A two tiered annuity is an annuity that has three different values. These annuity values are tier-one value, tier-two value, and the annuity surrender value. Although these values may sound confusing, it is important to understand how these values work and the effect they can have on an annuity contract.
annuity
The Tier-One Value
The Tier-one value is the value of the annuity bearing interest. The earnings are growing on a tax-deferred basis and it works just like a fixed annuity. The client will receive the full accumulated value of the annuity contract after the contract surrender term has been completed.
sell annuity
The Tier-Two Value
The Surrender Value
The surrender value only comes into play if the client decides to surrender the policy earlier than the intended time period. The surrender value is the contract value minus the surrender charge and or the market value adjustment which will give the net surrender value. If you are thinking about replacing your current annuity, it is a good idea to ask your current company what the net surrender value is prior to surrendering the annuity.
annuity selling
Two-Tiered Advantages
- Higher lifetime income
- Interest rates could be higher
- Better participation rates and caps
cash for annuity
Two-Tiered Disadvantages
- Not suitable for short term liquidity
- Will not be able to pass on a lump sum to heirs
- The client may have to wait a long time to access the tier-two value
- Required annuitization
structured settlement annuity
Clients should make sure that these types of annuities are suitable for their situation. These annuities are not suitable of everyone and agents should make sure their clients understand the different values of the contracts prior to purchasing a two-tier annuity.
Article Source: http://EzineArticles.com/4113689