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NAIC Buyer’s Guide to Annuities Explained (Plain-English Walkthrough)SummaryIn this walkthrough, Jeffrey Scott McLeod, LUTC, goes through National Association of Insurance Commissioners (NAIC) Buyer’s Guides with viewers—starting with a newer guide and then the 2007 guide’s indexed-annuity appendix. He says the presentation is education only: no products are being sold. He explains that an annuity is the only product he describes that can pay an income that can be guaranteed to last as long as you live, and that “premium” is the insurance word for money paid into the contract (single, modified single, or flexible). He covers surrender or withdrawal charges as a known, declining schedule; income settlement options; and questions buyers should ask. In the appendix section he stresses that an indexed annuity is a fixed annuity—not a “hybrid”—and that when you buy an index annuity you own an insurance contract, not shares of a stock or index. Interest, if any, is credited with a formula linked to an external index (he mentions the S&P 500 as a common reference), subject to features such as participation rates, caps, and methods like annual point-to-point or monthly averaging. He closes by urging viewers to read the contract carefully, contact the state insurance department if needed, and that agents must provide a sample policy if you ask before you buy. Key takeaways
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What the 2022 NAIC Buyer’s Guide coversThe 2022 NAIC Buyer’s Guide for Deferred Annuities explains that an annuity is a contract with an insurance company. With an annuity, the insurer promises to pay income on a regular basis for a period you choose—including the rest of your life. Immediate annuities begin payments soon after purchase; deferred annuities begin at a later date you choose. Most deferred annuities have an accumulation period and a payout period, offer a basic death benefit during accumulation, may charge a surrender or withdrawal charge if you take money out too early (some allow a small free withdrawal each year, for example 10% or less of account value), and provide tax-deferred earnings until withdrawn. You can often add riders at extra cost. Salespeople must be licensed by the state insurance department. Deferred annuities differ by premium pattern, fees and charges, and whether the contract is fixed or variable. Fixed annuities guarantee at least a minimum interest rate set by the insurer. Fixed indexed annuities are a type of fixed annuity that earn interest based on changes in a market index; the interest rate is guaranteed never to be less than zero, even if the market goes down. When you buy an indexed annuity, you are not investing directly in the market or the index. Index interest formulas may use annual point-to-point, multi-year point-to-point, monthly or daily averaging, or monthly point-to-point. Participation rates, cap rates, and spread/margin rates can mean credited interest reflects only part of an index change. If the index goes down over the period, zero interest is added and annuity value will not go down from that index change as long as you do not withdraw the money. Fees, surrender charges, and any market value adjustment can reduce what you receive. The guide lists payout options, tax basics, questions to ask, and a free-look/right-to-return period after you receive the contract (often 10 to 30 days, depending on state). Source: NAIC Buyer’s Guide for Deferred Annuities (2022). The guide does not endorse any company or policy. For your state insurance department, the 2022 guide points readers to www.naic.org (States and Jurisdictions Map). Questions about fixed index annuities? Call or text 501-658-9882 · Book a time on the calendar Insurance-only disclaimer Jeffrey Scott McLeod, LUTC, is a licensed insurance producer. Content on this page is educational and discusses insurance products only—not securities, brokerage, or investment advisory services. Texas license 901162. Arkansas / National Producer Number 558629. Product availability, rates, and features vary by state and insurer. Read the NAIC Buyer’s Guide and the insurance contract before you buy. More videos |
Jeffrey Scott McLeod, LUTC — Licensed insurance producer. Texas license 901162. Arkansas / National Producer Number 558629. Insurance products only; not securities or investment advisory services.
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