered and the length of the options). This can
				happen if market conditions make it difficult for the company to offer the
				options. Surrender charges may apply if you surrender the contract.
10. What if I want to take money out before the end of
				the index period?
* You may not be able to move your money out of an index option
				to another investment within the annuity before the end of the index
				period.
* You can take all or some of your money out of the annuity
				contract, but you may receive less than your initial investment in the index
				option. This may be true even if the index movement has been positive since
				your start date. The amount you receive may be less than the amount you would
				receive if you had waited until the end of the index period. Surrender charges
				and other adjustments to your account value may also apply.