Utilizing the calculations "Current Yield to SurrenderSM and Guaranteed Yield to SurrenderSM
it is now possible to compare the interest rates paid on fixed annuity in a meaningful way.
One can compare the current interest rate and guaranteed interest for any annuity product
by using the number of year the surrender charges last as the common denominator for the comparison.
We project the dollar accumulations and the yield calculation based on the following assumptions.
How annuities really work
- Interest Rates
When an annuity policy is issued the company sets the first year interest rate. This rate
is guaranteed for the first policy year and we refer to it as the current rate.
The base rate is that interest rate which the company projects it will pay in the
second year and thereafter. This base rate is also referred to as the "renewal rate" is not guaranteed. In fact
some companies pay a "renewal rates" which are less than the originally projected base rate.
Note the the difference between the current rate and the base rate is referred
to as the bonus rate.
We use the Current Rate (for the first year) and the Base Rate (for each year thereafter) in
our formula to calculate the projected "Account Values."
- Surrender Charges, Withdrawal Charges
The surrender charges last for a period years and we calculate the projected "Account Value"
for the number of years the surrender charges exist. For example; if the surrender charge of the
policy lasts seven years, we calculated the projected "Account Value" for only seven year.
The reason is the after the surrender charge expires the interest rate is dropped to the contractual
guaranteed minimum and the policy values are usually transfer to another annuity. To continue
projecting the accumulated value beyond this point is meaningless.
Most annuities allow you to withdrawn interest from your annuity without penalty.
Some annuities allow you to withdraw interest with out paying a penalty at the end
of the policy year or after 30 days, then as earned.
All most all annuities allow you to withdraw up to 10% of the account value before
a surrender charge or withdrawal charge is applied. YOU must know how
the Withdrawal or Surrender Charges apply before buying an annuity policy to save yourself
unnecessary expenses.
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