MCC Domain - Annuities

Annuities
Contract life cycle

Products Feature Riders
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Channel Management Hierarch Licensin Compensatio

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New Business Servicing Claims
Application Premium Simple Loans Riders Lapse / Claim Adjustmen

(Health receipt (Address Reinstat forms ts
Info) , Bene, Subsequ Withdraw ement
Issuance etc) ent al Investigati
Underwriti (Policy Premium Dividen ons
ng Contract) Surrend s ds
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Actuarial Pricing Valuation Reserving
Investments & Accounting Suspens Premium & Fund Accounting Fund

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Reporting & Correspondence MIS Dashboar Agent Customer

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This section describes Annuities product details

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Product Annuities Overview Product Types
Annuities work exact opposite of a life insurance product. It works on how long a person is going to survive.
It is popularly known as pension plans in Europe and India.
Annuities
Deferred Immediate Money paid to Insurance Money paid to payee by

company by Policy Owner Insurance company
(Fixed/Variable) (Fixed/Variable)
Accumulation Payouts Start
Phase Immediately (customer
selects a payout plan) Accumulation Phase Payout Phase
YES
Annuitization Payouts Annuitization Event
NO Customer selects
a payout plan
At the end of the Payout

Period or Death of the
Annuitant
Policy Policy
Maturity Terminates
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Product Types Products Feature Riders
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The term annuity is used to refer to any terminating stream of

fixed payments over a specified period of time.
Purpose of all annuity contracts is to provide a guaranteed

distribution of income until the death of the person or persons
named in the contract
Phases/Events: 2 Phases associated with 1 event

1. Accumulation Phase - The period of time when the annuitant is
making contributions to the annuity and building up the value of
his/her annuity account.
2. Payout Phase - The phase in an annuity during which payments are
made to the annuitant. The income received from an annuityby
aretired investor is considered taxable income.
3. Annuitization Event - The act of converting the account balance of
an accumulation (or deferred) annuity into income payments. Its a
transaction that changes an annuity from accumulation phase to the
payout phase.
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Parties of Annuity Contract:

1. Insurer Party providing the annuity contract
2. Owner Owner of the contract
3. Annuitant Person who receives the payouts
4. Joint annuitant Jointly receives the payouts (applicable only in case of Joint
& Survivor type annuity)
5. Beneficiary Person who receives the death benefit
Classification based on Payment Options:

1. Immediate Annuities
2. Deferred Annuities
Classification based on the type of Investment of the

accumulated amount:
1. Fixed
2. Variable
3. Equity Indexed
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Classification based on the Payout Options:
1. Term certain Payments are done for a pre defined period only.
2. Life certain Payments are done for the life time of the annuitant.
3. Joint & Survivor - More than one annuitant, if one dies the payout
continues for other.
4. Life with Term Certain Paid for a minimum time period, if
annuitant survives then payouts continue till life time.
5. Refund Life Guarantees payments equal to the premiums paid,
even if the annuitant dies.
6. Defined Benefit (Fixed Amount) A set amount of income paid at
regular intervals until a period has ended or event has occurred.
7. Defined Contribution (Fixed Premium) A fixed amount will be
added to the accumulation even if the owner doesnt pay the
premium.
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Classification based on Taxation:

1. Qualified Annuity Annuities which qualify for tax benefits like,
Traditional IRA, Roth IRA, 403(b), & 457.
2. Non-Qualified Annuity Annuities which dont qualify for tax
benefits.
Classification based on Payment Frequency:

Single Premium Annuities - The owner makes one single
premium payment. No other premium payments are expected.
Some insurers may allow for additional premiums during the
accumulation phase of the contract. These additional premiums
are called window premiums. Can be further divided into:
Single-premium Immediate Annuity (SPIA) - takes on the
characteristics of a single premium from the owner, and payments to the
specified person beginning on the first annuity period of the contract.
Single-Premium Deferred Annuity (SPDA) takes on the
characteristics of a single premium from the owner, and payments will
begin on a specified date in the future (more than one annuity period
after issue)
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Flexible-Premium Annuities - The amount of premium can vary, and

the owner can choose to skip periodic payments. The premium amount
should fall in a specified range.
Fees and Charges:

Cost of Insurance - There are no monthly cost of Insurance, but
there may be surrender charges that can vary by policy duration.
Mortality and Expense (M&E) risk charges - Charged for the
insurance risk the company assumes by providing the customer,
guaranteed future payments.
Administrative Fees Covers tracking of purchase payments,
issuing confirmations and statements, record keeping etc.
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Subaccount fees For creation of the sub-accounts for investment of the

premium amount in various portfolios
Additional rider charges Fee charged to the customer in case he/she
opts for a rider in the policy
Taxation/Tax Benefits:
Money that you invest in an annuity grows tax-deferred. When you
eventually make withdrawals, the amount you contributed to the annuity
is not taxed, but your earnings are taxed at your regular income tax rate.
Also, there is no annual contribution limit for an annuity
Explanation with an example:

Assume a lady, who is 70 years old owns a deferred annuity into which
she originally deposited $50,000 and it is now worth $70,000. If it
continues to accumulate until she is 78 years old when she dies, it will
have a value of approximately $111,569. But when her beneficiary
receives it, income taxes will be due on $61,569 ($111,569 - $50,000
original deposit). At 33% the taxes would be $20,318 leaving a final
balance of $91,251 for the heirs.
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Product Products Feature Riders
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Riders
Guaranteed Minimum Withdrawal Benefit (GMWB) - lets you withdraw a
certain amount each year, regardless of whether or not there is enough money
left in the annuity to cover the withdrawal
Guaranteed Minimum Death Benefit (GMDB) - ensures that the value of your
annuity will rise by at least a specified amount over a period of time, irrespective
of how the investments underlying the annuity actually perform.
Guaranteed Minimum Income Benefit (GMIB) - allows investors who choose

to annuitize their annuities to receive at least a set amount of income each year,
regardless of whether the underlying investments support that income level
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This section describes Annuities New Business details

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New
New Business
Issuance
Business
New Business Annuity Life

Parameters
Health Information Not Needed Needed
Underwriting Not Needed Needed

Premium Receipt Yes Yes
Policy Issuance Yes Yes
Face Value No Yes
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This section describes Annuities Servicing details

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Servicing
Servicing can be of two types :
Financial (events which affect the value of the contract)
Surrender - Surrender amounts are pretty low.
Plan Termination - A plan that has enough money to pay all
benefits owed participants and beneficiaries may terminate in a
standard termination.
Discontinuance When the customer wants to change the
carrier, he/she can continue the same plan with some other
carrier. Associated with A 403(b) Annuity.
Free look - A period during which the applicant has the right to
examine the insurance policy/certificate (generally within 10-30
days after the date of receipt) and to cancel it if not satisfied for
any reason. Any premium paid during that period is returned
and the coverage is considered never to have been in effect.
Loans Typically, loans are not allowed. Some products,
however, offer loans.
FA increase / decrease not allowed
Subsequent Premiums - allowed
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Servicing (contd.)
Withdrawals are not allowed in payout phase.

Accumulation phase allows withdrawals but they come
along with huge penalties.
Forfeiture - an annuitant may die before recovering the value
of their original investment in the annuity.
Hardship a type of withdrawal where you take money out of
your savings plan to cover a pressing financial need
RMD (Required Minimum Distribution) - This is the amount
of money that retirees age 70 and older are required to
withdraw from their tax-deferred plans
Investment Management
Money Allocation Changes To get the right mix of stocks,
bonds and cash.
Investment Transfers A financial transaction that moves
funds from one or more investments to one or more other
eligible investments.
Dividends & Lapse No dividends & Lapse
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Servicing (contd.)
Automatic Rebalancing - A portfolio-management process in

which investments that have appreciated are sold in order to take
a profit and the profits are reinvested into sectors that are out of
favor. It helps investors keep the asset allocation of their
portfolios in line with their stated investment goals.
Dollar Cost Averaging Thetechnique of buying a fixed dollar
amount of a particular investment on a regular schedule,
regardless of the share price. More shares are purchased when
prices are low, and fewer shares are bought when prices are high.
Non-Financial (events which dont affect the value of the contract)

Simple (Address, Beneficiary etc)
Survival Verification: For life option, annuitant has to give
the survival status based on pre-defined frequency
Premium Billing Changes
Remove Billing
Add Billing
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Servicing (contd.)
Premium Amount Changes

Frequency Changes
Loan Billing changes
Status Change
Number of Payment Change
Payment Amount Change
Employment Date Change
Plan Move
Collateral Assignment Asset assignment in which ownership
rights are transferred only as an additional security for a loan, and
revert to the assignor when the loan is repaid.
Absolute Assignment - An irrevocable transfer of complete
ownership of a life insurance policy or an annuity from one party to
another.
Policy Date Changes Changes in various dates related to the
policy viz., Payment date.
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This section describes Annuities Claims details

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Claims Claims
Death benefit option is possible during the payout phase.

Cash Refund In case of claim , the premium paid is refunded.
Installment Refund Same as cash refund, amount is paid in
installment, returned with some interest.
Accumulation Phase Payout Phase

Death Benefit Death Benefit possible
Cash Refund: Premium paid Cash Refund: Premium
till date accumulated payout till
date
No Installment Refund Installment Refund
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This section describes Annuities Channel Management details

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Channel
Channel Management Management
Licensing : An Agent is must be state licensed to sell Annuity policies

in a states .Generally, getting license for annuity is difficult when
compared to life products.
Annuities are regulated by state insurance commissioners as

insurance products, and agents must have a fixed annuity license to sell
them. However, the NASD requires that its member firms monitor all
products their advisors sell. Furthermore, the regulator has issued an
investor alert on index annuities
Compensation :The agents get a very low commission on Annuity

products. Also, the commission is much lower when compared to any life
product.
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Channel Management : Regulations
McCarran-Ferguson Act 1945 -
It allows insurers to share related information that lowers costs of doing business.
This includes joint development of insurance forms and the sharing of loss data to
help with policy pricing.
It provides insurers with a narrow and limited exemption from federal antitrust laws
as long as the activity is state regulated.
It explicitly empowers states to regulate and tax insurance.
National Association of Insurance Commissioners -

A non-profit organization which seeks to organize the regulatory and supervisory
efforts of the various state insurance commissioners from around the United States.
The NAIC was formed in 1871.
Securities Act of 1933

Requires that investors receive significant information concerning securities being
offered for public sale.
Prohibits deceit, misrepresentations, and other fraud in the sale of securities to the
public.
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Channel Management : Regulations (contd.)
Securities Exchange Act of 1934
It was created to provide governance of securities transactions on the secondary
market (after issue) and regulate the exchanges and broker-dealers in order to protect
the investing public.
All companies listed on stock exchanges must follow the requirements set forth in the
Securities Exchange Act of 1934. Primary requirements include registration of any
securities listed on stock exchanges, disclosure, proxy solicitations and margin and
audit requirements.
Investment Company Act of 1940

This piece of legislation defines the responsibilities and limitations placed on fund
companies that offer investment products to the public.
This act sets out the limits regarding filings, service charges, financial disclosure and
fiduciary duties of open-end mutual, exchange-traded and closed-end funds.
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This section describes Annuities Investment & Accounting details

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Investments Investments
During the accumulation phase, an insurance company cannot mix

annuities with other insurance products.
For fixed annuities, the amount is invested in guaranteed funds like
government funds etc.
For variable annuities, the amount is invested are generally invested
in high risk funds like equity etc.
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This section describes Annuities Actuarial details

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Actuarial Actuarial
Valuation
Reserving
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This section describes Annuities Reporting & Correspondence details

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Correspondence Correspondence
Customer:
Confirmation Statements Confirmation about start of annuitization, survival
status received, or confirmation about receipt of payment.
Periodic Statements This includes statements declaring the accumulated
value of the annuity.
Agent:
Generally a copy of the customers correspondence is sent to the respective
agent.
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Thank You
The contents of this document are proprietary and confidential to Infosys Technologies Ltd. and may not
be disclosed in whole or in part at any time, to any third party without the prior written consent of
Infosys Technologies Ltd.
2009 Infosys Technologies Ltd. All rights reserved. Copyright in the whole and any part of this
document belongs to Infosys Technologies Ltd. This work may not be used, sold, transferred, adapted,
abridged, copied or reproduced in whole or in part, in any manner or form, or in any media, without the
prior written consent of Infosys Technologies Ltd.

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Annuities

Contract life cycle

Channel Management Hierarch Licensin Compensatio

New Business Servicing Claims

Application Premium Simple Loans Riders Lapse / Claim Adjustmen

Actuarial Pricing Valuation Reserving

Investments & Accounting Suspens Premium & Fund Accounting Fund

Reporting & Correspondence MIS Dashboar Agent Customer

Products Feature Riders

Channel Management Hierarch Licensin Compensatio

New Business Servicing Claims

Application Premium Simple Loans Riders Lapse / Claim Adjustmen

Actuarial Pricing Valuation Reserving

Investments & Accounting Suspens Premium & Fund Accounting Fund

Reporting & Correspondence MIS Dashboar Agent Customer

Deferred Immediate Money paid to Insurance Money paid to payee by

At the end of the Payout

The term annuity is used to refer to any terminating stream of

Purpose of all annuity contracts is to provide a guaranteed

Phases/Events: 2 Phases associated with 1 event

Parties of Annuity Contract:

Classification based on Payment Options:

Classification based on the type of Investment of the

Classification based on the Payout Options:

Classification based on Taxation:

Classification based on Payment Frequency:

Flexible-Premium Annuities - The amount of premium can vary, and

Fees and Charges:

Subaccount fees For creation of the sub-accounts for investment of the

Explanation with an example:

Guaranteed Minimum Income Benefit (GMIB) - allows investors who choose

Products Feature Riders

Channel Management Hierarch Licensin Compensatio

New Business Servicing Claims

Application Premium Simple Loans Riders Lapse / Claim Adjustmen

Actuarial Pricing Valuation Reserving

Investments & Accounting Suspens Premium & Fund Accounting Fund

Reporting & Correspondence MIS Dashboar Agent Customer

New Business Annuity Life

Underwriting Not Needed Needed

Products Feature Riders

Channel Management Hierarch Licensin Compensatio

New Business Servicing Claims

Application Premium Simple Loans Riders Lapse / Claim Adjustmen

Actuarial Pricing Valuation Reserving

Investments & Accounting Suspens Premium & Fund Accounting Fund

Reporting & Correspondence MIS Dashboar Agent Customer

Withdrawals are not allowed in payout phase.

Automatic Rebalancing - A portfolio-management process in

Non-Financial (events which dont affect the value of the contract)

Premium Amount Changes

Products Feature Riders

Channel Management Hierarch Licensin Compensatio

New Business Servicing Claims

Application Premium Simple Loans Riders Lapse / Claim Adjustmen

Actuarial Pricing Valuation Reserving

Investments & Accounting Suspens Premium & Fund Accounting Fund

Reporting & Correspondence MIS Dashboar Agent Customer

Death benefit option is possible during the payout phase.

Accumulation Phase Payout Phase

Products Feature Riders

Channel Management Hierarch Licensin Compensatio

New Business Servicing Claims