What is a variable annuity?
A variable annuity is a contract with an insurance company. It's a long-term investment designed for retirement purposes. Your client places money in professionally managed investment portfolios, where it accumulates tax-deferred. When they retire, their savings can be used to generate a stream of regular income payments that are guaranteed for as long as they live. In addition, variable annuities may provide a guaranteed death benefit for your beneficiaries. Any such death benefit, however, may be impacted by withdrawals or other actions you take in connection with the annuity. You can help your clients determine if a variable annuity is suitable for them.
Why does the company behind an annuity matter?
All references to income certainty and guarantees, including the benefit payment
obligations arising under the annuity contract guarantees, rider guarantees, benefits,
or annuity payout rates are backed by the claims-paying ability of the issuing insurance
company. Those payments and the responsibility to make them are not the obligations
of the third party broker/dealer from which this annuity is purchased or any of
its affiliates. They are also not obligations of any affiliates of the issuing insurance
company. All guarantees, including benefits, do not apply to the underlying investment
What are the limitations and restrictions I need to consider?
Annuity contracts contain exclusions, limitations, reductions of benefits, and terms
for keeping them in force. The optional benefits have certain investment, holding
period, liquidity, and withdrawal limitations and restrictions. Optional living
and death benefits may not be available in every state and may not be elected in
conjunction with certain optional benefits. Please see the prospectus.
Asset allocation does not ensure a profit or protect against a loss. Investment returns and the principal
value of an investment will fluctuate so that an investor's units, when redeemed,
may be worth more or less than the original investment.
What are the withdrawal consequences?
Since the annuity is designed to provide a guaranteed income stream for retirement, there are limitations and restrictions when making withdrawals that are not intended for retirement income purposes. Withdrawals in excess of the Annual Income Amount impact the value of your benefit and can also affect the certainty of their income. An excess withdrawal occurs when your cumulative Lifetime Withdrawals exceed the Annual Income Amount in any annuity year. If an excess withdrawal is taken, only the portion of the Lifetime Withdrawal that exceeds the remaining Annual Income Amount will proportionally and permanently reduce your Protected Withdrawal Value and your Annual Income Amount for future years. If an excess withdrawal reduces the account value to zero, no further amount would be payable and the contract terminates.
Withdrawals or surrenders may be subject to contingent deferred sales charges. Withdrawals and distributions of taxable amounts are subject to ordinary income tax and, if made prior to age 59½, may be subject to an additional 10% federal income tax penalty, sometimes referred to as an additional income tax. Withdrawals, other than from IRAs or employer retirement plans, are deemed to be gains out first for tax purposes. Withdrawals reduce the account value and the living and death benefits.
What are the costs associated with a variable annuity and the Highest Daily Lifetime
Variable annuities offered by Prudential companies have an annual cost of 0.55%
to 1.95% for mortality expense and administration fees, with an additional fee related
to the professional investment options. The fees will vary depending on the underlying
annuity and investment options selected. The optional benefit, HD Lifetime Income,
has an additional annual fee of 1.00% based on the greater of two amounts, the Account
Value or Protected Withdrawal Value, which can help avoid the risk of outliving
retirement income. Account value is not guaranteed, is subject to market fluctuations,
and may lose value. The Protected Withdrawal Value is separate from the account
value, and not available as a lump sum.
What happens to my Account Value during volatile market situations?
The Highest Daily Lifetime Income benefit, uses a predetermined mathematical formula
to help us manage your guarantee through all market cycles. Each business day, the
formula determines if any portion of your account value needs to be transferred
into or out of the ASTTM Investment Grade Bond Portfolio (the "Bond Portfolio").
Amounts transferred by the formula depend on a number of factors unique to your
individual annuity and include:
- The difference between the account value and the Protected Withdrawal Value;
- How long you have owned the benefit;
- The amount invested in, and the performance of, the permitted subaccounts;
- The amount invested in, and the performance of, the Bond Portfolio; and
- The impact of additional purchase payments made to and withdrawals taken from the
Therefore, at any given time, some, most, or none of the Account Value may be allocated
to the Bond Portfolio. Transfers to and from the Bond Portfolio do not impact any
income guarantees that have already been locked in. The Protected Withdrawal Value
is only used to calculate the guaranteed lifetime income and the benefit fee. The
Account Value is not guaranteed, can fluctuate, and may lose value.
Any amounts invested in the Bond Portfolio will affect the ability to participate in a subsequent market
recovery within the permitted subaccounts. Conversely, the account value may be
higher at the beginning of the market recovery; e.g., more of the account value
may have been protected from decline and volatility than it otherwise would have
been had the benefit not been elected. Please note: We are not providing investment
advice through the formula. Your clients may not allocate purchase payments or transfer
Account Value into or out of the Bond Portfolio.
All references to Account Value assume no investment in any available Market Value Adjustment Options.
Issued on Riders: P-RID-HD(3/13), P-RID-HD(3/13)NY, P-RID-HD-HDB (3/13), et al.
or state variation thereof.