498 / What is a fixed deferred annuity?

“Declared rate” fixed deferred annuities, in which the interest rate to be credited is declared prospectively by the issuing insurer at the beginning of each crediting period (which may be annually or every few years) and is credited at the end of each crediting period. (See Q .)

“Indexed” fixed deferred annuities (commonly called “index annuities”), in which interest to be credited is declared retrospectively at the end of each crediting period. The interest rate to be credited is linked to the change in value of an external index (which may be the S&P500® or some other commonly used index). Most contracts permit the owner to select more than one index to be used in such crediting. (See Q 500.)

Both contracts offer a guarantee of principal and a minimum interest crediting guarantee, provided that the contract is held to the end of the surrender charge period. The current interest declared in a guaranteed rate deferred annuity may never be lower than the contractually guaranteed minimum rate.

In all deferred annuities, there are two periods: (1) The accumulation period, during which interest is credited to the cash value of the contract, and during which partial withdrawals or surrenders may be made, and (2) the payout, or annuity period, during which regular annuity payments are made to the owner, pursuant to the annuity payout election made.

Typically, annuitization may be elected at any time beyond the first year or few years, and must be elected by the maturity date (at which point the contract must be annuitized).