Fixed Index Annuity FAQs For Agent Use Only
Updated: February 9, 2024 Document Owner: Katy Hylkema, Director – Customer Experience
Table of Contents
FIA Frequently Asked Questions ................................................................................................................. 2 Annuitization ............................................................................................................................................ 2 Commissions ........................................................................................................................................... 2 Contract Issue & Delivery ........................................................................................................................ 3 Contributions............................................................................................................................................ 3 Illustrations & Applications ..................................................................................................................... 4 Index Strategies & Allocations ................................................................................................................ 5 Interest...................................................................................................................................................... 6 Participation Rates .................................................................................................................................. 7 Product Features ..................................................................................................................................... 8 Renewals .................................................................................................................................................. 9 Statements & Mailings ............................................................................................................................ 9 Withdrawals and Surrenders ................................................................................................................. 10
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FIA Frequently Asked Questions Annuitization
When can annuitization occur? The owner cannot annuitize during the initial 4-year surrender charge period but may annuitize at any time thereafter. What amount is used for annuitization? The amount applied to the annuitization option is the account value with no surrender charge applied. When does the annuity mature? The maturity date is the contract anniversary coinciding with or next following the date of the (older) annuitant’s 115th birthday. The contract will automatically annuitize and begin its payout phase, unless otherwise directed.
Commissions When would there be commission chargebacks? First Year: If funds are surrendered within the first year, there will be a chargeback. This includes any additional contributions received during the first year. Additionally, if death occurs in the first year, there will be a chargeback. RMDs will not result in chargebacks. Second, Third, and Fourth Year: There are no chargebacks on additional contributions received after the 1st year and then surrendered. Also, there are no chargebacks if the death of the annuitant occurs after the first year. Does the FIA allow trail commissions? Yes, trail commissions are available for the FIA. Trail commissions need to be requested at the time of application by including your request for trail commissions in the Additional Notes section of the eApp. When does the Future Flex FIA pay commissions? Commission is paid at the time the money is received, even if it is not yet eligible to be allocated into index strategies. Commission rates and chargebacks would also be determined based on the time the money is received, not when the money is allocated into index strategies. Is commission paid when a new surrender charge period begins? Existing funds or fund value: Commissions are paid according to the accumulation value in the contract at the time of the new surrender charge period. Different commission rates apply based on if it’s the 1st renewal or 2nd renewal, etc. Please reference your commission grid for details. Additional Funds: For contributions made during years 1, 2, 3, or 4 of ANY surrender charge period, please reference your commission grid.
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For commission age bands, will issue age or attained age be used? Attained age is used. What rate do internal transfers receive? Currently, we will pay 50% of the commission rate stated on the relevant commission grid for internal transfers. This applies to the FIA as well as the rest of our annuity products. Will commission splits with other agents work the same way as they do now? Yes, the commission splits will work the same as they do for our other products. Will commission splits indicated on initial deposits continue when there are additional deposits? Yes, the commission split will remain in place for additional deposits.
Contract Issue & Delivery When will FIA cases be issued? Generally, cases will be issued the next business day AFTER we have the funds and an approved application. Options will be purchased the day after the application is approved and funds are received. The issue date needs to align with the date we purchase index options. Barclays must be open for us to purchase options, so there may be rare cases when Barclays observes a holiday and GBU Life is open. On these days, we will not be able to purchase options or issue policies. Will cases be issued on certain days of the week? We will issue FIA contracts Monday through Friday (except for some holidays – see the question above above). Is the free look still 10 days from the time the agent or the client receives the policy? Yes, there is a 10-day free look period for the FIA. The free look period begins the day the agent receives the contract in DocFast. There is a 30-day free look period if the contract is a replacement for a life insurance policy or other annuity contract. Will we require delivery receipts since this is an indexed product? A delivery receipt is only required in Louisiana. All other states do not require a delivery receipt.
Contributions
Which index strategies will contributions go into (Future Flex FIA only)? The Future Flex FIA accepts ongoing premiums that will initially go into a holding account (which pays the same interest rate as the fixed or declared interest rate account). The funds in the holding account (including earned interest) will be swept into the designated index strategies on the contract anniversary. Designated allocation percentages from the application/contract will be used UNLESS the owner specifies otherwise in writing. If the owner specifies different allocation percentages, they may choose to have them apply to a one-time contribution or all future contributions. What is the minimum contribution amount? The minimum initial premium required is $25,000. The minimum additional contribution amount for the Future Flex FIA is $1,000.
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What is the maximum contribution amount? The maximum initial premium allowed is $5,000,000 without prior approval from the Home Office. The maximum allowed for the lifetime of the contract is $10,000,000 without prior approval. Maximum yearly additional contributions are $5,000,000 without prior approval (for the Future Flex FIA at any time in the contract and for the Asset Guard FIA within the 45-day window after the surrender charge period ends). When can I make additional contributions? Future Flex FIA: Additional contributions can be added at any time. Please see the minimum and maximum guidelines above. Asset Guard FIA: The Asset Guard FIA does not accept additional contributions during the 4-year surrender charge period. However, an additional deposit can be made during the first 45-day window of subsequent surrender charge periods. Is there a form to submit along with additional deposits to indicate how to allocate those funds? We do not require a form to be submitted with additional deposits. By default, we will use the allocation percentages based on their application or the most recent allocations designated by the owner. However, the owner may choose to indicate new allocations for a contribution, which can be applied to a one-time contribution or all future contributions. (As a reminder, funds will go into the holding account until the contract anniversary. See the first FAQ in this section for more information.)
Illustrations & Applications How long of a historical performance window does the illustration reflect when running hypotheticals? The illustrations will show 10 years of historical performance for the index options. For indices that do not have 10 years of history, we will provide hypothetical, backcasted performance data. PLEASE NOTE: Some states require the illustration to show 100% of funds allocated to the fixed interest rate option. These states include AL, AZ, CO, IA, MD, ME, MO, NH, OH, RI, and WV. How do I run an illustration for the Future Flex and Asset Guard FIAs? Illustrations must be run in iPipeline, which flows directly into our eApp. Why aren’t paper applications available? Due to the complexity of the index strategy options and allocations for this product, the eApp will provide a much smoother and faster application and commission process. As an agent, I need to submit the FIA application to my broker or BGA for approval. How do I do this with the eApp? If you have iPipeline Agency Integrator or similar platform: If you typically use iPipeline’s process via your BGA or broker’s iPipeline account, GBU can support this. Please ensure that you can access GBU products through your system. If not, the person who manages your IMO or agency iPipeline account may need to add GBU products to your iPipeline system. If you do not have an iPipeline account: In GBU’s iPipeline eApp (iGO), there are several places where you can click the View Forms button to access and download the application after it has been
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signed. You will download the PDF and send it to your broker or BGA BEFORE you submit the application to GBU Life New Business, which is the last step of the eApp process after signing.
Index Strategies & Allocations
Which index strategies are available? Please see the bullet points for the question below. Where do you find/track the index results? Index performance and additional index information can be found at these links: • • •
Barclays Agility Shield Index: indices.Barclays/AgilityShield Fortune 500 12% Index: indices.Barclays/FORTUNE500VolControl US Tech 12% Index: indices.Barclays/USTech
When and how can I change my index strategy allocations? Members can request a reallocation of funds at any time; however, the funds can only be transferred on the first day of a new index term. Index terms begin on the contract anniversary and renew every one or two years, depending on whether the selected strategies are annual (1 year) or biennial (2 years). We must receive a written request for transfers at our Home Office no later than 5 business days before the new index term that applies to the eligible index account(s). GBU will have a specific FIA reallocation form for the owner to specify new allocations. Is there a form to reallocate funds on each anniversary? Yes, a reallocation form for the FIA will be available online soon for agents and members. Please contact GBU’s customer service department for details. Is it possible to transfer funds from an annual account to a biennial account, and vice versa? Yes, this is allowed. However, please note that to move funds into or out of a biennial account, this would need to take place on an even contract anniversary. So, an owner can transfer funds into or out of a biennial index strategy at issue and after two years. They could also do this after the 4th year and 6th year, etc. if the owner renews the contract. Will agents be able to reallocate on behalf of the member? No, for liability reasons, we will not allow agents to reallocate on behalf of the member. Contract owners will need to submit the appropriate form to reallocate funds. Will agents and members be able to see the allocations on FIAs in the member and agent portals? Yes, agents and members will be able to see index allocations in the portals for the FIA. Members will also be able to see a performance graph for the indices that shows the index value from current date back to issue date (or 365 days, whichever is shorter). This graph shows the value of the index, not the interest credited to the member. What happens if an index has negative performance over the index term? No interest will be credited or deducted if the index change is zero or less. The account/strategy value(s) does not change.
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Interest
How is the credited index interest rate determined? The FIA uses a point-to-point crediting method. This method takes a snapshot of the index performance on the first and last day of the index crediting period. The difference between the first and the last day determines the index change. The index change % is multiplied by the participation rate to determine the index credit rate. Example: 20% index increase x 90% participation (par) rate = 18% interest credited This method is applied to each index strategy selected if multiple strategies have funds allocated to them. Each index strategy may have a different participation rate and index change. Here is a hypothetical example showing the performance of a $100,000 Asset Guard FIA at the end of the first year. $30,000 is allocated to Agility Shield, US Tech 12%, and Fortune 500 12% Indices. $10,000 is allocated to the fixed account. Then, a total of $1,200 in booster fees is deducted from the first two indices listed at the beginning of the index term. Interest credited at the end of the 1year index term is based upon the $29,100 and $29,700 remaining in those accounts. Index Strategy
Allocation
Par Rate
Index Change %
Index Interest Credit Rate %
Agility Shield Annual 3% Booster Fee
$29,100
180%
8%
14.4%
$4,190.40
US Tech 12% Annual 1% Booster Fee
$29,700
75%
16%
12%
$3,564.00
Fortune 500 12% Annual No booster fee
$30,000
60%
12%
7.2%
$2,160.00
Fixed Account
$10,000
-
-
4.0%
$400.00
Total Interest Credited
Interest Credited
$10,314.40
When will my index interest be credited? Index interest will be credited at the end of the index term, which is one or two years long depending on the index strategies chosen. A member may have selected both annual and biennial strategies. In that case, annual strategies will have interest credited every year on the contract anniversary, and biennial strategies will have interest credited every two years on even contract anniversaries. How long is the interest rate guaranteed for the fixed account? Product Type
Interest Rate Guarantee
Future Flex FIA
1 Year Interest rate can change any time after the 1st year
Asset Guard FIA
4 Years (rate renews every 4 years)
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Is there a minimum guaranteed interest rate? The guaranteed minimum interest rate for the fixed or declared interest rate account is 0.50%. If the annuitant dies, can the beneficiary(ies) receive interest for the current index term? Death benefits will be paid according to the account value on the date of death; therefore, the death benefit will not include index strategy interest that has not yet been credited for the index term when death occurs. Please note that interest is credited daily for the fixed/declared interest rate account.
Participation Rates
How do GBU’s FIA participation rates work? Each index strategy option has a participation (par) rate. The par rate is the portion of an index’s increase that is credited to the annuity. The par rate is expressed as a percentage, and it is multiplied by the index change to determine the interest rate credited. For example, a strategy has a participation rate of 80% and an index change of 15% at the end of the index term. We would multiply 15% by 80% to get an index interest credit rate of 12%. How often do GBU’s FIA participation rates change? Although GBU will review participation rates regularly, we expect that participation rates will only change about twice per year on average. How long are participation rates guaranteed? Product/Index Strategy Type
Participation Rate Guarantee*
Future Flex – Annual Strategies
1 Year
Future Flex – Biennial Strategies
2 Years
Asset Guard
4 Years
*For the Future Flex, the par rate can change at the beginning of a new index term, but the par rate is then “locked in” for the duration of the new index term. For Asset Guard, par rates are guaranteed for the duration of the surrender charge period (4 years). Is there a minimum guaranteed participation rate? The participation rates can never be lower than 20% according to the contract. Is there a rate lock procedure for participation rates? Yes, and it is identical to our current interest rate lock procedure. Are participation rates banded by size? No, participation rates and interest rates are not banded by policy size.
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Product Features What are the differences between the Future Flex and Asset Guard FIAs? Future Flex FIA (FPDA) Flexible Premium Deferred Annuity
Asset Guard FIA (SPDA) Single Premium Deferred Annuity
Ability to contribute additional premiums during contract
Yes
No however, additional premiums can be added at the beginning of a new 4-year surrender charge period
Fixed Interest Rate Guarantee
Current rate guaranteed for first contract year; rate may change at any time after the 1st year
4-year guarantee with a new rate declared at the beginning of each subsequent surrender charge period
Par Rate Guarantee for Indexes
Annual Strategies 1-year guarantee with a new rate declared at the beginning of each subsequent index term Biennial Strategies 2-year guarantee with a new rate declared at the beginning of each subsequent index term
4-year guarantee with a new rate declared at the beginning of each subsequent surrender charge period
What is a booster fee/contract fee? Booster fees, or contract fees, give a member the option to purchase a higher participation rate. Booster fees are either 1% or 3% of the account value. The fees are paid annually at the beginning of each contract year and may reduce the principal amount. The fees will be deducted from the index strategy or strategies that have the booster fee applied. For biennial strategies, is the booster fee paid annually or only at the beginning of the index term? Booster fees are paid annually for biennial strategies. What riders are available? Our Living Benefit Riders are included, just as they are for GBU’s other annuity products. No additional riders are available currently. What types of ownership are permitted? This is an owner-driven contract. Joint ownership is allowed on non-qualified accounts with the spouse as the joint owner only. Owners = Annuitants unless there is a non-person entity owner. Is there a market value adjustment? No, there is not a market value adjustment for GBU’s FIA.
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Renewals
If a client elects to not renew after year 4, what happens? During the 45 days of each subsequent surrender charge period of 4 years, the owner may choose to do any of the following: 1. Continue their contract and apply their accumulation value to a new 4-year surrender charge period. Additional premiums may be deposited during this time. 2. Make a partial surrender without paying surrender charges and apply the remainder to a new surrender charge period. 3. Surrender their contract without paying surrender charges. 4. Annuitize the contract. Please note: If the owner doesn’t provide written notice of their choice during the 45-day window, option 1 automatically becomes effective. The surrender charges are the same for subsequent surrender charge periods. If a client pays a booster fee at the beginning of a new surrender charge period and they elect to surrender within the 45-day window, will the client “lose” the amount they paid in booster fees? No, if the client surrenders within the 45-day window at the beginning of a new surrender charge period, we will return the amount paid in booster fees to the client.
Statements & Mailings
What is the frequency and timing of statements (with activity and without activity)? Statements will be mailed annually shortly after the contract anniversary when index interest is credited. Annual statements will also be available in the portals (after the first contract year since statements are issued annually). Statements will not be updated when deposits or withdrawals occur. Instead, confirmations will be mailed within a few days when contributions or withdrawals occur. The confirmations and other correspondence are not currently available in the agent and member portals; however, they are expected to be available in late 2024. Why didn’t I receive a quarterly statement? Interest is not credited until the end of the index term, which is every one or two years (except for the declared interest rate account). As a result, statements are only sent every year shortly after the contract anniversary. Note that when transactions such as withdrawals occur, we do send written confirmations right after the transaction occurs. Other than annual statements and confirmations, is anything else mailed to members? Will Barclays be sending anything on their own? No, Barclays will not send any mailings or communications to members. GBU Life will send annual statements and confirmations when financial transactions occur. There are no other planned mailings for the FIA outside of our typical mailings for annuity customers.
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Withdrawals and Surrenders
When can an owner make withdrawals from their cash value? In all contract years, including the first year, the free withdrawal amount is 10% of the account value. If no withdrawal is taken in a given contract year, then the free withdrawal amount in the next contract year is 20% of the account value. Can an owner take an RMD out the first year of the contract? RMD withdrawals can be taken during the first year of the contract. RMD withdrawals do count towards the free withdrawal amount. RMD withdrawals may surpass the 10% or 20% free withdrawal amount allowed. Is there a minimum withdrawal amount and a minimum account value that must remain when withdrawals are taken? Withdrawals or partial surrenders must be $500 or more and at least $2,000 must remain in the annuity for the contract to remain in force. The required minimum premium amount to maintain an index strategy is $1,000. Which index strategies will funds be taken from for withdrawals? Withdrawals are first paid from the declared or fixed interest rate funds. Then, funds will be withdrawn pro rata across the index strategies unless otherwise specified by the owner. A 10% IRS penalty may apply to withdrawals made before the owner reaches age 59 ½. What are the surrender charges for the FIA? GBU’s FIA product has repeating 4-year surrender charges as follows: • • • •
Year 1: 8% Year 2: 8% Year 3: 7% Year 4: 7%
Please note: There are no surrender charges during the first 45 days of each subsequent surrender charge period. Florida does not allow repeating surrender charges over the age of 65. The policy can only be repeated once after issue. What is the penalty-free amount? If so, which strategy can the client take it from? See “When can I make withdrawals from my cash value?”, which is the first question in this section. What is the minimum guaranteed surrender value? GBU guarantees that the owner will never receive less than 87½% of the total premium payments, net of any withdrawals; accumulated at an annual interest rate no less than the minimum annual interest rate prescribed by the law of the state where the contract is delivered or issued for delivery. Can systematic withdrawals begin after the first 30 days like GBU’s other annuities? Yes, this is allowed, although we do not encourage it because interest is not credited until the end of the index term.
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