Variable Annuities (VA) with guaranteed benefits can be modeled in Income Discovery.
Rider Type (Lifetime) : With a rider, a hypothetical benefit base is adjusted up if it is lower than the portfolio value net of fees and benefit payouts. The benefit base is used to determine lifetime benefits paid out to the annuitant. Based on the inputs modeled, the rider may also include an additional minimum guarantee. An accumulation phase guarantee provides minimum growth rate for the income base irrespective of the net portfolio value. Another guarantee at the end of the accumulation phase provides minimum income base expressed as a ratio of the initial investment
Growth Phase: Refers to the period before the rider is invoked, when no benefit payouts are made, and it lets the portfolio value grow giving an opportunity to lock in higher income / benefit base. It is expressed in number of years.
Rider Fees: Each rider is offered at a cost that is expressed as a percentage of the income / benefit base. These fees are deducted from the portfolio value.
ME & Admin Fees: Mortality, Expense and Administration fees are expressed as a percentage of and are deducted from the portfolio value.
Asset Allocation: This field represents the allocation model of the underlying assets for the VA. Contract issuers offer standard models within their guaranteed products. You should first configure those standard models in the Capital Market Assumptions tab for the selected scenario set. Only after you have done that would you be able to use the model during VA configuration.
Income Payout Rate: This represents the percentage of income / benefit base paid out as a lifetime benefit at the end of the growth phase. The payout rates are determined based on the age of the annuitant at the end of growth phase.
Tip: If you change the growth phase of the VA, carefully review the payout rate to ensure it represents the rate based on the age of the annuitants at the end of the new growth phase.
Survivor Benefit: The percentage entered is the portion of the income payout that is paid to the surviving spouse when the primary spouse on the annuity contract passes away.
Purchase Amount: In tax sensitive analysis, the purchase price of the contract is required to properly determine the net cost for taxation purposes if custodied in a non-qualified account.
Compounded Return: This is the annual minimum percentage by which the income base grows during growth phase irrespective of the net portfolio value.
Guaranteed Base: It is the minimum amount of the income base at the end of growth phase expressed as a percentage of initial investment in the contract. If the guaranteed base is 200%, it implies that, at the end of accumulation phase, the guaranteed amount of income base would be two times the initial investment.
Existing VA Specific Fields
Remaining Growth Phase: Is the number of years before the income payout rate begins.
Custody Account: In tax based analysis, this is the account used to purchase the VA.
Building Plans Using A Variable Annuity
The Variable Annuities tab is used to configure specifics of a contract being evaluated. In the basic mode, the purchase amount of the annuity is not specified in the tab but given at the time of plan analysis. A separate article describes analyzing a plan.