Wisconsin Administrative Code › Office of the Commissioner of Insurance › Chapter Ins 2 - Life Insurance › Appendix I - WISCONSIN BUYER'S GUIDE TO ANNUITIES

Current through June 24, 2024
WHAT IS AN ANNUITY?
An annuity is a written contract between you and a life
				insurance company. In return for your premiums, the company will pay you an
				annuity which is a series of payments made at regular intervals. An annuity
				contract is not a life insurance policy or a health insurance policy. It is not
				a savings account or savings certificate and it should not be bought for short
				term purposes.
* AN ANNUITY IS NOT "RISK FREE" OR "GUARANTEED SAFE. "IT IS
				ONLY AS SOUND AS THE INSURANCE COMPANY WHICH ISSUES IT.
* IF YOU TAKE YOUR MONEY OUT AFTER A SHORT TIME PENALTY
				PROVISIONS OF MANY CONTRACTS MEAN THAT YOU MAY GET BACK LESS THAN YOU PUT
				IN.
TYPES OF ANNUITY CONTRACTS
Annuity contracts vary in a number of ways. The following are
				some of the more important ways:
WHEN BENEFITS ARE RECEIVED
* Annuities may be either immediate or deferred. Immediate
				annuities provide income payments that start shortly after you pay the premium.
				Deferred annuities provide income payments that start at a later date. The main
				reason for buying an immediate annuity is to obtain an immediate income, most
				frequently for retirement purposes. The main reason for buying a deferred
				annuity is to accumulate money on a tax-deferred basis, which can then provide
				an income at a later date.
HOW PREMIUMS ARE PAID
* Annuities may be either single premium or installment
				premium. Single premium contracts require you to pay the company only one
				premium. Installment premium contracts are designed for a series of premiums.
				Most of these are flexible premium contracts. You pay as much as you wish
				whenever you wish, within specified limits. Some are scheduled premium
				contracts that specify the size and frequency of your premiums.
FIXED OR VARIABLE
* Annuities may be fixed, variable, or a combination of both.
				During the deferred period of a fixed annuity contract, interest is paid on the
				accumulated premiums (minus charges) at a rate set by the company. The amount
				of each annuity payment is determined when payments begin. During the deferred
				period of a variable annuity, interest is paid on the accumulated premiums
				(minus charges) at a rate that varies with the performance of a specified pool
				of investments. The amount of each annuity payment also varies with the
				performance of the pool. Combination annuities allow you to put part of your
				premium in a fixed annuity and part in a variable annuity.
ANNUITY CONTRACT FEATURES
The value of your annuity consists of the premiums you have
				paid, less charges, plus interest credited. This value is used to calculate the
				amount of benefits that you will receive. Charges, interest, surrender rights,
				and benefits are explained below.
CHARGES
There are many types and amounts of charges. Companies may
				refer to these charges by different names. Some annuities are "front loaded",
				which means that most of the costs to the company are charged to you in the
				beginning. Some are "back loaded", which means that most of these costs are
				charged to you later on. Others spread their charges evenly throughout the life
				of the annuity. Some charges will be fixed by the contract while some may be
				changed by the company from time to time.
Before buying an annuity you should know all of the charges
				that you will pay and when you will pay them. Also, you should understand how
				these charges might affect the actual amount of money that will accumulate from
				your premium payments. A typical contract might contain one or more of the
				following types of charges:
* Percentage of Premium Charge. This charge, often called a
				"load," is deducted from each premium before any interest is added. The
				percentage may reduce after the contract has been in force for a certain number
				of years or after the total premiums paid have reached a certain level.
* Contract Fee. This is a flat dollar amount charged either
				once at the time of issue, or charged once each year.
* Transaction Fee. This is a fixed charge per premium payment
				or other transaction.
* Surrender Charge. This charge is usually a percentage of the
				value of the contract or of premiums paid. The percentage may be reduced or
				eliminated after the contract has been in force for a certain number of years.
				Sometimes the charge is a reduction in the interest rate credited. Sometimes
				the charge is eliminated if the interest rate declared by the company falls
				below a certain level.
INTEREST
The interest rate used to accumulate contract values may never
				be less than the guaranteed rate stated in the contract. In practice, the
				interest rate actually used by a company, usually referred to as the "current"
				rate, is often higher. The company may change the current rate from time to
				time, but it cannot be lower than the guaranteed rate. Companies differ
				substantially in their methods of determining the current rate.
SURRENDER RIGHTS
Most annuities allow you to surrender your contract if income
				payments have not yet started. Upon surrender, the contract terminates. The
				surrender value is equal to your contract value less the surrender charge, if
				any. This amount could be less than you paid in.
Many annuities also provide that you may withdraw a portion of
				your contract value, under certain conditions, without terminating the
				contract. A charge may be deducted from the amount withdrawn. This charge is
				usually a percentage of either the accumulated value of the contract, the
				premiums paid or the portion withdrawn.
There may be certain tax penalties for early surrenders. Be
				sure you understand any tax implications before surrendering an annuity
				contract.
BENEFITS
Annuity contracts provide a number of benefits. While the
				annuity income benefit is the primary one, other benefits are also important.
				Some of the more important ones are described below:
Annuity Income Benefit
Income payments are usually made monthly, although other
				frequencies are available. The amount of the annuity payments is based on both
				the value of the contract and the contract's "benefit rate" when the first
				payment is made. The benefit rate depends on your age, sex, and the specific
				features of the annuity you chose.
Annuity contracts contain a table of guaranteed benefit rates.
				Most companies periodically develop "current" benefit rates as well. These
				rates are subject to change by the company at any time. When annuity payments
				begin, the company will determine the amount of each payment according to the
				current benefit rates then in effect. If the guaranteed benefit rates would
				provide higher income payments, those rates will be used. Once payments begin,
				they are unaffected by any future benefit rate changes.
The most commonly available annuity income benefits are:
* Straight Life. The annuity is paid as long as you are alive.
				There are no further payments to anyone after your death.
* Life With Period Certain. The annuity is paid as long as you
				are alive. If you die before the end of the period referred to as the "certain
				period," the annuity will be paid to your beneficiary for the rest of that
				period. Typical certain periods are 10 to 20 years.
* Joint and Survivor. The annuity is paid as long as either you
				or another named annuitant is still alive. In some variations, the annuity is
				decreased after the first death. A period certain may also be available with
				this form.
Death Benefit
Most contracts provide that, if you die before the annuity
				payments start, the contract value will be paid to your beneficiary. Some
				contracts provide that the death benefit will be the total premiums paid if
				that amount is greater than the value of the contract at death.
Waiver of Premium Benefit
Some companies offer a benefit which will pay premiums for you
				if you become disabled. A charge is made for this benefit.
HOW MUCH SHOULD I BUY?
Before buying, ask yourself these questions:
1. How much annuity income will I need in addition to social
				security, pension savings and investments?
2. Will I need an income only for myself or also for someone
				else?
3. How much can I afford to pay in premiums?
4. How will the annuity contract fit in with my total financial
				planning?
HOW TO BUY AN ANNUITY
Buying an annuity contract is a major financial decision which
				should be considered carefully. The prospective purchaser of an annuity
				contract should consider the offerings of as many different companies and
				agents as possible.
CONTRACT SUMMARY
In addition to receiving this Buyer's Guide, you must receive
				either a Preliminary Contract Summary or a Contract Summary prior to the time
				you pay the initial premium. If you did not receive a Contract Summary with
				this Buyer's Guide, you must receive one when the contract is delivered or you
				can ask for one. You should review the contract summary thoroughly.
Accumulated values and surrender values under the contract are
				illustrated for various years on this summary. During the first few years,
				these values may be less than premiums paid. This is why an annuity contract
				should not be purchased for short term purposes.
Also illustrated are the yields on gross premiums at specified
				times. Yields take into account not only the interest credited under the
				contract, but also the effect of all charges. The yield on gross premiums is a
				figure you can use to compare annuity contracts. Be careful in comparing this
				yield with yields available on other investments. The tax treatment of annuity
				earnings is usually substantially different from that of earnings from other
				investments.
One reason for buying an annuity contract is to obtain an
				income, so you should review the life income figures.
Values and income figures may be shown on both a "guaranteed"
				and an "illustrated" basis. The guaranteed basis shows the minimum values and
				income which would be paid under the contract. The "illustrated" basis shows
				the values and income which would be paid if the current interest and benefit
				rates were to continue in effect. Since it is impossible to predict future
				interest and benefit rates, you will have to decide whether to rely on any
				illustrated basis values when making your purchase decision.
OTHER POINTS TO CONSIDER
Be certain you understand all charges that will be made and how
				they may reduce the value of the annuity.
Be certain you can afford the premium payments.
Check whether the annuity contract allows you to change the
				amount and frequency of your premium payments. Find out what happens if you
				stop paying premiums.
You may want to obtain and compare Contract Summaries for
				similar contracts from several companies. Comparing these should help you in
				your selection.
If you are buying an annuity contract for an Individual
				Retirement Account (IRA) or another tax deferred retirement program, make sure
				that you are eligible. Make sure that you understand any restrictions and tax
				implications connected with the program.
If you are shown a presentation which illustrates tax savings,
				be sure the assumptions, such as the tax bracket, apply in your case.
Some companies offer deposit fund arrangements with their life
				insurance policies or annuity contracts. These arrangements allow you to pay
				amounts in addition to your premiums that will be accumulated at interest in
				much the same way as under a deferred fixed annuity contract.
READ THE CONTRACT
When you receive your new annuity contract read it carefully.
				Ask the agent or the company for an explanation of anything you do not
				understand.
If you have a specific complaint or cannot get the answers you
				need from the agent or company, please contact the
Office of the Commissioner of Insurance
P.O. Box 7873
Madison, WI 53707-7873
Phone: (608) 266-0103
or
1-800-236-8517
This Guide Does Not Endorse Any Company Or
				Policy