Introduction
A Multi-Year Guaranteed Annuity (MYGA) is a type of fixed annuity that provides a guaranteed interest rate for a specified number of years, typically ranging from 3 to 10. Unlike variable annuities, where returns are linked to market performance, MYGAs offer a steady, predetermined return over the selected term. This feature makes them popular among conservative investors who seek predictable, low-risk growth of their assets, particularly in a retirement context.
MYGAs work similarly to Certificates of Deposit (CDs) in terms of fixed interest rates and defined maturity periods, but they offer additional benefits that make them attractive as retirement planning tools. MYGA funds grow on a tax-deferred basis, meaning that investors do not pay taxes on their gains until they begin making withdrawals. This allows the investment to compound more effectively over time, providing a distinct advantage over taxable investments with similar yields. Additionally, MYGAs offer the benefit of principal protection, ensuring that the initial investment is safe from market fluctuations.
This review will dive into the Prosperity Life Select Choice Multi-Year Guaranteed Annuity (MYGA), exploring its key features, benefits, and considerations.
The review of the Prosperity Life Select Choice MYGA will be broken into multiple subcategories:
- Product Description
- Product Policy
- Rates and Costs
- Riders
- Benefits vs. Disadvantages of MYGA Compared to a Traditional Fixed Annuity
- What I Like about this Annuity Product
- What I Don't Like
- Company Details
- Conclusion
Product Description
The Prosperity Life Select Choice Multi-Year Guaranteed Annuity (MYGA) is a financial product designed to meet the needs of conservative investors seeking a stable, guaranteed return over a specific period.
Let’s have a look at the high-level fine print of the Prosperity Life Select Choice Multi-Year Guaranteed Annuity (MYGA), and then we will discuss each point in detail.
| Product Name | Select Choice MYGA |
|---|---|
Issuing Company | Prosperity Life Insurance Group |
AM Best Rating | A- (4th of 13 ratings) |
Withdrawal Charge Period(s) | 3, 5, and 7 year |
Surrender Charge Schedule | Varies as per withdrawal charge period |
Maximum Issue Age | 85 Years |
Minimum Initial Purchase Amount | $2,000 |
Plan Types |
|
Free Withdrawals | 10% of the annuity’s Accumulated Value per year upon the selection of Penalty-Free Withdrawal (PFW) rider |
Death Benefit | Upon the annuitant’s death, the beneficiary will get full Account Value without any surrender charges |
Riders | Paid Return of Premium (ROP) or/and Penalty Free Withdrawal (PFW) riders. |
Surrender Value | Account Value less any withdrawal charges/ MVA |
RMD Friendly | Yes |
The features of the Prosperity Life Select Choice Multi-Year Guaranteed Annuity (MYGA) remain consistent across all term durations, with the only variations being the interest rates and the withdrawal charge schedule associated with each term.
Product Policy
How does the Prosperity Life Select Choice MYGA policy work?
The Prosperity Life Select Choice MYGA is structured to provide fixed, predictable growth over a chosen period, making it a suitable option for investors looking for security and stability. This annuity offers term options ranging from 3, 5, and 7 years, with a unique interest rate assigned to each term. These rates ensure that the policyholder knows exactly how much their investment will grow over the selected period.
Let’s have a look at the Prosperity Life Select Choice MYGA Annuity rate sheet (as of December 2024) to understand how the earnings are determined.
- 3-Year Term: 4.70%
- 5-Year Term: 4.85%
- 7-Year Term: 4.90%
Please note that these rates apply to the Standard Tier (up to $49,999). The more you invest, the higher tier you qualify for, which in turn offers a higher interest rate. Also, different rates are available for different riders. If you select additional riders, you will be offered a slightly lower rate than the base policy but with added flexibility. The Prosperity Life Select Choice MYGA is available in 3, 5, and 7-year terms.
The MYGA’s interest rate is locked in at the start of the contract and remains fixed for the entire term, ensuring a steady accumulation of funds. At the end of the selected period, the policyholder has several options: they may withdraw the accumulated funds, renew for another term (with rates based on prevailing conditions), or roll the funds into another financial vehicle.
Note: The rates discussed in this article are accurate as of the time of writing. Since annuity rates change frequently, it’s recommended to consult your financial adviser or the insurance provider for the latest information.
Key Mechanics of the Prosperity Life Select Choice MYGA Policy
- Interest Rate Lock: Once the policyholder selects a term, the corresponding interest rate is guaranteed for the duration of that term, providing clear expectations for growth.
- Principal Protection: As a fixed annuity, the Select Choice MYGA guarantees the protection of the principal, meaning that the initial investment is secure and unaffected by market volatility.
- Product Options: Policyholders can enhance their MYGA with optional riders, which adjust the interest rates slightly but provide added flexibility and security:
- Guaranteed Return of Premium (ROP) Rider (Select Choice 2): Ensures at least the full initial investment (less any withdrawals and taxes) is available if the policy is surrendered.
- Penalty-Free Withdrawal (PFW) Rider (Select Choice 3): Allows policyholders to withdraw up to 10% of the accumulation value annually without penalties after the first year.
- Combination of ROP and PFW Riders (Select Choice 4): Combines the features of both riders, offering maximum flexibility. Interest rates are reduced further to account for the enhanced benefits, e.g., 4.45% for a 3-year term (vs. 4.70% for the base policy).
- Withdrawal Charge Schedule: The policy includes a withdrawal charge schedule, which varies according to the selected term. If the policyholder needs to access their funds before the term ends, they may incur a penalty. However, many MYGAs often allow a penalty-free withdrawal of a certain percentage of the account value each year, typically up to 10%. In the Select Choice Annuity, if you want penalty free withdrawal, you’ll need to choose the “Base Policy + PFW” product, which offers slightly lower interest rates.
To understand how the Prosperity Life Select Choice MYGA works, let’s look at a hypothetical example:
Suppose an investor, Maria, is 60 years old and is planning to retire soon. She wants a low-risk investment to grow her funds predictably over time. After researching her options, Maria decides to invest $100,000 in the Prosperity Life Select Choice MYGA with a 7-year term, which offers a fixed interest rate of 5.10% for that period for the base policy.
1. Interest Accumulation
With her $100,000 initial investment, Maria can calculate her future value at the end of the 5-year term using the 5.10% annual interest rate:
- Year 1: $100,000 * (1 + 5.10%) = $105,100
- Year 2: $105,100 * (1 + 5.10%) ≈ $110,460
- Year 3: $110,460 * (1 + 5.10%) ≈ $116,094
- Year 4: $116,094 * (1 + 5.10%) ≈ $122,014
- Year 5: $122,014 * (1 + 5.10%) ≈ $128,237
- Year 6: $128,237 * (1 + 5.10%) ≈ $134,777
- Year 7: $134,777 * (1 + 5.10%) ≈ $141,651
After seven years, her investment would grow to approximately $141,651, thanks to the fixed annual interest rate of 5.10%.
The table below shows the growth over the selected Initial Guarantee Period, assuming a single premium of $100,000 for different product combinations, based on the rates shown above. Actual rates may vary depending on the issue date. To recap:
● Select Choice 1: Base Policy
● Select Choice 2: Guaranteed Return of Premium (ROP) Rider
● Select Choice 3: Penalty-Free Withdrawal (PFW) Rider
● Select Choice 4: Combination of ROP and PFW Riders
2. Principal Protection
Because the Prosperity Life Select Choice MYGA is a fixed annuity, Maria’s initial $100,000 is fully protected from market losses. Regardless of what happens in the stock or bond markets, her principal remains secure, and she continues to earn the 5.10% fixed rate annually.
3. Withdrawal Options at the End of the Term
At the end of the 7-year term, Maria has several choices:
- Withdraw the Full Amount: Maria can withdraw the full $141,651 without any surrender charges, giving her access to her accumulated funds.
- Renew for Another Term: Maria can choose to renew her MYGA for another term with Prosperity Life, though the new interest rate will depend on the prevailing rates at that time.
- Roll Over to Another Financial Product: Maria can transfer her funds into another investment or retirement product, if she desires.
Free Riders
The Prosperity Life Select Choice MYGA is a plain vanilla annuity that does not include any free riders. However, it's worth noting that many annuities in the market include features such as free nursing home waivers or confinement waivers, which allow penalty-free withdrawals in the event of long-term care needs or hospitalization. These features are absent in this annuity, which may be a consideration for annuitants who are concerned about potential healthcare or confinement costs during retirement.
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 Prosperity Life Select Choice MYGA.
| Completed Contract Years | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8+ |
|---|---|---|---|---|---|---|---|---|
7-yr | 7% | 6% | 5% | 4% | 3% | 2% | 1% | 0% |
5-yr | 7% | 6% | 5% | 4% | 3% | 0% | ||
3-yr | 7% | 6% | 5% | 0% |
Market Value Adjustments - If 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 of the Prosperity Life Select Choice MYGA reflects relatively low surrender charges compared to most annuities.
Contract/Administrative Charge
The Prosperity Life Select Choice MYGA levies no annual contract or administrative fees.
Benefits vs. Disadvantages of MYGA Compared to a Traditional Fixed Annuity
MYGAs and traditional fixed annuities both cater to conservative investors but with slightly different structures. MYGAs are ideal for those who want a predictable rate over a fixed term and are comfortable with the limited liquidity during that period. In contrast, traditional fixed annuities may offer a bit more flexibility in terms of rate adjustments or income options but typically lack the defined multi-year guarantee MYGAs provide. Here’s a breakdown:
Benefits of MYGA
Guaranteed Interest Rates for Specific Terms
- MYGA: MYGAs provide a guaranteed interest rate over a fixed term, such as 3, 5, or 7 years, allowing investors to lock in predictable returns for a specified period.
- Traditional Fixed Annuity: Traditional fixed annuities also offer guaranteed interest, but these rates are often set for a shorter duration (e.g., one year) and may reset annually based on prevailing rates.
- Benefit: MYGAs offer more stability over a multi-year horizon, protecting against interest rate fluctuations, which is particularly beneficial in a low or falling interest rate environment.
Flexibility with Term Lengths
- MYGA: MYGAs provide the flexibility to choose from different terms (e.g., 3, 5, 7, 10 years), depending on the investor's needs and market outlook.
- Traditional Fixed Annuity: Traditional fixed annuities do not typically offer fixed terms with guaranteed rates over multi-year periods.
- Benefit: MYGAs allow investors to align their investments with specific time horizons, such as short-term goals or bridge periods before retirement.
Disadvantages of MYGA
Interest Rate Risk Over the Long Term
- MYGA: While MYGAs lock in rates for a specific term, they may be less advantageous if interest rates rise significantly during the term, as policyholders are bound to the initial rate until maturity.
- Traditional Fixed Annuity: Traditional fixed annuities may offer rate adjustments periodically, which could benefit policyholders in a rising interest rate environment.
- Disadvantage: MYGAs might not benefit from increasing rates mid-term, whereas traditional fixed annuities may adjust rates periodically, providing some adaptability to market changes.
Lower Growth Potential Compared to Market-Linked Annuities
- MYGA: MYGAs have a fixed interest rate and are not linked to market performance, limiting the growth potential.
- Traditional Fixed Annuity: Similarly, traditional fixed annuities are also fixed, but they may sometimes offer interest rate adjustments that allow for slightly higher yields over time.
- Disadvantage: Both MYGAs and traditional fixed annuities limit growth potential compared to market-linked annuities or other investment options, which may not be ideal for younger investors with higher risk tolerance.
What I Like about this Annuity Product?
The Prosperity Life Select Choice MYGA offers several standout features that make it a competitive option for individuals seeking a secure and flexible retirement savings vehicle. Here are the aspects I particularly like about this annuity product:
- Customizable According to Liquidity Needs: The availability of optional riders such as the Penalty-Free Withdrawal (PFW) Rider and the Return of Premium (ROP) Rider allows policyholders to tailor the annuity to their specific liquidity requirements. If you dont anticipate any liquidity needs, you can opt for the base policy which offers high interest rates.
- Low Surrender Charges: Unlike many annuities, the Prosperity Life Select Choice MYGA features a relatively low surrender charge schedule. This reduces the financial impact if you need to surrender the policy early, offering greater peace of mind for those who anticipate potential changes in their financial situation.
- Decent Interest Rates: The MYGA provides competitive interest rates across all its 3-, 5-, and 7-year guarantee periods, particularly for higher investment amounts.
What I Don’t Like About the Prosperity Life Select Choice MYGA
- Lack of Nursing Home and Terminal Illness Waivers: Many annuity products in the market include waivers for nursing home confinement or terminal illness, allowing policyholders to access their funds without penalties in such scenarios. Unfortunately, the Prosperity Life Select Choice MYGA does not offer these waivers. While the Penalty-Free Withdrawal (PFW) Rider provides some flexibility, the absence of specific nursing home and illness waivers may limit its suitability for individuals who prioritize these protections.
- Limited Guarantee Period Options: The product only offers three guarantee period options (3, 5, or 7 years), which may not align with the needs of individuals looking for longer or more varied terms to match their retirement planning horizon.
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.
Prosperity Life Insurance Group
Prosperity Life Insurance Group, established in 2009, is a prominent insurance organization offering a diverse range of life insurance, annuities, and supplemental health products. The group operates through its principal subsidiaries: SBLI USA Life Insurance Company, Inc. (SBLI USA), S.USA Life Insurance Company, Inc. (S.USA), and Shenandoah Life Insurance Company, each with a rich history exceeding 50 years in the insurance industry.
In 2019, Prosperity Life underwent a significant transition when Elliott Management Corporation acquired a majority ownership stake. This acquisition strengthened the company's financial strength and expanded its market presence. The company offers a comprehensive suite of insurance and annuities products tailored to meet diverse customer needs, including:
Permanent Life Insurance: Provides lifelong coverage with cash value accumulation, featuring products like Final Expense Whole Life, Universal Life, and Senior Life.
Term Life Insurance: Offers coverage for specific periods, including products such as Family Freedom Term, PrimeTerm to 100, and Simple Issue Term.
Universal Life Insurance: Includes Fixed Universal Life and Indexed Universal Life, catering to varying risk appetites and financial goals.
Fixed Annuities: Includes Multi-Year Guaranteed Annuity (MYGA) products like Select Choice and Select Choice Plus single premium annuities.
Fixed Indexed Annuities: Safe Solution single premium fixed indexed annuity offers fixed and indexed annuity options.
Through its subsidiaries, Prosperity Life serves over 300,000 policyholders across the United States. It is rated as follows by the rating agencies:
| Rating Agency | Rating |
|---|---|
AM Best | A- |
Kroll Rating | A- |
S&P Global | A- |
Going by the operating history and ratings, we can safely gauge that you can trust your savings with Prosperity Life Insurance Group.
Conclusion
With the advancements in healthcare and technology, the average American today lives longer than ever. So, it’s very important to have a retirement corpus that can grow safely and steadily and have the ability to provide a fixed stream of 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.
The Prosperity Life Select Choice MYGA is a straightforward and reliable retirement solution for individuals seeking guaranteed, predictable income in their later years. Its simplicity and flexibility in liquidity options, including the return of premium (ROP) and penalty-free withdrawal (PFW) rider, make it a decent choice for conservative investors who prioritize liquidity. However, the absence of benefits, such as nursing home or confinement waivers, may not appeal to those requiring added flexibility or contingency support. Overall, this annuity is suited for pre-retirees and retirees with a long-term outlook who value the security of guaranteed income. As with any financial product, potential buyers should evaluate their unique circumstances and consult a financial professional to ensure the Prosperity Life Select Choice Multi-Year Guaranteed Annuity (MYGA) aligns with their retirement goals and needs.
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. Dive deeper into our extensive reviews.