Annuities

Annuities are issued by insurance companies, mainly to provide the potential for lifetime income; however, they also have cash value and death benefit components. Annuities do not require medical underwriting, as the death benefit is generally a return of premium or cash value, whichever is greater. However, considering the mortality risk, annuities typically have higher mortality and expense cost structures and more punitive surrender charge schedules. There are different types of annuities credit unions might use, based on their needs.

Fixed Annuities

Fixed annuities pay a fixed amount to the investor for a predetermined period of time. The policy payments can start immediately or can be deferred into the future. The predetermined period can be fixed, until death (if for an individual), or a combination of the two. Similar to general account permanent insurance, the payment obligation is borne by the insurance company.

Variable Annuities

Variable annuities are similar to mutual funds or separate account insurance. The investment performance and risk are tied to the underlying investment portfolio. Some variable annuities have stable value riders that guarantee the return of the investment over a predetermined period. Stable value riders have counterparty credit risk (risk that the provider does not faithfully perform on the policy).

Last updated September 25, 2017