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, such as the S&P 500. 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.
In this article, we will discuss the F&G Prosperity Elite (with Enhancement Package) Fixed Indexed Annuity in depth. The F&G Prosperity Elite (with Enhancement Package) is a deferred, fixed-indexed annuity with a core emphasis on accumulation, principal safety, and legacy planning. This annuity features a range of effective indexing options capable of generating relatively high index interest credits for your account. Following extensive research and thorough due diligence, I present a comprehensive and unbiased analysis of this plan.
The review of the F&G Prosperity Elite (with Enhancement Package) 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 F&G Prosperity Elite is a Fixed Indexed Annuity (FIA) plan that offers the annuitant (annuity investor) an opportunity to earn a market index-linked return without having to incur the risk of market downside. This is a suitable plan for people who are looking for a fixed indexed annuity with an aim to grow and protect their retirement savings and an option of leaving a legacy for their beneficiary(s).
Let’s have a look at the high-level fine print of the F&G Prosperity Elite Fixed Indexed Annuity, and then we will discuss each point in detail.
Product Name | F&G Prosperity Elite |
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Package Options (Annuitant Chooses Any 1) |
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Issuing Company | |
AM Best Rating | A (3rd of 13 ratings) |
Withdrawal Charge Period(s) | 7,10, and 14 years |
Maximum Issue Age | 85 Years |
Minimum Initial Purchase Amount | $10,000 |
Surrender Charge Schedule | 12%, 11%, 10%, 9%, 8%, 7%, 6%, 5%, 4%, 3%, 0% |
Crediting Period and Strategies |
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Plan Types |
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Indexes |
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Free Withdrawals | 10% of the annuity’s Accumulated Value per year, starting from year 2 |
Benefits |
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Death Benefit | Upon the annuitant’s death, the beneficiary will get the higher of (i) Account Value or (ii) Minimum Guaranteed Surender Value or (iii) Initial premium plus vesting bonus, growing at 5% simple interest for 10 years, until age 85 (older owner if joint owners) or death, whichever is first |
Surrender Value | Account Value (less any withdrawal charges/MVA) |
RMD Friendly | Yes |
The F&G Prosperity Elite Fixed Indexed Annuity offers the option to select between two distinct packages: (i) the Enhancement Package and (ii) the Protection Package. Essentially, each package transforms this annuity into a uniquely different product.
The enhancement package is focused more on the death benefit, and the protection package is a blend of both lifetime income withdrawals and death benefits. Both packages have a different cost structure.
The F&G Prosperity Elite Fixed Indexed Annuity is almost identical for all three policy tenures, except for the crediting strategies and surrender charge schedule. For ease of discussion and better clarity, we will discuss the F&G Prosperity Elite 10 (with Enhancement Package) Fixed Indexed Annuity for the rest of the article.
Product Policy
How does the F&G Prosperity Elite (with Enhancement Package) Annuity policy work?
Any annuitant (maximum age at the time of policy issue: 85) can purchase the F&G Prosperity Elite (with Enhancement Package) Fixed Indexed Annuity with a minimum initial purchase amount of $10,000, and in return, he will earn market index interest credits (calculated through a formula that we will discuss shortly), credited as per the chosen crediting period. Apart from the regular crediting period, various events may trigger earnings credit: On free withdrawals, for a long-term care event or terminal illness or injury event, or when a death benefit is payable.
Account Value - As soon as the annuitant makes a premium payment, an “Account Value” is created, equal to your total premium paid plus a 3% premium bonus (vested over a period of 10 years) plus any interest earned from your chosen allocations, less withdrawals adjusted by any Market Value Adjustments (MVAs), and charges for Protection Package.
Death Benefit Base - Additionally, a Death Benefit Base account is established, comprising the initial premium and a vesting bonus applied only to the initial premium. This account accrues at a 5% simple interest rate annually over 10 years, or until the age of 85 (or the age of the older owner in cases of joint ownership), or upon death, whichever comes first. This account's sole purpose is to determine the lump sum payment to the annuitant’s beneficiary in the event of the annuitant’s death. This benefit is particularly valuable for individuals looking to leave a legacy for their beneficiaries.
Now, let’s see how the annuitant earns market interest credits in this annuity.
Interest Indexing Options
The F&G Prosperity Elite annuity offers the annuitant the ability to choose from one or more of the five indexes to determine their earnings crediting formula. They are the S&P 500 Index, Balanced Asset 5 Index, Barclays Trailblazer Sectors 5 Index, GS Global Factor Index, and Gold Commodity Index. The annuity offers annuitants to choose from multiple strategies within these indexes. Besides this, it also provides an option to choose from a fixed interest rate of 4.0%. All in, the annuitant gets to choose from 11 strategies (10 index-based and 1 fixed. Let’s 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 the F&G Prosperity Elite annuity offers the S&P 500 index with cap rates in place, meaning that you will be credited only a part of the S&P 500 return to your annuity. These rates tend to change frequently; I will discuss the rates in detail shortly.
2. Barclays Trailblazer Sectors 5 Index
Trailblazer aims to track a diversified portfolio of assets with the highest return potential for a given level of risk. Trailblazer utilizes 14 ETFs that provide diversified exposure to the stock and bond markets, plus a cash component. The ETFs are the growth engines of the portfolio and provide the potential for earning returns. However, since stocks and bonds carry risks, so do the ETFs.
The Barclays Trailblazer Sectors 5 Index was created in July 2016 and targets a 5% annualized realized volatility. While these volatility controls may result in less fluctuation in rates of return when compared with indexes that don’t use them, they also may reduce the overall rate of return compared with those other indexes.
3. Balanced Asset 5 Index
The Balanced Asset 5 Index takes a classic approach to its portfolio construction with a 60/40 allocation. Combined with rebalancing and volatility control features, the index seeks to provide excess returns across market conditions through a tactical combination of equity and fixed-income ETFs.
The Balanced Asset 5 Index was created in June 2020 and targets a 5% annualized realized volatility. While these volatility controls may result in less fluctuation in rates of return when compared with indexes that don’t use them, they also may reduce the overall rate of return compared with those other indexes.
4. GS Global Factor Index
The GS Global Factor Index, formulated by Goldman Sachs International, dynamically allocates between Global Equities, influenced by factors like Value and Momentum, and U.S. Bonds, symbolized by 10-year U.S. Treasury Futures. A non-yielding Hypothetical Cash Position is also included. Each month, the Index adjusts asset volatility multipliers based on an economic signal. During rebalancing, it aims for equal risk contributions from assets, adjusting for market indicators. Weights are averaged over ten days and tweaked to meet a 5% Volatility Target with a 150% leverage cap. Again, while these volatility controls may result in less fluctuation in rates of return when compared with indexes that don’t use them, they also may reduce the overall rate of return compared with those other indexes.
5. Gold Commodity Index
The Gold Commodity Index tracks the price performance of gold, offering investors a standardized benchmark to measure the market value of this precious metal. Typically composed of gold futures contracts and related financial instruments, such indices reflect the movements in gold prices, influenced by factors like global economic conditions, currency fluctuations, and market demand for gold.
Note: In addition to allocating the funds in the following indexes, the annuitant also has the option to allocate funds at a fixed interest. These Fixed Rates tend to change from time to time. The Fixed Value Rate at the time of writing this article was 4.0%, which, in my opinion, is decent when compared to other annuities at this time.
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. There are a few rates and caps that the company has in place that affect our earnings. These rates tend to change over time, and the updated rates can always be checked with the help of your advisor. You can also check out their website for the latest rates.
Let’s have a look at the F&G Prosperity Elite rate sheet (as of 07/08/2024) to understand how the earnings are determined.
The first thing to note is that we have an option to choose between five indexes, and each index has multiple strategies. All in all, it gives us an option to allocate our contract to a maximum of 11 strategies (10 index-based and one fixed). The company displays multiple types of rates across all strategies. The index allocation rate (participation rate) and the cap rates are the most important.
- Point to point with Participation Rate: The participation rate describes the annuitant’s participation percentage in a return of an index. For example, suppose the participation rate is 60%, and the index returned 10% over the agreed time (generally one-year point-to-point). In that case, the annuitant will be eligible for only 60% of the return, i.e., 6%. The formula for the same is (Participation Rate % X Index Return).
- Point to point with Cap: Cap rate is the most important terminology in an FIA. It means at what rate your interest-earning capacity is capped. For example, if an index returned 13% but your contract’s cap rate is 7%. In this situation, You will be eligible for an interest credit of 7% only. It doesn’t matter how much the index goes above the cap rate; the maximum interest you can earn is the cap rate.
- Spread and Par Rate: This indexing strategy applies BOTH participation rate and spread to determine the index interest credit. Let’s take an example where the participation rate is 60%, the spread is 2%, and in a given year, the index returned 10%. In this case, the interest credited to the annuity account would be 60% of 10% (PR), less 2% (SP), i.e., 4%. Ideally, You should never opt for the Spread + Participation index crediting strategy.
- Annual Declared Rate on Gain (Performance Trigger Rate): A flat or positive index return triggers the declared interest rate to be credited to the contract value. If the index return is negative, no interest is credited, but there will be no loss, and the contract value will remain the same. However, if the change in the value of the index during a particular year is zero or positive; In that case, the declared index gain interest rate is multiplied by the option’s account value to determine the index interest credits. The declared interest rate is set at contract issue and applies for the entire withdrawal charge period. In this case, the declared rate on gain for the S&P 500 Index is 5.75%. It means that if the S&P Index doesn’t go negative for a given 1-year period (even if the growth is 0% and not negative), the interest credited to the annuity will be 5.75% irrespective of the S&P 500 actual return. This option is advantageous if you anticipate that the index will experience minimal growth but will not decline.
- One-Year Monthly Index Average: 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, along with a set maximum rate (called a cap rate), helps decide the interest added to the annuity. The cap rate is like a ceiling, limiting the maximum interest one can earn.
When allocating premiums in a fixed-indexed annuity, individuals can distribute their money across these different indexing strategies. This means you can decide how much of your premium goes into each strategy, allowing for a tailored approach to potential growth and risk based on your financial goals and comfort level.
Performance Enhancement by Paying Charge: The F&G Prosperity Elite annuity has an option to enhance Performance by paying a charge. Through this, you can opt to increase the Participation Rates, Cap Rates, and/or reduce the spreads. In the above chart, you will notice that the indexing options with “charge” have higher participation rates and caps when compared to their “no charge” counterparts. At the time of writing this article, this charge was set at 1.25% annually. It is subtracted from the crediting option’s account value at the beginning of the interest crediting period.
The F&G Prosperity Elite offers good rates for accumulation. The cap rates that the annuity provides, even on indexes like the S&P 500, are on the higher side when compared to other similar annuities.
If I were to choose the indexing strategies, I would have opted for one or many of the following strategies:
- S&P 500 1-year point-to-point with Cap
- S&P 500 1-year monthly index average with Cap
- S&P 500 1-year declared rate on gain
- Balanced Asset 5 2-year point-to-point with participation rate
- GS Global Factor Index 2-year point-to-point with participation rate
There are very few Index annuities that have the ability to offer high caps and par rates. However, you must keep in mind that insurance companies tend to change rates frequently, and you must keep an eye on updated rates. You must consult a trusted financial advisor to know what indexes and strategies suit you best.
Surrender 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 F&G Prosperity Elite annuity
Completed Contract Years | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11+ |
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Surrender Charge % | 12% | 11% | 10% | 9% | 8% | 7% | 6% | 5% | 4% | 3% | 0% |
Any time a withdrawal incurs a surrender charge, a Market Value Adjustment (MVA) will be made. For withdrawals above the annual penalty-free withdrawal amount for the purpose of a required minimum distribution, F&G will waive any surrender charges and market value adjustments.
Note that this surrender charge schedule is only valid for the F&G Prosperity Elite annuity product for select states. For complete details about each state, you may contact your trusted financial advisor.
Contract/Administrative Charge
The F&G Prosperity Elite annuity levies no annual contract or administrative fees. However, the Enhancement Package (which is compulsory), costs 0.6% of the highest guaranteed death benefit on each contract anniversary.
Benefits and Riders
The main highlight of the F&G Prosperity Elite with Enhancement Package Fixed Indexed Annuity is the Guaranteed Minimum Death Benefit Rider (GMDB) that it offers.
Enhanced Guaranteed Minimum Death Benefit Rider (EGMDB)
The annuity establishes a Death Benefit Base account, which includes the initial premium and a vesting bonus (applicable only to the initial premium). This account grows at a 5% simple interest rate annually for either 10 years, until the age of 85 (or the age of the older owner in joint ownership scenarios), or until the annuitant's death, whichever occurs first. The sole function of this account is to calculate the lump sum payment for the annuitant’s beneficiary in the event of the annuitant’s passing.
This feature is particularly advantageous in scenarios where the index linked to the original account value does not perform well. Even in such instances, the Guaranteed Minimum Death Benefit Rider (GMDB) ensures that your beneficiaries still receive a substantial death benefit. This aspect of the F&G Prosperity Elite with Enhancement Package Fixed Indexed Annuity provides a safety net, offering peace of mind that your beneficiaries will be taken care of, irrespective of market fluctuations.
The Enhancement Package costs 0.6% of the highest guaranteed death benefit on each contract anniversary.
Also, as with most annuities, the Prosperity Elite has free in-built home health care, nursing home, and terminal illness waivers.
Nursing Home Waiver: After the first contract year, an annuitant can withdraw up to 100% of the contract’s accumulated value if he is confined to a Qualified nursing home for at least 60 consecutive days. No withdrawal charge or MVA applies if the owner qualifies for this benefit. Diagnosis must occur after the contract is issued, and written proof with supporting documentation is required from a qualified physician.
Terminal Illness Waiver: After the first contract year, an annuitant can withdraw up to 100% of the contract’s accumulated value if he is diagnosed with a terminal illness with a prognosis of 12 months or less. No withdrawal charge or MVA applies if the owner qualifies for this benefit. Diagnosis must occur after the contract is issued, and written proof with supporting documentation is required from a qualified physician.
Home Health Care Waiver: After the first contract year, an annuitant can withdraw up to 100% of the contract’s accumulated value if he is unable to perform at least 2 of 6 activities of daily living (for at least 60 days and is expected to continue for at least 90 days after requesting withdrawal. No withdrawal charge or MVA applies if the owner qualifies for this benefit. Diagnosis must occur after the contract is issued, and written proof with supporting documentation is required from a qualified physician. While many annuities offer Nursing Home and Terminal Illness Waivers, the Home Health Care waiver is not something that many annuities offer.
What Makes This Product Stand Out?
The F&G Prosperity Elite is an ideal fixed-indexed annuity for accumulation. This annuity offers some of the features that not many fixed-indexed annuities offer. The ones that I like the most are:
- Good Indexing Options - The F&G Prosperity Elite annuity offers very good Indexing crediting strategies on some of the good-performing indexes, such as the S&P 500 Index. It offers higher caps, par rates, etc, than most of the other similar fixed-indexed annuities.
- Penalty-free withdrawal on terminal illness or home or nursing care - This no-fee rider is automatically included for the annuity owner at issue and includes a Qualified Nursing Care, Terminal Illness, and Home Health Care waiver.
- Low minimum purchase amount - The minimum purchase amount for this annuity is low at $10,000. Many of the popular annuities available in the market require a high minimum purchase amount of anywhere between $25,000 and $100,000. The low minimum purchase requirement enables even small investors to purchase annuity products.
- Premium Bonus - Even with the relatively decent cap and participation rates, this plan offers a 6% bonus on the premiums paid in the first year. This bonus vests over the period of withdrawal charge period.
What I don’t like
This product is generally good on all fronts for people looking for accumulation and Minimum Death Benefit Rider; still, there are some features that I believe could add more value for the annuitant. Some of the features that I don’t like about the policy are:
- Slightly Higher Surrender Charge - The surrender charge of the F&G Prosperity Elite fixed indexed annuity is on the higher side when compared to similar annuities in the market. If you think that there is a possibility that you will need to surrender the policy, the F&G Prosperity Elite annuity may not be the perfect annuity for you.
Company Details
Fidelity National Financial
F&G is a subsidiary of Fidelity National Financial. Fidelity National Financial is one of the oldest title insurance companies and has been in the business for over 18 decades. It is a Fortune 500 company ranking #351 as of 2024.
It is rated as follows by the rating agencies:
Rating Agency | Rating |
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AM Best | A (3rd of 13 ratings) |
Moody’s | A3 (7th of 21 ratings) |
S&P | A- (7th of 21 ratings) |
Fitch | A- (7th of 21 ratings) |
Fidelity has managed to maintain strong ratings for many years. Fidelity is considered to be strong and stable financially. As of the end of 2023, the company had $1.9 billion in reserves for claims payments. As of year-end 2023, some of the other financial highlights for Fidelity include its:
- $13.2 billion in total sales / direct written premium
- $46 billion of a total investment portfolio
- $355 million in net earnings (adjusted)
- $70.2 billion in total assets
Thus, by using the operating history and financial numbers, we can safely gauge that you can trust your savings with F&G.
Conclusion
With the advancement in healthcare and technology, the average American today is living longer than ever. So, it’s very important to have a stream of income that can grow safely and steadily. 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.
The F&G Prosperity Elite annuity is one such annuity that helps you grow your savings with less risk. Through its Fixed Income Annuity, It offers tax deferral, principal protection, and the opportunity to participate risk-free in the market index. If you are considering buying a Fixed Income Annuity with a major focus on accumulation and leaving a legacy, the F&G Prosperity Elite annuity may be an ideal product to look after.
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.