Meaning ? Modified Single Premium for Indexed Annuities ?

[LostDollar]

When the data sheet for a Fixed Index Annuity says the premium is

Modified Single Premium

What does that mean?

And, is the answer you give me correct only for one carrier, or is it common across all carriers in the industry?

Thank you.

 

[Tahoe Ray]

When the data sheet for a Fixed Index Annuity says the premium is

Modified Single Premium

What does that mean?

And, is the answer you give me correct only for one carrier, or is it common across all carriers in the industry?

Thank you.

It's a common term but some carriers may have slightly different definitions.

Normally modified single means that you can make additional premium deposits inside a limited window, such as 1 year vs. the term flexible premium where you could typically make additions beyond that.

 

[LostDollar]

It's a common term but some carriers may have slightly different definitions.

Normally modified single means that you can make additional premium deposits inside a limited window, such as 1 year vs. the term flexible premium where you could typically make additions beyond that.

Thank you.

I will have to call or email NAC and find out what their version of modified single premium is then. I can't see it explained in their product brochure.

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Edit 11/06/2023
Your comments helped me focus my question to them.
NAC is going to use 1 year.
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[LostDollar]

It's a common term but some carriers may have slightly different definitions.

Normally modified single means that you can make additional premium deposits inside a limited window, such as 1 year vs. the term flexible premium where you could typically make additions beyond that.

Will the agent receive commission for all the first year payments into a contract, or only on the amount of the initial sale?

 

[scagnt83]

Will the agent receive commission for all the first year payments into a contract, or only on the amount of the initial sale?

It varies. Most pay a reduced commission for years 2-3, sometimes up to 5 years. The reduction varies, it can be pretty steep with some.

 

[LostDollar]

It's a common term but some carriers may have slightly different definitions.

Normally modified single means that you can make additional premium deposits inside a limited window, such as 1 year vs. the term flexible premium where you could typically make additions beyond that.

Have you seen situations where, when the final contract for a modified single premium product comes back, it expresses a cap on additional premium allowed?

And if you have seen a contract like that, have you found the carrier enforces the provision in practice?

 

[Allen Trent]

Have you seen situations where, when the final contract for a modified single premium product comes back, it expresses a cap on additional premium allowed?

And if you have seen a contract like that, have you found the carrier enforces the provision in practice?

Yes. Most contracts that allow future deposits (not that common) give the carrier the right to limit future contributions.

Example. Lifetime minimum annuity guarantee rates were around 4 or 4.5% in the 1980s & 90s. They allowed somewhat unlimited deposits for many years. But around 2005 to 2010, they shut off contributions as they had no place to invest the new contributions to make the 4% to even cover the interest crediting, let alone cover expenses or make a profit spread.

Some opened it back up on those old contracts in the last 2 years, but it is risky because taking in large sums when rates are good is OK, but the carrier is then stuck with those funds for decades on deposit even if they can't cover it with investments.

My uncle deposited $500k last year into his 4.5% guarantee he originally bought back in 1996. I told him the carrier was nuts to allow it as they were only thinking short term during good fixed interest rate times. They will likely regret having to pay him 4.5% forever when rates go down again

 

[LostDollar]

Yes. Most contracts that allow future deposits (not that common) give the carrier the right to limit future contributions.

Example. Lifetime minimum annuity guarantee rates were around 4 or 4.5% in the 1980s & 90s. They allowed somewhat unlimited deposits for many years. But around 2005 to 2010, they shut off contributions as they had no place to invest the new contributions to make the 4% to even cover the interest crediting, let alone cover expenses or make a profit spread.

Some opened it back up on those old contracts in the last 2 years, but it is risky because taking in large sums when rates are good is OK, but the carrier is then stuck with those funds for decades on deposit even if they can't cover it with investments.

My uncle deposited $500k last year into his 4.5% guarantee he originally bought back in 1996. I told him the carrier was nuts to allow it as they were only thinking short term during good fixed interest rate times. They will likely regret having to pay him 4.5% forever when rates go down again

My question related specifically to "modern" - let's say 2022-2024 - modified single premium contracts where additional premium is only allowed for a relatively short period of time.

And I have not yet had time to check this out, but I want to say that the sales literature and illustrations for the product(s) mention the modified premium feature, but do not mention that the insurance carrier will/may limit those.

As a result, a contract showing a cap comes as a surprise and the purchaser may have handled the purchase differently had they known this would happen. A contractual additional premium cap of $5K, if enforced, effectively makes an "advertised modified single premium product" an "in reality single premium product".

 

[LostDollar]

When the carriers set an additional premium cap on a modified single premium product, do they scale the cap expressed in the final contract to the initial premium of the contract or do the just dump in a standard "low ball" number as a future protection for them.

i.e. would they set the same future premium cap for the x months of the additional premium period for a $20K annuity and a $200K annuity?

 

[Allen Trent]

When the carriers set an additional premium cap on a modified single premium product, do they scale the cap expressed in the final contract to the initial premium of the contract or do the just dump in a standard "low ball" number as a future protection for them.

i.e. would they set the same future premium cap for the x months of the additional premium period for a $20K annuity and a $200K annuity?

Only the actual contract will spell that out for each product or carrier. Definitely ask for a sample/specimen contract to read if they can limit additional deposits, etc