Introduction
Fixed Index Annuities are contracts between the annuitant and an insurance company in which the insurance company promises to credit interest based on the performance of a certain stock market index. Fixed Index Annuities have an inbuilt capital protection feature, so your principal will remain safe even if the index goes down.
Annuities are complex products, and many advisors try to missell them without properly understanding the buyer’s needs. Thus, you must educate yourself on these products and not solely depend upon the annuity agent’s high-pressure sales pitch.
This article provides an in-depth review of the Atlantic Coast Safe Anchor Fixed Indexed Annuity. The Atlantic Coast Safe Anchor Annuity is a deferred, fixed-indexed annuity that offers fixed and indexed interest crediting options, along with optional riders to customize the annuity according to your needs. Based on extensive research and due diligence, this review presents an unbiased analysis of the plan.
The review of the Atlantic Coast Safe Anchor Fixed Indexed Annuity will be broken into multiple subcategories:
- Product Description
- Product Policy
- Rates and Costs
- Riders
- What Makes This Product Stand Out?
- What I Don't Like
- Company Details
- Conclusion
Product Description
The Atlantic Coast Safe Anchor is a Fixed Indexed Annuity (FIA) that offers annuitants the opportunity to earn a portion of returns linked to a market index without exposure to downside market risk. It also includes optional paid riders, such as the enhanced death benefit rider, which provides a legacy benefit for beneficiaries.
Let’s have a look at the high-level fine print of Atlantic Coast Safe Anchor Fixed Indexed Annuity, and then we will discuss each point in detail.
| Product Name | Safe Anchor |
|---|---|
Issuing Company | |
AM Best Rating | B++ (5th of 13 ratings) |
Withdrawal Charge Period(s) | 5 years |
Maximum Issue Age | 90 Years |
Minimum Initial Purchase Amount | $5,000 |
Surrender Charge Schedule | 10%, 9%, 8%, 7%, 6%, 5% |
Crediting Period and Strategies |
|
Plan Types |
|
Indexes | S&P 500 Index |
Free Withdrawals | 10% of the annuity’s Accumulated Value; per year upon the selection of the paid preferred 10% free withdrawal rider |
Death Benefit | Upon the annuitant’s death, the beneficiary gets Accumulated Value (Lumpsum) or (ii) Enhanced death benefit payable in 5 years |
Riders | Annuitants can choose from 4 optional paid riders |
Surrender Value | Greater of Accumulated Value (less any withdrawal charges/MVA) and the Minimum Guaranteed Surrender Value |
RMD Friendly | No, but a paid RMD rider is available |
Product Policy
How does the Safe Anchor Fixed Indexed Annuity policy work?
Any annuitant (maximum age at the time of policy issue: 90) can purchase the Safe Anchor Fixed Indexed Annuity with a minimum initial purchase amount of $5,000, and in return, they will earn a part of market index returns (calculated through a formula that we will discuss shortly), credited as per the chosen crediting period. Apart from the regular crediting period, there are various events that may trigger earnings credit: On withdrawals, for a long-term care event, or when a death benefit is payable. The annuity offers optional paid riders that allow the annuitant to customize their policy to suit their preferences, with the enhanced death benefit rider being a key option. We will cover these features in more detail in the later sections of this review.
The Safe Anchor Fixed Indexed Annuity allows the annuitant to choose from three indexing strategies based on the S&P 500 index. The plan also offers a 5-year fixed-rate guaranteed interest strategy to choose from, making a total of four strategy options. We will discuss each available index briefly:
1. S&P 500 Index
The S&P 500 index is one of the most popular and oldest indexes in the world. It tracks 500 large-cap publicly traded stocks listed in the United States. It is a reliable index and has often succeeded in the test of time. It is very important to note that, similar to most other annuities, the Safe Anchor Fixed Indexed Annuity offers the S&P 500 index with cap rates in place, meaning that your actual interest credited will be lower compared to the actual index return. These rates change frequently; I will discuss the rates in detail shortly.
In addition to allocating the funds to the S&P 500 index, the annuitant also has the option to allocate funds at a fixed interest. These Fixed Rates change from time to time. The 5-year Fixed Value Rate for the 5-year withdrawal charge period at the time of writing this article was 3.00%.
Rates and Costs
The earnings crediting formula
The earnings crediting formula is the most important part of this annuity discussion. It is important to know that we don’t simply get the index return credited to our annuity. The company has a few rates and caps in place that affect our earnings. These rates tend to change over time, and the updated rates can always be checked on the company’s website.
Let’s have a look at the Safe Anchor Fixed Indexed Annuity rate sheet (as of October 2024) to understand how the earnings are determined.
| Index | Strategy | Rate |
|---|---|---|
5-Yr Fixed Interest | Fixed Rate | 3.00% |
S&P 500 | 1-Yr Pt-to-Pt Cap | 4.10% |
1-Yr Monthly Average Cap | 4.20% | |
1-Yr Monthly Sum | 1.75% |
From the above rate chart, you will notice four interest crediting options (one fixed and three indexed). Let’s take a closer look at the various terms the company uses in the Safe Anchor Fixed Indexed Annuity rate chart:
- Point-to-point with Cap Rates: This refers to the rate at which your interest-earning capacity is capped. For example, if an index returns 12% but the contract’s cap rate is 6%, the annuitant will be eligible for an interest credit of 6% only. It doesn’t matter how much the index goes above the cap rate; the maximum interest that can be earned is the cap rate.
- One-Year Monthly Index Average with Cap Rate: This strategy begins by recording the initial value of a selected index at the onset of the contract term. Subsequently, the index's value is captured monthly. After a one-year duration, these monthly index values are aggregated and then averaged by dividing the total by 12. This average, capped by a cap rate, helps decide the interest added to the annuity.
- One-Year Monthly Sum: The monthly sum strategy credits interest on an annual basis by comparing the monthly changes in the Underlying Index. Each month, Atlantic Coast will calculate the changes in index value compared to the previous month. Increases each month are subject to a cap, while decreases each month have no bottom limit. The 12 values are summed to determine the annual interest credited for indexed strategies. There is no cap on the final interest rate credited.
- Fixed Account Rate: If you opt for a fixed account rate, you simply earn the fixed rates for a particular period specified by the company before your policy begins. These rates are usually low/at par as compared to other fixed avenues, such as CDs and MYGAs, so you should avoid fixed rates in a general scenario. The 5-year fixed rate on this policy at the time of writing this article was 3.00%.
These strategies offer flexibility to allocate across different indexes, tenures, and indexing options. For example, you might allocate to the S&P 500 Index with a 1-year annual point-to-point option using a cap rate and simultaneously choose a 1-year point-to-point option with a monthly sum, along with other combinations.
In this annuity, I only find the S&P 500 Monthly Sum Cap index option to be competitive enough when compared to other annuities. All other three strategies don’t offer good earning potential, and many other annuities offer better earning potential.
Riders
Riders are a key feature of the Atlantic Coast Safe Anchor Fixed Indexed Annuity, providing policyholders with the flexibility to customize their contracts based on individual needs. This annuity offers four optional riders, each designed to enhance specific benefits and offer added protection, allowing annuitants to tailor their coverage to better suit their financial goals. In the following section, we’ll briefly explore each of the four available riders, highlighting their key benefits and how they can enhance the overall value of the Atlantic Coast Safe Anchor Fixed Indexed Annuity.
1. Required Minimum Distribution (RMD) Rider
Description: This rider waives the surrender charge and market value adjustment (MVA) for any Required Minimum Distribution withdrawals from tax-qualified plans.
Cost: 0.16% fee.
Example: Imagine John, age 72, has a tax-qualified annuity and is required to withdraw a certain amount annually as per IRS rules. With this rider, if John needs to take out his required minimum distribution, he won't face any surrender charges or MVAs on that withdrawal.
2. Accumulated Interest Withdrawal Rider
Description: This rider waives the surrender charge and MVA associated with accumulated interest withdrawals.
Cost: 0.05% fee.
Example: Sarah has an annuity that has accumulated interest over time. If she decides to withdraw just the interest without touching the principal, this rider ensures that she won’t face any surrender charges or MVAs on that withdrawal.
3. Preferred 10% Free Withdrawal Rider
Description: This rider waives the surrender charges and MVA for the first withdrawal per year, after the first contract year. The annuitant may withdraw up to 10% of the account value or the Required Minimum Distribution, whichever is greater. If multiple withdrawals are made during the contract year, additional fees may apply.
Cost: 0.15% fee.
Example: Mark's annuity account is valued at $100,000. With this rider, he can withdraw up to $10,000 (10% of the account value) without incurring any surrender charges or MVAs. If he takes out more or makes multiple withdrawals in the same year, surrender charges may apply for subsequent withdrawals.
4. Death Benefit Feature Rider
Description: This rider waives the surrender charge for a lump-sum payment in case of the annuitant's death.
Cost: 0.25% fee.
Example: If Emma, the annuitant, passes away, her beneficiary would be entitled to a lump sum of the account value without any surrender charges. This provides financial relief to her family during a difficult time.
The Atlantic Coast Safe Anchor Fixed Indexed Annuity also provides an Enhanced Death Benefit Option designed to offer additional financial security to beneficiaries. This option ensures that, upon the annuitant’s passing, the beneficiary will receive a structured payout over five years, based on the Benefit Base rather than the standard account value.
Key features of the Enhanced Death Benefit include:
- Benefit Base Growth: The Benefit Base grows at 150% of the Net Interest Rate credited to the Accumulation Value. For instance, if the Net Interest Rate for a year is 3%, the Benefit Base will grow by 4.5%. This amplified growth ensures the Benefit Base exceeds the Accumulation Value over time.
- Five-Year Payout: Instead of a lump sum, the Enhanced Death Benefit is paid out over five equal periodic payments. As illustrated in the example, with an initial premium of $100,000 and a Benefit Base growth over five years, the beneficiary would receive a payout of $25,818 in year five.
- Impact of Withdrawals: It's important to note that while the Benefit Base grows, any withdrawals from the Accumulation Value will proportionally reduce the Benefit Base.
While the optional paid riders offered with the Atlantic Coast Safe Anchor Fixed Indexed Annuity provide some flexibility, I would not recommend opting for any of them. Many of the features provided by these riders, such as free withdrawals and RMD waivers, are fairly standard in other annuities and are often included at no extra cost. Paying additional fees for these basic features may not offer significant value compared to other annuity products. However, the Enhanced Death Benefit option stands out as a valuable feature. It provides a boosted benefit base and structured payouts to beneficiaries, which can offer meaningful financial security, especially for those seeking to maximize the legacy they leave behind. If estate planning and enhanced beneficiary protection are priorities, this rider could be worth considering.
One more thing that irked me was the absence of a Terminal Illness and Nursing Home Waiver benefit in the annuity brochure. These waivers are typically offered in many annuities at no additional cost, providing policyholders with crucial financial flexibility in the event of a serious medical condition or the need for long-term care. The lack of these common features in the Atlantic Coast Safe Anchor Fixed Indexed Annuity is disappointing, especially considering that other annuity products include them as standard benefits without requiring additional fees.
Surrender/Early Withdrawal Charge
Should your needs change unexpectedly, and you need to take an excess withdrawal (a withdrawal that is above the free withdrawal amount available in a given contract year), you may be entitled to access additional monies, although certain charges and penalties may apply. Any amount withdrawn in excess of the remaining free withdrawal amount is subject to a Surrender Charge. Below is the Surrender Charge schedule for the Atlantic Coast Safe Anchor Fixed Indexed Annuity.
| Completed Contract Years | 1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|
5-yr | 10% | 9% | 8% | 7% | 5% |
Market Value Adjustments - In case you need to surrender your policy, a Market Value Adjustment (MVA) will be applied to the portion of the withdrawal or surrender that exceeds the free withdrawal amount during the withdrawal charge period. The surrender charge schedule is different for the different tenures of annuities and also changes for some states.
The surrender charge of Atlantic Coast Safe Anchor Fixed Indexed Annuity is in line with all the other annuity issuers.
Contract/Administrative Charge
The Atlantic Coast Safe Anchor Fixed Indexed Annuity levies no annual contract or administrative fees. However, it comes with four optional paid riders, each designed to enhance specific aspects of the contract. These riders include the Required Minimum Distribution (RMD) Waiver, Accumulated Interest Withdrawal, Preferred 10% Free Withdrawal, and the Enhanced Death Benefit. While these riders offer some additional benefits, it's important to consider that each comes with its own cost, ranging from 0.05% to 0.25% of the contract value annually.
What Makes This Product Stand Out
One of the standout features of the Atlantic Coast Safe Anchor Fixed Indexed Annuity is the optional Enhanced Death Benefit Rider. This rider allows beneficiaries to receive a death benefit that is based on a benefit base rather than just the account value, ensuring a potentially larger payout. The benefit is paid out over five years, offering a steady stream of income to beneficiaries, which can provide greater financial security. Additionally, the growth of the benefit base at 150% of the credited interest rate adds significant value over time, making this option appealing to those focused on estate planning and maximizing the legacy they leave behind. For individuals prioritizing long-term beneficiary protection, this rider provides a meaningful advantage.
What I Don’t Like
The Atlantic Coast Safe Anchor Fixed Indexed Annuity has several aspects that are less appealing:
- Riders Are Not Cost Justified: Many of the optional paid riders, such as the RMD Waiver, 10% free withdrawal, or Accumulated Interest Withdrawal, offer benefits that are commonly available for free in other annuities. The additional fees associated with these riders, ranging from 0.05% to 0.25%, seem excessive, given that similar features are included without cost in competing products.
- No Nursing Home or Terminal Illness Waivers: A major drawback is the absence of Nursing Home and Terminal Illness Waivers. These waivers, which provide financial flexibility in case of severe medical conditions, are standard features in many annuity products. Their omission here reduces the appeal of this annuity, especially for policyholders concerned about long-term care needs or critical illness.
- Low Cap Rates: Another concern is the relatively low cap rates on indexed strategies, which can significantly limit the potential for growth. In a competitive market where other annuities offer higher caps and better growth opportunities, the low cap rates of this product can restrict returns, making it less attractive for those looking to maximize gains over the long term.
Company Details
You must always keep in mind that, unlike CDs, annuities are not guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other federal insurance agency. An annuity's "guarantee" is only as strong as the insurance company that issues the annuity, so it is always important to assess the issuing company before buying an annuity.
Atlantic Coast Life Insurance Company
Atlantic Coast Life Insurance Company has been in the business since 1925. It is one of the oldest providers of fixed and fixed-indexed annuities in the US.
It is rated as follows by the rating agencies:
| Rating Agency | Rating |
|---|---|
AM Best | B++ |
Although the rating is not the best, it is not even that bad. The company is privately managed by Advantage Capital post its sale in 2015. It is considered to be strong and stable financially. As of year-end 2022, some of the other financial highlights for Atlantic Coast Life Insurance Company include its:
- $903 million in total sales / direct written premium
- $91.6 million of capital and surplus
- $16.14 million in net operating income
- $693 million in total assets
Conclusion
With the advancements in healthcare and technology, the average American today lives longer than ever. So, it’s very important to have a stream of income that can grow safely and steadily and have the ability to provide a guaranteed income during the retirement years. This not only helps you mitigate the risk of outliving your income but also ensures that you continue to live a decent life even in your retirement.
While the Atlantic Coast Safe Anchor Fixed Indexed Annuity offers some features, such as the Enhanced Death Benefit Rider, that may appeal to those focused on estate planning, it falls short in several key areas. The additional costs associated with its optional riders are difficult to justify, especially considering that many of these features are often provided at no charge in other products. Furthermore, the lack of essential benefits like Nursing Home and Terminal Illness Waivers, along with the low cap rates, significantly diminish the overall appeal of this annuity. For annuitants seeking a more comprehensive, cost-effective, and growth-oriented annuity, this product may not be the best choice. Furthermore, the B++ AM Best Rating may be a consideration for those prioritizing top-tier financial strength. In many cases, there are better options available, and it may be wise to pass on this one.
We understand that choosing the right annuity can be a complex decision, influenced by a myriad of factors such as market conditions, individual financial goals, and evolving life circumstances. To better serve you in this critical decision-making process, we regularly conduct in-depth reviews of various annuity products, examining features, costs, and potential benefits. Delve deeper into our extensive reviews.