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 they take in connection with the annuity. You can help
your clients determine if a variable annuity is suitable for them.
Why the company behind the annuity matters?
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 options.
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.
Understanding the costs associated with a variable annuity and the Highest Daily Lifetime Income benefit?
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 withdrawal.
What happens to my Account Value during volatile market situations?
The Highest Daily Lifetime Income v3.0 suite of benefits uses a predetermined mathematical
formula to mitigate some of the financial risks we incur in providing the guarantees under
the optional benefits through all market cycles. Each business day, the formula determines
if any portion of the account value in the permitted subaccounts (asset allocation portfolios),
including any DCA MVA options needs to be automatically transferred into or out of the AST
Investment Grade Bond Portfolio (the "Bond Portfolio"). Amounts transferred by the formula
depend on a number of factors unique to your clients’ individual annuity and include:
- The difference between the account value and the Protected Withdrawal Value;
- How long your client has owned the benefit;
- The amount invested in, and the performance of, the permitted subaccounts, the Bond Portfolio, and the Secure Value Account and;
- The impact of additional purchase payments made to, and withdrawals taken from, the annuity.
The formula will not transfer amounts to or from the Secure Value Account. On any given day,
no more than 30% of the account value in the Permitted Sub-accounts (plus any DCA MVA options)
may be transferred to the Bond Portfolio pursuant to the formula. Therefore, at any given time,
some, most or none of the account value from the permitted subaccounts 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. Your clients may not allocate purchase payments or transfer
account value into or out of the Bond Portfolio.
The formula could mean that your clients miss opportunities for investment gains in the Permitted
Sub-accounts while amounts are allocated to the Bond Portfolio. The formula’s allocation of
amounts to the Bond Portfolio however, could also protect your clients’ account value from
losses that may occur in the permitted subaccounts. Please note: We are not providing investment
advice through the formula. See the prospectus for complete details.
We will automatically allocate 10% of each purchase payment to the Secure Value Account (SVA).
Your client cannot make transfers into or out of the SVA. The SVA will earn interest daily at a
crediting rate declared annually.
All references to Account Value assume no investment in any available Market Value Adjustment Options.
Issued on Riders: P-RID-HD(2/14), P-RID-HD(2/14)NY, P-RID-HD-HDB (2/14), et al. or state variation thereof.
Understanding the costs associated with the Prudential Defined Income Variable Annuity (VA)?
The annual fee for the Prudential Defined Income VA is 1.10%, plus an additional benefit fee of 0.80% for a total annual fee of 1.90%. We reserve the right to increase the benefit fee up to a maximum of 1.50% at any time on or after the 7th annuity anniversary on existing contracts. This would increase the total annual product charge to a maximum of 2.60%. Note: There is also an additional fee for the AST Multi-Sector Fixed Income Portfolio.
What do I need to consider when investing in the Prudential Defined Income VA?
Fixed income investments are subject to risk, including credit and interest rate risk. Because of these risks, a subaccount's share value may fluctuate. If interest rates rise, bond prices usually decline. If interest rates decline, bond prices usually increase.
An investment in an exchange-traded fund involves risks similar to those of investing in a broadly based portfolio of equity or debt securities traded on exchange in the relevant securities market. The investment return and principal value of ETF investments will fluctuate over time. ETFs that offer leverage or that are designed to perform inversely to the index or benchmark they track (or both) are highly complex financial instruments that are typically designed to achieve their objectives on a daily basis. Due to the effects of compounding, their performance over longer periods of time can differ significantly from the performance (or inverse of the performance) of the underlying index or benchmark during the same period of time.
Issued on Contracts: P-BBND(2/13), P-RID-LI-DB (3/13) et al. or state variation thereof.