annuity disclosure

By Shirley Wallace,2014-07-16 23:07
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annuity disclosure




Table of Contents

Section 1. Purpose

    Section 2. Authority

    Section 3. Applicability and Scope

    Section 4. Definitions

    Section 5. Standards for the Disclosure Document and Buyer’s Guide

    Section 6. Report to Contract Owners

    Section 7. Penalties

    Section 8 Separability

    Section 9. Effective Date

    Appendix A. Buyer’s Guide

Section 1. Purpose

    The purpose of this rule is to provide standards for the disclosure of certain minimum information about

    annuity contracts to protect consumers and foster consumer education. The rule specifies the minimum

    information which must be disclosed and the method for disclosing it in connection with the sale of

    annuity contracts. The goal of this rule is to ensure that purchasers of annuity contracts understand

    certain basic features of annuity contracts.

Section 2. Authority

     This rule is promulgated by the Superintendent pursuant to 24-A M.R.S.A. ?? 212 and 2151-B.

Section 3. Applicability and Scope

    This rule applies to all group and individual annuity contracts and certificates except:

    A. Registered or non-registered variable annuities or other registered products;

    B. Immediate and deferred annuities that contain no nonguaranteed elements;

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C. (1) Annuities used to fund:

    (a) An employee pension plan which is covered by the Employee Retirement

    Income Security Act (ERISA);

    (b) A plan described by Sections 401(a), 401(k) or 403(b) of the Internal Revenue

    Code, where the plan, for purposes of ERISA, is established or maintained by

    an employer,

    (c) A governmental or church plan defined in Section 414 of the Internal Revenue

    Code or a deferred compensation plan of a state or local government or a tax

    exempt organization under Section 457 of the Internal Revenue Code; or

    (d) A nonqualified deferred compensation arrangement established or maintained

    by an employer or plan sponsor.

    (2) Notwithstanding Paragraph (1), the rule shall apply to annuities used to fund a plan or

    arrangement that is funded solely by contributions an employee elects to make whether

    on a pre-tax or after-tax basis, and where the insurance company has been notified that

    plan participants may choose from among two (2) or more fixed annuity providers and

    there is a direct solicitation of an individual employee by a producer for the purchase of

    an annuity contract. As used in this subsection, direct solicitation shall not include any

    meeting held by a producer solely for the purpose of educating or enrolling employees

    in the plan or arrangement;

D. Structured settlement annuities; and

E. Funding agreements.

    Section 4. Definitions

     For the purposes of this rule:

A. “Contract owner” means the owner named in the annuity contract or certificate holder in the

    case of a group annuity contract.

    B. “Determinable elements” means elements that are derived from processes or methods that are

    guaranteed at issue and not subject to company discretion, but where the values or amounts

    cannot be determined until some point after issue. These elements include the premiums,

    credited interest rates (including any bonus), benefits, values, non-interest based credits, charges

    or elements of formulas used to determine any of these. These elements may be described as

    guaranteed but not determined at issue. An element is considered determinable if it was

    calculated from underlying determinable elements only, or from both determinable and

    guaranteed elements.

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    C. “Funding agreement” means an agreement for an insurer to accept and accumulate funds

    and to make one or more payments at future dates in amounts that are not based on

    mortality or morbidity contingencies.

    D. “Generic name” means a short title descriptive of the annuity contract being applied for or

    illustrated such as “single premium deferred annuity.”

    E. “Guaranteed elements” means the premiums, credited interest rates (including any bonus),

    benefits, values, non-interest based credits, charges or elements of formulas used to determine

    any of these, that are guaranteed and determined at issue. An element is considered guaranteed if

    all of the underlying elements that go into its calculation are guaranteed.

    F. “Non-guaranteed elements” means the premiums, credited interest rates (including any bonus),

    benefits, values, non-interest based credits, charges or elements of formulas used to determine

    any of these, that are subject to company discretion and are not guaranteed at issue. An element

    is considered non-guaranteed if any of the underlying non-guaranteed elements are used in its


    G. “Structured settlement annuity” means a “qualified funding asset” as defined in section 130(d)

    of the Internal Revenue Code or an annuity that would be a qualified funding asset under section

    130(d) but for the fact that it is not owned by an assignee under a qualified assignment.

    Section 5. Standards for the Disclosure Document and Buyer’s Guide

    A. (1) Where the application for an annuity contract is taken in a face-to-face meeting,

    the applicant shall at or before the time of application be given both the disclosure

    document described in Subsection B and the Buyer’s Guide contained in Appendix


    (2) Where the application for an annuity contract is taken by means other than in a face-to-

    face meeting, the applicant shall be sent both the disclosure document and the Buyer’s

    Guide no later than five business days after the completed application is received by the


    (a) With respect to an application received as a result of a direct solicitation

    through the mail:

    (i) Providing the Buyer’s Guide in a mailing inviting prospective

    applicants to apply for an annuity contract shall be deemed to satisfy

    the requirement that the Buyer’s Guide be provided no later than five

    business days after receipt of the application.

    (ii) Providing a disclosure document in a mailing inviting a prospective

    applicant to apply for an annuity contract shall be deemed to satisfy

    the requirement that the disclosure document be provided no later

    than five business days after receipt of the application.

    (b) With respect to an application received via the Internet:

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    (i) Making the Buyer’s Guide prominently available for viewing and

    printing on the insurer’s website shall be deemed to satisfy the

    requirement that the Buyer’s Guide be provided no later than five

    business day of receipt of the application.

    (ii) Making the disclosure document prominently available for viewing

    and printing on the insurer’s website shall be deemed to satisfy the

    requirement that the disclosure document be provided no later than

    five business days after receipt of the application.

    (c) A solicitation for an annuity contract provided in other than a face-to-face

    meeting shall include a statement that the proposed applicant may contact the

    insurance department of the state for a free annuity Buyer’s Guide. In lieu of

    the foregoing statement, an insurer may include a statement that the

    prospective applicant may contact the insurer for a free annuity Buyer’s Guide.

    (3) Where the Buyer’s Guide and disclosure document are not provided at or before the

    time of application, a free look period of no less than 15 days shall be provided for the

    applicant to return the annuity contract without penalty. This free look shall run

    concurrently with any other free look provided under state law or rule. A prominent

    notice of the free look period shall be provided to the applicant.

    B. At a minimum, the following information shall be included in the disclosure document required

    to be provided under this rule:

    (1) The generic name of the contract, the company product name, if different, and form

    number, and the fact that it is an annuity;

    (2) The insurer’s name and address;

    (3) A description of the contract and its benefits, emphasizing its long-term nature,

    including examples where appropriate:

    (a) The guaranteed, non-guaranteed and determinable elements of the contract,

    and their limitations, if any, and an explanation of how they operate;

    (b) An explanation of the initial crediting rate, specifying any bonus or

    introductory portion, the duration of the rate and the fact that rates may

    change from time to time and are not guaranteed;

    (c) Periodic income options both on a guaranteed and non-guaranteed basis;

    (d) Any value reductions caused by withdrawals from or surrender of the contract;

    (e) How values in the contract can be accessed;

    (f) The death benefit, if available and how it will be calculated;

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    (g) A summary of the federal tax status of the contract and any penalties

    applicable on withdrawal of values from the contract; and

    (h) Impact of any rider, such as a long-term care rider.

     (4) Specific dollar amount or percentage charges and fees shall be listed with an

    explanation of how they apply.

     (5) Information about the current guaranteed rate for new contracts that contains a clear

    notice that the rate is subject to change.

     C. Insurers shall define terms used in the disclosure statement in language that facilitates the

    understanding by a typical person within the segment of the public to which the disclosure

    statement is directed.

Section 6. Report to Contract Owners

     For annuities in the payout period with changes in non-guaranteed elements and for the accumulation

    period of a deferred annuity, the insurer shall provide each contract owner with a report, at least annually,

    on the status of the contract that contains at least the following information:

    A. The beginning and end date of the current report period;

    B. The accumulation and cash surrender value, if any, at the end of the previous report period and

    at the end of the current report period;

    C. The total amounts, if any, that have been credited, charged to the contract value or paid during

    the current report period; and

    D. The amount of outstanding loans, if any, as of the end of the current report period.

Section 7. Penalties

     In addition to any other penalties provided by the laws of this state, an insurer or producer that violates a

    requirement of this rule shall be guilty of a violation of 24-A M.R.S.A. Chapter 23.

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Section 8. Separability

     If any provision of this rule or its application to any person or circumstance is for any reason held to be

    invalid by any court of law, the remainder of the rule and its application to other persons or

    circumstances shall not be affected.

Section 9. Effective Date

    This rule shall become effective April 1, 2004, and shall apply to contracts sold on or after the effective date.

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[The face page of the Fixed Deferred Annuity Buyer’s Guide shall read as follows:]

    Prepared by the National Association of Insurance Commissioners

    The National Association of Insurance Commissioners is an association of state insurance regulatory officials. This association helps the various insurance departments to coordinate insurance laws for the benefit of all consumers.

    This guide does not endorse any company or policy.

    Reprinted by. . .

    It is important that you understand the differences among various annuities so you can choose the kind that best fits your needs. This guide focuses on fixed deferred annuity contracts. There is, however, a brief description of

    variable annuities. If you’re thinking of buying an equity-indexed annuity, an appendix to this guide will give you

    specific information. This Guide isn’t meant to offer legal, financial or tax advice. You may want to consult

    independent advisors. At the end of this Guide are questions you should ask your agent or the company. Make sure you’re satisfied with the answers before you buy.


    An annuity is a contract in which an insurance company makes a series of income payments at regular intervals in return for a premium or premiums you have paid. Annuities are most often bought for future retirement income. Only an annuity can pay an income that can be guaranteed to last as long as you live.

    An annuity is neither a life insurance nor a health insurance policy. It’s not a savings account or a savings certificate. You shouldn’t buy an annuity to reach short-term financial goals.

    Your value in an annuity contract is the premiums you’ve paid, less any applicable charges, plus interest credited. The insurance company uses the value to figure the amount of most of the benefits that you can choose to receive from an annuity contract. This guide explains how interest is credited as well as some typical charges and benefits of annuity contracts.

A deferred annuity has two parts or periods. During the accumulation period, the money you put into the

    annuity, less any applicable charges, earns interest. The earnings grow tax-deferred as long as you leave them in the annuity. During the second period, called the payout period, the company pays income to you or to someone

    you choose.


    This guide explains major differences in different kinds of annuities to help you understand how each might meet your needs. But look at the specific terms of an individual contract you’re considering and the disclosure document you receive. If your annuity is being used to fund or provide benefits under a pension plan, the benefits you get will depend on the terms of the plan. Contact your pension plan administrator for information.

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    This Buyer’s Guide will focus on individual fixed deferred 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.

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.

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 premiums (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).


    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.

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    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.

Multiple 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 benefit options. These accumulated values may use different interest rates. You get only one of the accumulated values depending on

    which benefit you choose.


    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’re 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.

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    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 a 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.

Free Withdrawal

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.

Percentage of Premium Charge

    A percentage of premium charge is a charge deducted from each premium paid. The percentage may be lower after the contract has been in force for a certain number of years or after total premiums paid have reached a certain amount.

Premium Tax

    Some states charge a tax on annuities. The insurance company pays this tax to the state. The company 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.


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 benefit rate in effect when income

    payments start. The benefit rate usually depends on your age and sex, and the annuity payment option you choose.

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