Weekly Tip: Longevity Annuities

 

Weekly Tips

Longevity Annuities

7/26/2013

Do you have a non-variable longevity annuity product on the horizon?  You will want to review and save this week’s Weekly Tip for reference as you get closer to product design. 

Which one of the annuity Uniform Standards should I use in the development of my product?  The Insurance Compact has a specific Uniform Standard applicable to non-variable longevity annuities – the Individual Deferred Paid-Up Non-Variable Annuity Contract Standards (Commonly Marketed as Longevity Annuities).  The scope of the longevity Uniform Standards indicate that the Uniform Standards apply to an individual deferred paid-up non-variable annuity with no cash surrender values available prior to the income commencement date.  A longevity annuity has a deferred period and provides specified income payments beginning on a specified income commencement date.

Please keep in mind that there are key criteria which determine whether an annuity contract should be submitted under the Immediate Annuity Uniform Standard or the Longevity Uniform Standards.   Unlike an immediate annuity that requires payments to start within 13 months of policy issue, a longevity annuity can defer the start of income payments, and allows a Company to include a provision that allows the policyholder to change the commencement date during the deferral period.    Also, the income payable under a longevity annuity has to be life contingent with or without a period certain which is unlike an immediate annuity.  Immediate annuity income can be life contingent as well as based on a period certain only without being life contingent.  Commutation of guaranteed income payments is only allowed upon death under a longevity annuity.  Unlike a deferred annuity, a longevity annuity cannot provide cash surrender values during the deferral period.

The longevity Uniform Standards include a requirement that the filing submission include an actuarial certification.  The certification must indicate that the income benefit provided under the longevity contract is greater than that guaranteed at issue for the same premium under any non-variable deferred annuity contract offered by the company that provides cash surrender values during the deferral period or on the income commencement date.  A sample certification can be found in Appendix A of the longevity Uniform Standard. The purpose of the certification is to ensure that the consumer is not being harmed by purchasing a product that does not provide cash surrender values.  The certification was developed to ensure that the longevity product complies with the Standard Nonforfeiture Law.  Some of the key requirements of the certification and the comparison which serves as the basis of the certification are listed below.

  • The comparison is provided at the time of filing, but the criteria that the income benefits provided by the longevity annuity are greater than that guaranteed at issue under a deferred annuity contract is applicable as long as the longevity form is being sold or additional premiums are allowed to be paid.  
  • The guaranteed income of the longevity annuity must be compared to the guaranteed income of all deferred annuity products being marketed by the company, including deferred annuities developed after the longevity product was filed with the Insurance Compact.
  • The comparison must be completed regardless of the level or type of death benefit provided by the company's contracts.
  • The Drafting Note included in Appendix A reminds the actuary that the comparison of the guaranteed income benefits at issue includes a comparison to the guaranteed income benefits provided by guaranteed living benefit (GLB) provisions or riders of non-variable deferred annuities. This comparison should be comprehensive as GLB benefits may not vary at the same level of detail (issue age, gender, smoking status) as the longevity products. 

If you have any questions regarding this Weekly Tip, please contact the IIPRC Office.