U.S. patent application number 13/403451 was filed with the patent office on 2012-06-14 for systems and methods for providing a combination financial product.
This patent application is currently assigned to Massachusetts Mutual Life Insurance Company. Invention is credited to Richard J. Byrne, Amy Caruso, Matthew R. Naughton, James C. Todd, Judith A. Zaiken.
Application Number | 20120150571 13/403451 |
Document ID | / |
Family ID | 40029554 |
Filed Date | 2012-06-14 |
United States Patent
Application |
20120150571 |
Kind Code |
A1 |
Caruso; Amy ; et
al. |
June 14, 2012 |
Systems and Methods for Providing a Combination Financial
Product
Abstract
The present invention relates to systems and methods for
administering combination annuity products and to combination
annuity products themselves. Certain embodiments of the invention
can be used in connection with variable universal life insurance
and variable life insurance contracts.
Inventors: |
Caruso; Amy; (Southwick,
MA) ; Todd; James C.; (Collinsville, CT) ;
Naughton; Matthew R.; (Simsbury, CT) ; Zaiken; Judith
A.; (East Longmeadow, MA) ; Byrne; Richard J.;
(Windsor, CT) |
Assignee: |
Massachusetts Mutual Life Insurance
Company
Springfield
MA
|
Family ID: |
40029554 |
Appl. No.: |
13/403451 |
Filed: |
February 23, 2012 |
Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
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13065848 |
Mar 30, 2011 |
8131623 |
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13403451 |
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12291500 |
Nov 10, 2008 |
7941358 |
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13065848 |
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11297030 |
Dec 7, 2005 |
7457776 |
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12291500 |
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Current U.S.
Class: |
705/4 |
Current CPC
Class: |
G06Q 40/08 20130101;
G06Q 40/00 20130101; G06Q 40/06 20130101 |
Class at
Publication: |
705/4 |
International
Class: |
G06Q 40/08 20120101
G06Q040/08; G06Q 40/06 20120101 G06Q040/06 |
Claims
1. A method for administering a combination annuity product, the
method comprising: receiving at least one premium payment
associated with a combination annuity product; allocating a
specified portion of the payment to a fixed account and allocating
a specified portion of the payment to a variable sub-account to
determine a fixed account/variable sub-account allocation; and,
guaranteeing principal protection for a specified portion of
principal associated with the combination annuity product.
2. The method according to claim 1 wherein said guaranteeing
principal protection includes: guaranteeing a minimum rate on the
fixed account allocation; guaranteeing at the end of a given period
that the variable sub-account will not be less than a specific
percentage of the original amount allocated to it; and, determining
the fixed account/variable sub-account allocation based on a
specified sub-account protection percentage, a specified fixed
account growth rate and a specified benefit period.
3. A combination annuity product produced by a process comprising:
receiving at least one premium payment associated with a
combination annuity product; allocating a specified portion of the
payment to a fixed account and allocating a specified portion of
the payment to a variable sub-account to determine a fixed
account/variable sub-account allocation; and, guaranteeing
principal protection for a specified portion of principal
associated with the combination annuity product.
4. The product produced by a process according to claim 3 wherein
said guaranteeing principal protection includes: guaranteeing a
minimum rate on the fixed account allocation; guaranteeing at the
end of a given period that the variable sub-account will not be
less than a specific percentage of the original amount allocated to
it; and determining the fixed account/variable sub-account
allocation based on a specified sub-account protection percentage,
a specified fixed account growth rate and a specified benefit
period.
5. A system for administering a combination annuity product, the
system comprising: receiving means for receiving data indicating
payment of at least one premium payment associated with a
combination annuity product; allocating means in communication with
the receiving means, the allocating means for allocating a
specified portion of the payment to a fixed account and allocating
a specified portion of the payment to a sub-account to determine a
fixed account/variable sub-account allocation; and, guaranteeing
means in communication with the allocation means, the guaranteeing
means for guaranteeing principal protection for a specified portion
of principal associated with the combination annuity product.
6. The system according to claim 5 wherein said guaranteeing means
guarantees said principal protection by: guaranteeing a minimum
rate on the fixed account allocation; guaranteeing at the end of a
given period that the variable sub-account will not be less than a
specific percentage of the original amount allocated to it; and,
determining the fixed account/variable sub-account allocation based
on a specified sub-account protection percentage, a specified fixed
account growth rate and a specified benefit period.
Description
BACKGROUND OF THE INVENTION
[0001] The present invention relates to combination financial
products, systems and methods, e.g., combination annuity products
for retirement income planning and investing.
[0002] An annuity contract in its simplest form is a contract
between an insurance company and a contract owner that provides for
payments to an annuitant at regular intervals during the life of a
specified individual.
[0003] There are different ways of classifying insurance products
such as annuities. In one hod, insurance products can be classified
according to how premium payments are invested. According to this
method, insurance products can be divided into two general
categories: general account products ("fixed insurance products"),
and separate account products ("variable insurance products").
[0004] In the case of fixed insurance products, the insurance
company guarantees certain benefits. More specifically with respect
to fixed deferred annuities, the insurance company generally
guarantees a certain rate of interest for a period of time on
premiums paid. Once the guarantee period is over, a new interest
rate is set for the next period. During an income phase (the period
during which the insurance company provides income payments to the
contract's annuitant), the contract guarantees fixed income
payments to the annuitant based on the contract's account value at
the start of the income phase and an assumed interest rate.
[0005] Fixed annuities sales are currently driven by growth in
Equity Index Annuities (EIAs.) An EIA is an annuity that earns
interest that is somewhat linked to a stock or other equity index.
An EIA is different from other fixed annuities because of the way
it credits interest to the annuity's value. Most fixed annuities
only credit interest calculated at a rate set by the company
managing the annuity. Equity-indexed annuities credit interest
using a formula based on changes in the index to which the annuity
is linked. Typically, the ETA does not actually invest in the
index.
[0006] The current low interest rate environment combined with the
volatility of the equity markets has reduced consumer demand for
traditional fixed annuities as compared to EIAs, which are marketed
as providing "upside potential with downside protection."
[0007] If prospective contract or policy owners desire the
potential for greater benefits and can accept the associated
greater risk than afforded by the conservative investing inherent
in fixed insurance products, they may purchase a variable annuity
contract. In the case of variable insurance products, the insurance
company generally does not guarantee the product's benefits, nor
its account or cash values. Instead, the investment performance of
the assets underlying the product largely if not entirely determine
the benefits and contract values. With variable insurance products
the insurance company makes available to the owner a number of
investment options in a separate account, sometimes called the
variable account. One can refer to the investment options as
sub-accounts. The contract owner or policy owner chooses from among
these sub-accounts to invest the premiums.
[0008] Despite these fixed products and variable products, a need
remains for a financial product that can truly provide downside
protection and upside potential.
SUMMARY OF THE INVENTION
[0009] The present invention relates to combination financial
products, systems and methods, e.g., combination annuity products
for retirement income planning and investing. An aspect of the
invention provides a method for administering a combination annuity
product. The method includes: receiving at least one premium
payment associated with a combination annuity product; allocating a
specified portion of the payment to a fixed account and allocating
a specified portion of the payment to a variable sub-account to
determine a fixed account/variable sub-account allocation; and
guaranteeing principal protection for a specified portion of
principal associated with the combination annuity product. The
method guarantees principal protection for a specified portion of
principal associated with the combination annuity product by:
guaranteeing a minimum rate on the fixed account allocation;
guaranteeing at the end of a given period that the variable
sub-account will not be less than a specific percentage of the
original amount allocated to it; and determining the fixed
account/variable sub-account allocation based on a specified
sub-account protection percentage, a specified fixed account growth
rate and a specified benefit period.
[0010] Another aspect of the invention provides a combination
annuity product produced by a process including: receiving at least
one premium payment associated with a combination annuity product;
allocating a specified portion of the payment to a fixed account
and allocating a specified portion of the payment to a variable
sub-account to determine a fixed account/variable sub-account
allocation; and guaranteeing principal protection for a specified
portion of principal associated with the combination annuity
product. The process guarantees principal protection for a
specified portion of principal associated with the combination
annuity product by: guaranteeing a minimum rate on the fixed
account allocation; guaranteeing at the end of a given period that
the variable sub-account will not be less than a specific
percentage of the original amount allocated to it; and determining
the fixed account/variable sub-account allocation based on a
specified sub-account protection percentage, a specified fixed
account growth rate and a specified benefit period.
[0011] Yet another aspect of the invention provides a system for
administering a combination annuity product. The system includes:
receiving means for receiving data indicating payment of at least
one premium payment associated with a combination annuity product;
allocating means in communication with the receiving means, the
allocating means for allocating a specified portion of the payment
to a fixed account and allocating a specified portion of the
payment to a sub-account to determine a fixed account/variable
sub-account allocation; and guaranteeing means in communication
with the allocation means. The guaranteeing means guarantees
principal protection for a specified portion of principal
associated with the combination annuity product by: guaranteeing a
minimum rate on the fixed account allocation; guaranteeing at the
end of a given period that the variable sub-account will not be
less than a specific percentage of the original amount allocated to
it; and determining the fixed account/variable sub-account
allocation based on a specified sub-account protection percentage,
a specified fixed account growth rate and a specified benefit
period.
BRIEF DESCRIPTION OF THE ILLUSTRATED EMBODIMENTS
[0012] FIG. 1 is a flowchart of a method according to the
invention.
[0013] FIG. 2 is a schematic illustration of a system according to
the invention.
DETAILED DESCRIPTION OF THE INVENTION
[0014] The present invention relates to combination financial
products, systems and methods, e.g., combination annuity products
for retirement income planning and investing.
[0015] Insurance products, which are classified according to how
premium payments are invested and how insurance benefits are
determined, can be divided into two general categories: fixed or
general account products ("fixed insurance products"), and variable
or separate account products ("variable insurance products"). In
addition, one can produce a hybrid product that combines both fixed
and variable elements ("combination insurance products").
[0016] An embodiment of the invention provides a fixed/variable
combination product. It provides a hybrid product that combines
both a fixed account and a variable sub-account. By example, the
product is a registered product, has a market value adjustment
(MVA) on the fixed investments, and varying choices of principal
protection on the equity investments.
[0017] With regard to MVA, often an insurance company adopts an
investment strategy that is geared towards the maturity date of a
policy, meaning that the company is able to invest in assets with
longer maturity periods, and thus match the maturity period of the
underlying investment with the liability structure of the
particular policy, i.e., the policy maturity period. Therefore,
early withdrawals may cause an asset-liability mis-match, which can
he addressed through the use of a Market Value Adjustment.
Therefore, if a withdrawal is made outside of a Window Period, the
amount of the withdrawal from the Fixed Account will be adjusted in
accordance with the then current interest rate environment. For
example, if prevailing market interest rates are higher than the
rate guaranteed for the fixed account, the market value adjustment
would be negative; conversely, if the prevailing market interest
rates are lower than the rate guaranteed for the fixed account, the
market value adjustment would be positive.
[0018] However, any negative adjustment is limited to the extent
that the Fixed Account Value cannot be less than the Fixed Account
Value that would result from the Guaranteed Interest Rate as
specified in the Contract Schedule. The MVA formula is outlined
later in this document.
[0019] Products according to the invention appeal to those who wish
to combine the security of a fixed annuity with actual market
participation for a specified minimum time period. The product
allows some participation in the market via a variable sub-account.
An aspect of the product offers varying time horizons with a
respective fixed account and this variable sub-account. According
to an embodiment, the product offers the option to designate as the
sub-account one of a variety of specified private label funds.
Product enhancements can include:
[0020] adding other investment options
[0021] the client may provide allocation options to the fixed
account and investment options and the financial product
administration system determines the principal protection
amount.
[0022] FIG. 1 is a block how diagram illustrating steps involved in
an annuity product in accordance with one embodiment of the
invention. Annuity premiums are paid at step 10. Certain
administrative charges may be deducted before investment of the
balance of the premium at step 12. The balance of the premium is
allocated between a variable sub-account investment 14 and a fixed
income investment 16.
[0023] Certain embodiments of the product guarantee principal
protection for a specified amount of the principal, e.g., 100%, on
the contract anniversary date by:
[0024] 1) guaranteeing a credited/minimum rate on the fixed account
allocation;
[0025] 2) guaranteeing at the end of a given period that the
variable sub-account will not be less than a specific percentage of
the original amount allocated to it;
[0026] 3) and then determining the fixed account/variable
sub-account allocation with a formula such as the one listed
directly below.
[0027] For a given Separate Account Protection Percentage x and a
given Fixed Account Growth rate of y and a given Protection Period
of z years, the amount that is required to be allocated to the
Fixed Account to ensure 100% principal protection is
( 1 - x ) [ ( 1 + y ) 2 - x ] . ##EQU00001##
This formula determines the allocation to the fixed account, and
therefore the subaccount, too. There is a similar formula for
states that do not allow for MVA fixed accounts and one can use an
annual reset portfolio rate instead to credit the contract and the
credited rate the first year and the minimum interest rate in the
remaining years of the Benefit Period to determine the allocation
to the fixed account and subaccounts. In one embodiment, an
administration system according to the invention rounds up the
allocation to the fixed account to 2 decimal points.
[0028] Thereafter, other charges are deducted daily, weekly,
monthly, or yearly, and are typically a percentage of one or more
aspects of the contract's variable sub-account value. Those skilled
in the art will recognize that other time periods may be employed
without departing from the scope of the present invention. The
value of the sub-account investment is periodically determined in
step 18, typically, every business day that stock markets are open
for business. The value of the fixed income investment will also
require periodic determination in step 20, and will depend on the
interest rate of the fixed income investment of the contract. Such
investment will typically steadily increase in value and will not
fluctuate as the sub-account investment typically will.
[0029] In an embodiment, the interest rate of the fixed income
investment will be guaranteed for a specific period. At the end of
that period, the contract typically provides that the owner may
elect to allow the accrued balance to roll over for the same period
at the then current guaranteed interest rate, or select a new
guarantee period with its then current interest rate, or reallocate
some of the account value to the variable sub-account. The premiums
may be paid on a single payment basis. The account values may be
adjusted on a daily, weekly, monthly or yearly basis, or some other
basis. Upon reaching the income date, periodic income payments 22
are made to the annuity beneficiary based on the account value at
that time.
[0030] Referring to FIG. 2, software system 30 is preferably
implemented as a main program of a software program that includes
various routines or modules to perform the functions of the present
invention described herein. Appropriate software structures may be
implemented by persons of ordinary skill in the art to implement
the present invention. The invention is not limited to the
embodiments described herein.
[0031] The functions of software system 30 may be implemented in
special purpose hardware or in a general or special purpose
computer with appropriate operating system and memory storage and
input/output devices. In a preferred embodiment the functions of
system 30 are controlled by software instructions which direct a
computer or other data processing apparatus to receive inputs,
perform computations, transmit data internally, transmit outputs
and effectuate the receipt and transfer of funds as described
herein. An embodiment of the present invention provides a system
for managing annuities and distribution of annuity payments.
[0032] The system includes: (1) data storage for storing product
information related to: (a) annuity pricing information for
determining pricing interest rates for said annuities, (b) asset
price information for determining actual rates of returns for
assets underlying said annuities, (c) mortality data for each
annuitant of said annuities; and (2) data processing means for (a)
deriving pricing interest rates from said annuity pricing
information, (b) determining actual rates of returns for said
underlying assets of said annuities from said asset price
information, (c) computing actuarial present values and fund
reserves from said pricing interest rates and said mortality data,
(d) computing investment performance factors from said pricing
interest rates and said actual rates of return, (e) computing
interest adjustment factors from said actuarial present values, and
(f) determining payment progressions for said annuities from said
investment performance factors and said interest adjustment
factors. Data storage may be provided by any suitable storage
medium that is accessible by the data processor used to implement
the invention. Examples include, random access memory, magnetic
tape, magnetic disk, or optical storage media.
[0033] Software system 30 receives annuity contract information 32
regarding new annuity contracts. This information will typically
include information about the contract owner (and annuitant, if
that person is not the contract owner) that is pertinent to
mortality, (e.g., age), the type or types of annuities selected,
and the contract owner's investment choices. For example, a
combination product according to the invention has a fixed
component and a variable component, each with its corresponding
periodic income payment options, with each different component
supported by different underlying asset classes. Software system 30
also receives transfer requests from existing annuity owners.
Annuitant/contract owner information 32 is input into a memory
accessible by software system 30, using any suitable input device,
e.g. by keyboard entry of data into a database.
[0034] Software system 30 also receives product information such as
mortality data 34, used in calculation of premiums, and annuity
pricing information 36. Annuity pricing information 36 includes
fixed income investment information such as market interest rates
used to price annuities. These interest rates may be tied to an
objective market rate such as treasury rates, a corporate bond rate
or other objective rate. The rates used to price annuities may be
related to an objective market interest rate by a constant offset,
a multiplicative factor, an exponential function, or any other
suitable relationship. Software system 30 also receives asset price
information 38 which comprises the net asset values of the
underlying assets for each variable sub-account. Asset price
information 38 is used by system 30 to determine the investment
performance of the assets underlying the annuity funds.
[0035] Software system 30 uses annuity pricing information 36 and
mortality data 34 to determine the market value of annuities based
on such information using annuity pricing routines 40. Software
system 30 also uses the information to develop both projected, and
actual annuity payment schedules using payment schedule routines
42. Software system 30 manages the calculation of an annuity
owner's account status 44 and payments 46. In an embodiment, the
pricing routines, payment schedules, and methods for determining
account status and payments are conventional and known to those of
ordinary skill in the art.
[0036] Clients may invest a portion of their initial premium in the
variable sub-account and choose different levels of principal
protection for specific time horizons. In an embodiment, if a
client withdraws funds in excess of the free-out amount (e.g.,
10%), there is a surrender charge and the level of principal
protection is adjusted for withdrawals pro-rata. Annually, the
client may take up to the free-out amount (e.g., 10%) of the
premiums paid in the first year or of the contract value as of the
contract anniversary date without a contingent deferred sales
charge (CDSC)--one can refer to the amount that can be take out of
the account without charge as the "free-out amount." In an
embodiment, there will be an MVA--either negative or positive. The
client will still have to pay any applicable taxes.
[0037] At least one embodiment of the invention fits the needs of
the investor with a desire to grow assets with only minimal risk of
loss. An annuity according to an embodiment of the present
invention offers a straightforward investment that provides:
[0038] Principal protection;
[0039] True market participation;
[0040] Transparent details in contract, marketing materials, and
prospectus; and
[0041] Disclosure and regulatory oversight of a variable
annuity
[0042] In an embodiment of the invention, the product is suitable
for both non-qualified and qualified markets, including simplified
employee pension (SEP), Roth individual retirement account (IRA),
Custodial IRA, and IRA rollovers, and stretch versions of all the
previously-mentioned product types. Stretch IRAs are accounts that
one can set up to defer taxes, not just in the lifetime of the
individual who set up the IRA, but through multiple
generations.
[0043] An embodiment of the system that administers a product
according to the invention allows 90-24 rollovers and 1035
exchanges. Revenue Procedure 90-24 allows a tax-free exchange of
one tax-sheltered annuity contract (or custodial account) for
another. 1035 refers to a provision in the tax code, which allows
for the direct transfer of accumulated funds in a life insurance
policy, endowment policy, annuity policy to another life insurance
policy, endowment policy or annuity contract without creating a
taxable event.
[0044] According to an embodiment, the combination product is a
single premium product. In an embodiment, the issue ages are
limited to a specified age, e.g., 90 in all states except Oklahoma,
where it is limited to age 85. In an embodiment, the maximum
maturity age is limited to a specified age, e.g., 100 for all
states except Oklahoma, where it is 95. In an embodiment, the free
look period corresponds to each state's filing requirements.
Variations on all of the parameters discussed above are within the
scope of the invention. For example, in alternate embodiments the
issue age could be different than 90 and the free look period could
be longer than that required by state law. In an embodiment, there
is a minimum deposit for qualified and non-qualified contracts.
e.g., $25,000.
[0045] In an embodiment, there is a maximum premium without Home
Office Approval, e.g., $1,500,000 up to age 75 and $500,000 over
age 75. In alternate embodiments the maximum premium can be higher
or lower than the amounts just noted and the age(s) for transition
of the maximum premium, to the extent one exists, can be higher or
lower than just noted. In this embodiment, the combination product
is a single premium product.
Death Benefits
[0046] In an embodiment, the standard (and only) death benefit is
the greater of contract value or return of premium, adjusted for
withdrawals and partial annuitizations. After a specified age,
e.g., age 80, the death benefit is the contract value.
[0047] In an embodiment, the contract owner has all the rights of
the contract. He or she can make all the changes, not the
annuitant.
Number of Lives (Joint Ownership)
[0048] In an embodiment, the contract can be owned by joint
contract owners, including non-spouses.
Partial Surrender/Partial Withdrawals
[0049] In an embodiment, partial surrenders are allowed. However,
in order to maintain a higher average balance within the block of
business, in an embodiment the account balance can never go below a
specified amount, e.g., $10,000, as a result of a partial
surrender. If the account balance goes below the specified amount
due to a partial surrender, the entire account is surrendered at
the contract withdrawal value. Indeed, in an embodiment, the system
will not allow the partial surrender to occur and the agent (or
client--depending on who submitted the request) will be contacted
before the administration system initiates the full surrender.
[0050] In an embodiment, the administration system allows
systematic withdrawal plans (SWPs) and Required Minimum
Distributions to decrease the account below the specified minimum
amount.
[0051] In an embodiment, partial surrenders and partial withdrawals
are deducted pro-rata from the MVA account and the variable
sub-account. The administration system can incorporate a minimum
partial surrender amount, e.g., $250.
[0052] Annuitization
[0053] An embodiment of the combination product offers both fixed
and variable annuitization options after a specified period, e.g.,
the 13.sup.th month, of the contract, to provide consistency for
the contracts and simplicity to the producers. In an embodiment,
the income options include: [0054] Life Income--Periodic payments
are made as long as the Annuitant lives. [0055] Life income Period
Certain--Periodic payments are made for a guaranteed period, or as
long as the Annuitant lives, whichever is longer. According to an
embodiment, the guaranteed period may be selected from a variety of
periods, e.g., five (5), ten (10), or twenty (20) years. If the
Beneficiary does not desire payments to continue for the remainder
of the guaranteed period, he/she may elect to have the present
value of the guaranteed annuity payments remaining commuted and
paid in a lump sum. [0056] Joint and Last Survivor
Annuity--Periodic payments are made during the joint lifetime of
two Annuitants continuing in the same amount during the lifetime of
the surviving Annuitant. [0057] Joint and 2/3 Survivor
Annuity--Periodic payments will be made during the joint lifetime
of two Annuitants. Payments will continue during the lifetime of
the surviving Annuitant and will be computed on the basis of
two-thirds of the annuity payment (or Units) in effect during the
joint lifetime. [0058] Joint and Last Survivor with Period Certain
[0059] Periodic payments will be made for a guaranteed period, or
during the joint lifetime of two Annuitants continuing in the same
amount during the lifetime of the surviving Annuitant, whichever is
longer. The guaranteed period may be five (5), ten (10) or twenty
(20) years. If the Contract Owner does not desire payments to
continue for the remainder of the guaranteed period, he/she may
elect to have the present value of the guaranteed Annuity Payments
remaining commuted and paid in a lump sum. The Company may assess
any applicable Contingent Deferred Sales Charge from the resulting
commuted value prior to payment of the lump sum. Such election
cannot be made earlier than one year after the first Annuity
Payment has commenced.
[0060] Period Certain Annuity--Periodic payments will be made for a
specified period. In an embodiment, the specified period must be at
least five (5) years and cannot be more than thirty (30) years. If
the Contract Owner does not desire payments to continue for the
remainder of the guarantee period, he/she may elect to have the
present value of the remaining payments commuted and paid in a lump
sum or as Annuity Option purchased at the date of such
election.
[0061] In an embodiment, the administration system waives surrender
penalties when annuitizing the contract if a life or period certain
option of more than a specified period, e.g., 10 years, is chosen.
If a client annuitizes and then commutes the contract, the value of
the account will compensate for the surrender charges not applied.
In an embodiment, a client may only commute after a specified date,
e.g., 12 months, from the annuitization date.
[0062] In an embodiment, partial annuitizations are allowed with a
minimum amount, e.g., $10,000 for the partial annuitization.
[0063] Fixed Accounts
[0064] In an embodiment, the combination product offers a variety
of periods, e.g., 5 to 20 year periods, for the fixed account. As
noted above, in an embodiment, the fixed account includes a Market
Value Adjustment (MVA), where applicable. In another embodiment the
fixed account does not include a MVA.
[0065] In an embodiment, the client can not allocate more than a
specified amount, e.g., 90%, of the initial premium to the fixed
account. According to an embodiment, the administration system will
require a minimum allocation, either as a percentage of the premium
or as an absolute value, to the fixed account in order to ensure
that the client does not allocate all of the assets to the variable
sub-account.
[0066] As noted above the administration system uses a Market Value
Adjustment (MVA) in order to adjust for differences in the credited
rate environment. The administration system compares the difference
between the initial rate and the current rate to calculate the MVA.
Note that the MVA can benefit the consumer if the current rate is
lower than the initial rate.
[0067] In an embodiment, the administration system allows
withdrawals from the fixed account without a surrender charge or
MVA during a specified window period, e.g., 30 days, at the end of
the guarantee period.
[0068] In an embodiment, all surrenders and withdrawals above the
free-out amount, unless within the window period or explicitly
exempted, are subject to a market value adjustment (MVA). The MVA
will be calculated using the following formula:
((1+a).sup.(n/12))/((1+b+0.0025).sup.(n/12))-1
[0069] a) Index rate for a security with a period to maturity equal
to the guarantee period, determined at the beginning of the
guarantee period
[0070] b) Index rate for a security with a period to maturity equal
to n months remaining in the current guarantee period, determined
on the date of calculation
[0071] n) Number of months left in the guarantee period
[0072] Under no circumstances will the fund value reduced by the
MVA be less than the fund value computed at the respective state's
interest rate guarantee minimum.
[0073] If surrenders occur before the end of a guarantee period, an
MVA will be assessed based upon the aforementioned formula.
[0074] The Variable Sub-Account
[0075] In order to directly participate in the stock market, an
embodiment of the combination product offers a variable sub-account
for a portion of the initial premium. The administration system
assesses assets within the sub-account standard fees associated
with the sub-account.
[0076] In alternative embodiments, the administration system can
use a different type of variable sub-account or the administration
system can allow the client to select among a variety of variable
sub-accounts.
[0077] In an embodiment, there is a maximum limit for allocations
to the variable (or other sub-account). As indicated above, at
issue the administration system does not allow 100% of the client's
premium to be invested into the sub-account due to the nature of
the product's value proposition of principal protection.
[0078] Principal Protection
[0079] In an embodiment, the administration system offers principal
protection for all time horizons. The product concept is to protect
a specified amount, e.g., 100%, of the initial premium from the MVA
fixed account and the variable sub-account. In an embodiment, the
administration system automatically allocates respective portions
of the premium to the MVA fixed account and to the variable
sub-account.
[0080] In an embodiment, the principal protection is only available
on the benefit expiration date associated with the time horizon.
For example, if a client chooses the 5 year period, the client is
able to access the contract value or the principal protection
value, whichever is greater, on the 5.sup.th benefit expiration
date. In an embodiment, the administration system provides notice
of the window period to the client and producer prior to the window
period.
[0081] The administration system adjusts the principal protection
by withdrawals and partial annuitizations.
[0082] Rebalancing/Transfers
[0083] In an embodiment, at the time of a client's benefit
expiration date, the administration system initiates automatic
rebalancing of the client's account to coincide with the level of
principal protection requested at issue.
[0084] However, in an embodiment, the client has the option to
direct allocations or initiate transfers between the fixed and
variable sub-account assets during the window periods based on
options available at that time. As noted above, in an embodiment,
the administration system notifies the client and the producer of
the window period prior to the window period.
[0085] In an embodiment, the client is not allowed to make
transfers at any time except during the window periods. Transfers
can be executed via Internet, VRU, mail, or by calling a Service
Center.
[0086] Window Period
[0087] In an embodiment, the product has a Window period, e.g., 30
days prior to the contract anniversary date. During this time
period, the client can surrender the contract on the benefit
expiration period after the principal protection benefit adjustment
has been made, the client can notify the company to rebalance to
any level of principal protection available at the time of renewal
on the benefit expiration date, the client can take a withdrawal,
or the client can annuitize.
[0088] In an embodiment, the administration system provides notice
to the client, prior to the window period, reminding the client of
the actions the client may take on the contract anniversary
date.
[0089] Product Charges and Fees
[0090] A. Sales Charge
[0091] In an embodiment, the administration system can provide an
upfront sales charge option. For contracts that have the upfront
sales charge, the mortality and expense charge will be less than
contracts that do not have the upfront sales charge and there will
not be contingent deferred sales charges.
[0092] B. Mortality and Expense (M&E) Charge
[0093] In an embodiment, the mortality and expense charge is a
daily charge based on the value of the variable sub-account value.
In an embodiment, the client is charged a different M&E charge,
based on upfront charges or benefit period. The mortality risk
associated with the insurance benefits provided, including our
obligation to make annuity payments after the annuity date
regardless of how long all annuitants live, the death benefits, and
the guarantee of rates used to determine annuity payments during
the income phase; and the expense risk that will be sufficient to
cover the actual cost of administering the contract including our
provision f the Principal Protection Benefit and special withdrawal
features.
[0094] C. Premium Tax
[0095] Some embodiments of the product include a premium tax which
varies by state of contract issue. Alternate embodiments do not
include a premium tax.
[0096] D. Administrative/Maintenance Fee
[0097] In an embodiment, there is an annual administrative fee,
e.g., $40.
[0098] E. Surrender Charges (Contingent Deferred Sales
Charges--CDSC)
[0099] In an embodiment, surrender charges are on a specified
schedule, e.g., a specified period of years, beginning at a
specified percentage.
[0100] F. Subaccount Fee
[0101] In an embodiment, the administration system assesses assets
within the variable sub-account the standard fees associated with
the sub-account on a daily basis.
[0102] Minimum Guaranteed Interest Rate
[0103] In an embodiment, the product offers a minimum guarantee on
the fixed account for the MVA assets. During the filing process,
the product uses the most flexible approach to accommodate future
interest rate environments.
[0104] It is possible to have a fixed account without an MVA. This
will be a portfolio rate-type account and will be required in a few
states that will not approve an MVA fixed account. In this case,
the credited rate will be guaranteed for one year and the rate will
be renewed annually on the contract anniversary date. Similarly to
the formula mentioned previously, the allocation to the fixed
account and subaccounts will be based on the first year credited
rate and the guaranteed minimum interest rate thereafter. In an
embodiment the guaranteed minimum interest rate is 2% for the first
10 years and 3% thereafter. This may be state specific as well.
[0105] Free Withdrawals
[0106] In an embodiment, a client can withdraw a specified amount,
e.g., 10% annually, of the contract value without a surrender
charge. The administration system assesses a surrender charge for
any partial withdrawal more than the free out amount or for a full
surrender, unless it is a required minimum distribution. The
administration system allows Required Minimum Distributions without
penalty.
[0107] In an embodiment, in the first year, the free out amount is
based on the purchase payment.
[0108] In years two and after, the administration system determines
free withdrawals on the anniversary date of the contract and
updates/adjusts for subsequent withdrawals. For example, if the
client takes out half of the allowed free-out at the beginning of
the second year, the client will be able to take up to the
remaining balance of the free-out throughout the year as long as
the withdrawals meet the minimum partial surrender amounts and the
account value does not go below the minimum account value.
[0109] In an embodiment, the free-out amount allowed is not
cumulative from one year to the next.
[0110] The administration system withdraws the free-out amount
requested by the client pro-rata from the MVA account and the
variable sub-account, and adjusts the Principal Protection
accordingly.
[0111] Automatic Withdrawals/Interest Sweep
[0112] In an embodiment, the product offers a SWP, but not an
interest sweep. In this context, an interest sweep is a periodic
transfer of interest from the fixed account to the variable
sub-account. SWPs and Required Minimum Distributions are allowed to
decrease the account below the specified minimum amount, e.g.,
$10,000.
[0113] Spousal Continuation
[0114] In an embodiment, if the contract owner (or annuitant if
entity-owned) dies before the annuitization period, the spouse may
continue the contract even if not listed as the joint owner. In an
embodiment, the surviving spouse can only exercise the right to
continue the Contract once while the Contract is in effect. If no
election is made within a specified period, e.g., 60 days, of
receipt of proof of death, the administration system will consider
the surviving spouse to have continued the Contract in his or her
own name.
[0115] Death Waiver
[0116] In an embodiment, the administration system will not impose
a surrender charge on death benefit payments.
[0117] Nursing Home/Home Health Care Waiver
[0118] In an embodiment, the administration system does not apply
surrender charges or assess a negative MVA on a distribution in the
event that the client is confined to a nursing home or in need of
home health care. In order to qualify for this waiver, the client
must not have been in a nursing home or utilizing home health care
within two years of the contract effective date, and the client
must be confined or utilizing services for at least a specified
period, e.g., 90 consecutive days, after issue of the contract. The
services must be prescribed by a physician and be medically
necessary. Once a confirmation is received in good order, all
surrender charges/negative MVA will be waived upon full or partial
surrenders. The client may access the funds as a lump sum or as
partial withdrawals. Upon exit from the nursing home or termination
of home health care services, the administration system
re-establishes the confinement period, e.g., the 90-day confinement
period.
[0119] In an embodiment, there are no surrender charges or negative
MVA adjustments applied on the terminal illness benefit paid to the
participant. A physician must provide documentation that the
participant is not expected to live more than 12 months. Once the
confirmation is received in good order, all surrender charges are
waived upon full or partial payment of the terminal illness
benefit, which is the value of the death benefit at the time the
administration system receives proof of illness. The
annuitant/owner may only use this waiver if the annuitant/owner was
first diagnosed with a terminal illness after the effective date of
the annuity. In an embodiment, this waiver does not assess an
explicit charge.
[0120] Commutation
[0121] In an embodiment, once the administration system has
annuitized the contract (meaning once the client starts receiving
annuity payments), the client may commute the value of any
remaining guaranteed payments. In an embodiment, the administration
system will not assess a surrender charge after the commutation,
except in those states that require it.
[0122] Alterations, Modifications, and Improvements
[0123] Having thus described illustrative embodiments of the
invention, various alterations, modifications and improvements are
contemplated by the invention. Such alterations, modifications and
improvements are intended to be within the scope and spirit of the
invention. Accordingly, the foregoing description is by way of
example only and is not intended as limiting. The invention's limit
is defined only in the following claims and the equivalents
thereto.
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