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Fixed Annuities

Fixed annuities offer some sort of guaranteed rate of return over the life of the contract. In general such contracts are often positioned to be somewhat like bank CDs and offer a rate of return competitive with those of CDs of similar time frames.

However, many fixed annuities do not have a completely fixed rate of return over the life of the contract, but have rather a guaranteed minimum rate and a first year introductory rate. The rate after the first year is often an amount that may be set in the insurance company's discretion, subject, however, to the minimum amount (typically 3%).

Unlike most CDs, there are usually some provisions in the contract to allow a percentage of the interest and/or principal to be withdrawn early and without penalty (usually the interest earned in a 12-month period or 10%).

Normally, fixed annuities become fully liquid upon the owner's death. 

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Annuity Performance Guarantees

There are several types of performance guarantees, and one may often choose them a la carte, with higher risk charges for guarantees that are riskier for the insurance companies. The first type is comprised of guaranteed minimum death benefits (GMDBs), which can be received only if the owner of the annuity contract, or the covered annuitant, dies.

GMDBs come in various flavors, in order of increasing risk to the insurance company:

  • Return of premium (a guarantee that you will not have a negative return)
  • Roll-up of premium at a particular rate (a guarantee that you will achieve a minimum rate of return, greater than 0)
  • Maximum anniversary value (looks back at account value on the anniversaries, and guarantees you will get at least as much as the highest values upon death)
  • Greater of maximum anniversary value or particular roll-up

Insurance companies provide even greater insurance coverage on guaranteed living benefits, which tend to be elective. Unlike death benefits, which the contractholder generally can't time, living benefits pose significant risk for insurance companies as contractholders will likely exercise these benefits when they are worth the most. Annuities with guaranteed living benefits (GLBs) tend to have high fees commensurate with the additional risks underwritten by the issuing insurer.

Some GLB examples, in no particular order:

  • Guaranteed minimum income benefit (a guarantee that one will get a minimum income stream upon annuitization at a particular point in the future)
  • Guaranteed minimum accumulation benefit (a guarantee that the account value will be at a certain amount at a certain point in the future)
  • Guaranteed minimum withdrawal benefit (a guarantee similar to the income benefit, but one that doesn't require annuitizing)
  • Guaranteed-for-life income benefit (a guarantee similar to a withdrawal benefit, but will pay you for as long as you live and does not require annuitization)

Insuring: Gurnee, Waukegan, Zion, Mundelein, Libertyville, Grayslake, Antioch, Ingleside, Round Lake, Round Lake Park, Round Lake Beach, Beach Park and Great Lakes, Illinois as well as Kenosha, Racine and Pleasant Prairie, Wisconsin. Along with other areas in Lake County, IL and we are a short 40 miles north of downtown Chicago.

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