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Sentinel Life Summit Bonus Fixed Indexed Annuity Review

Published Fri Oct 11 2024

1 min read

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Written byNikhil Bhauwala

CFA, Lead Writer

Summit Bonus

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 Sentinel Life Summit Bonus Fixed Indexed Annuity. The Sentinel Life Summit Bonus is an indexed annuity designed for individuals seeking accumulation, tax-deferred growth, and principal protection. It offers an initial premium bonus and includes an optional income rider. This product is straightforward, featuring the S&P 500 as its sole indexing option. After conducting extensive research and due diligence, I present an unbiased and comprehensive analysis of this annuity.

The review of the Sentinel Life Summit Bonus 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 Sentinel Life Summit Bonus is a Fixed Indexed Annuity (FIA) that offers annuitants (annuity investors) the opportunity to earn a portion of market index-linked returns without incurring the risk of market downside. This plan may be suitable for individuals seeking a fixed-indexed annuity that provides an initial premium bonus and an optional income rider, while aiming to grow and protect their retirement savings.

Let’s have a look at the high-level fine print of the Sentinel Life Summit Bonus Fixed Indexed Annuity, and then we will discuss each point in detail.

Product NameSummit Bonus

Issuing Company

Sentinel Security Life Insurance Company

AM Best Rating

B++ (6th of 13 ratings)

Withdrawal Charge Period(s)

10 years

Maximum Issue Age

90 Years

Minimum Initial Purchase Amount

$5,000

Crediting Period and Strategies

  • 1-year point-to-point with cap rate
  • Monthly averaging with caps
  • Monthly sum with cap
  • Daily averaging with cap
  • 1st-year fixed with interest rate guaranteed

Plan Types

  • IRA
  • Roth IRA
  • Nonqualified Account
  • SEP IRA
  • SIMPLE IRA
  • 401(a)

Indexes

S&P 500 Index

Free Withdrawals

10% of the annuity's Accumulated Value per year with a paid rider

Death Benefit

Upon the annuitant’s death, the beneficiary will get greater of (i) Account Value or (ii) Surrender Value.

Riders

Annuitants can choose an optional paid Income rider

Surrender Value

Account Value less any withdrawal charges/MVA

RMD Friendly

Yes

Summit Bonus Index Rates
Summit Bonus Index Rates

Product Policy

How does the Sentinel Life Summit Bonus Fixed Indexed Annuity policy work?

Any annuitant (maximum age at the time of policy issue: 90) can purchase the Sentinel Life Summit Bonus fixed indexed annuity with a minimum initial purchase amount of $5,000, and in return, they will earn 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 free withdrawals, for a long-term care event or terminal illness or injury event, or when a death benefit is payable. All these interest credits are credited to a bucket called “Accumulation Value.” This bucket is your annuity account balance, and all your withdrawals take place from it. When you purchase the Summit Bonus Index Annuity, you will receive an automatic one-time 7% Premium Bonus, which is immediately credited to your Accumulation Account. This bonus provides an opportunity to earn additional interest and funds, which can be accessed after a 10-year vesting period.

At the same time, a different bucket called “Income Account Value” is established through which the lifetime withdrawals and other benefits are determined. Your Income Account Value will grow using a given bonus rate and a roll-up, which we will see in detail later in this review. The Income Account Value is only used to determine the lifetime withdrawal amount, and you can’t take any withdrawals from this account. We will return to this later in this review when we discuss the “riders” of this annuity.

The Sentinel Life Summit Bonus Fixed Indexed Annuity offers the annuitant the ability to choose from the S&P 500 Index and the fixed rate account to determine their earnings crediting formula. The S&P 500 index offers 4 crediting strategies, and the plan also offers a fixed-rate guaranteed interest strategy to choose from, making a total of 5 strategy options. Apart from this, the annuitant can also choose an optional income rider, which I will discuss in the later part of this review.

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 Summit Bonus Indexed Annuity offers the S&P 500 index with cap rates and other rate-limiting strategies in place, meaning that your interest-earning capacity is limited. These rates change frequently; I will discuss the rates in detail shortly.

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 change from time to time. The 1st-year fixed rate at the time of writing this article was 1.50%.

Rates and Costs

As mentioned earlier, all earnings, whether in the form of index credits or fixed rate credits, are credited to the "Accumulation Value" bucket. However, it’s important to note that we do not receive the full index return in our account. This section explains how these index returns are calculated and added to our account value.

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, caps, and triggers 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 on the company’s website.

Let’s have a look at the Sentinel Life Summit Bonus Fixed Index Annuity rate sheet (as of August 2024) to understand how the earnings are determined.

Accumulation Value and Income Account Value
Accumulation Value and Income Account Value

When you purchase the Summit Bonus Index Annuity, you will receive an automatic one-time 7% Premium Bonus, which is immediately credited to your Accumulation Account. This bonus provides an opportunity to earn additional interest and funds, which can be accessed after a 10-year vesting period.

From the rate chart above, you'll observe that there are interest-crediting options linked to the S&P 500 Index. It offers four interest-crediting options, along with an additional fixed option, bringing the total to five available options. Let’s have a look at different terms that are used by the company in the Summit Bonus Fixed Indexed Annuity chart rate:

  1. 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.
  2. 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.
  3. Annual Total Sum with Monthly Cap: The monthly sum strategy credits interest on an annual basis by comparing the monthly changes in the Underlying Index. Each month, Sentinel Life 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.
  4. Daily Averaging Cap: For each policy anniversary, the daily S&P 500® index values from the previous policy anniversary are averaged (ending value) and compared to the S&P 500® index value on the last policy anniversary (beginning value). If the ending value is higher than the beginning value, the percentage increase is credited to the policy, up to the annual cap. If the ending average value is lower, no interest will be credited; however, no interest will be lost, ensuring the contract value remains protected with a 0% floor.
  5. 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 1st-year annual fixed rate on this policy at the time of writing this article was 1.50%.

In this annuity, I find the S&P 500 Monthly Sum Cap index option to be somewhat decent compared to other annuities. However, the other four strategies don't offer strong earning potential, and there are many annuities with better growth opportunities. It's important to note that, as this is a bonus annuity, the rates are bound to be lower since you're already receiving an upfront bonus. Accumulation isn't the main USP of this product; the key benefit lies in its lifetime income withdrawals, which are accessed through the income rider—a feature we will discuss in the next section of this article.

Riders

The most important aspect of this annuity is the optional income rider it offers. This rider provides a stream of guaranteed lifetime income payments that you cannot outlive. These payments are based on an "Income Value Account," which grows through an initial bonus and annual roll-ups.

Income Account Value

The Income Account Value is used to calculate annual income benefit in your annuity contract. Initially, the Income Account Value is set equal to the Initial Premium you pay into the annuity. Over time, this value increases based on an initial bonus and annual roll-ups.

Initial Bonus: When you purchase your Summit Bonus Index Annuity, you will receive an automatic, one-time 7% premium bonus that is immediately credited to your Accumulation Account. This gives you an opportunity to earn additional interest, with funds accessible subject to your vesting and surrender schedule. Now, If the Income Rider is purchased, this one-time bonus increases to 12% of the single premium payment and will be credited to both the Accumulation Account and the Income Account.

Annual Compound Roll-up Rate: The Income Account Value earns an annual compound roll-up rate of 7.25% for the first 10 years. If the roll-up is renewed after 10 years, the minimum roll-up rate is guaranteed to be at least 2% at the time of renewal.

Rider Charge

The Income Rider costs 1.30% of the Income Account Value annually, and this fee is deducted from the Accumulation Account.

Accessing Rider Payments

With the selection of the Income Rider, your lifetime annual income will equal your Income Account Value multiplied by the Payout Factor and will depend on whether you are required to take minimum distributions under federal tax laws.

The Payout Factor is a percentage based on whether you elect the Income Rider for yourself or for both you and your spouse. It is also determined by your age, or your spouse's age, when income payments begin.

The Income Account Value grows at an annual compound roll-up rate of 7.25% for the first 10 years and is used to calculate both the Income Rider payments and the Rider Charge. If the roll-up is renewed after 10 years, the minimum roll-up rate is 2%.

Let’s understand this with an example:

The below example assumes an initial premium of $65,000, issued on 12/31/1997, allocated to the annual point-to-point strategy, with a 12% premium bonus and a 7.25% roll-up rate. GLWB payments begin at the end of year 10.

This chart illustrates the growth of the Accumulation Value and Income Account Value over a 25-year period for an individual who starts at age 65 with an initial premium. The Income Account Value increases annually at a 7.25% roll-up rate for the first 10 years, reaching a peak at year 10, when lifetime payouts begin. The Guaranteed Lifetime Withdrawal Benefit (GLWB) payments of $11,258.11 start at age 74 (end of policy year 10) and continue through age 89. The Accumulation Value decreases over time as the payments are withdrawn, ultimately being fully depleted, while the payouts remain consistent, illustrating the benefit of guaranteed lifetime income even as the Accumulation Value runs out.

Spousal Continuation Feature:

If you purchase the Income Rider and pass away, your surviving spouse can continue to benefit from the rider. The spousal continuation feature provides two options for your spouse:

1. Lump Sum or Payout Option: Your spouse can choose to surrender the base policy and receive the current Accumulation Value as a lump sum or opt for any other available payout options provided in the base policy.

2. Continue Lifetime Benefits: Alternatively, your spouse may elect to continue receiving the Guaranteed Lifetime Withdrawal Benefits (GLWB) in the same amount as you were receiving. These payments will continue for the rest of your spouse's life, even if both the Income Account Value and the Accumulation Value are eventually reduced to zero.

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 Sentinel Life Summit Bonus Fixed Indexed Annuity.

Policy Year1234567891011+

Issue Age 0-57

12%

11%

10%

9%

8%

7%

6%

5%

4%

2%

0%

Issue Age 58+

9.5%

9%

8%

7%

6%

5%

4%

3%

2%

1%

0%

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.

I find the surrender charge of Sentinel Life Summit Bonus Fixed Indexed Annuity to be slightly higher than other similar annuities.

Contract/Administrative Charge

The Sentinel Life Summit Bonus Fixed Indexed Annuity levies no annual contract or administrative fees. However, it comes with an optional income rider that costs 1.30% of the Income Account Value annually, and this fee is deducted from the Accumulation Account.

What Makes This Product Stand Out

One of the key features that sets this product apart is its generous bonus structure. When you purchase the Sentinel Life Summit Bonus Fixed Indexed Annuity, you receive an immediate premium bonus—7% without the income rider or 12% with the income rider—added directly to your Accumulation Account. This upfront bonus gives your savings an immediate boost, helping to enhance your overall financial growth potential.

In addition to the bonus, this product offers a competitive 7.25% annual compound roll-up rate on the Income Account Value for the first 10 years. This growth, combined with the bonus, positions the annuity as a strong option for those looking to build their retirement income stream.

What I Don’t Like

The Sentinel Life Summit Bonus Fixed Indexed Annuity has several aspects that are less appealing:

  1. The Optional Income Rider is Somewhat Costly: The rider fee, which amounts to 1.3% of the Income Account Value annually, is somewhat on the higher side when compared to other products in the market. What makes this cost more notable is that it is deducted from the main Accumulation Account rather than the Income Account itself. Over time, this can reduce the overall growth potential of your Accumulation Value, especially in years when index performance is lower or flat.
  2. 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.
  3. 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.

Sentinel Security Life Insurance Company

Sentinel Security Life is a financial services company that has been in business since 1948 and is based in Salt Lake City, Utah. This company offers a wide range of financial products, including:

Sentinel Security Life got its start when a group of Utah funeral directors saw that there was a need for an insurance product that could help families pay for funeral costs. This initial product was designed to help families pay for the final expenses of a loved one. Over the past seventy years, Sentinel Security Life has expanded to offer a more comprehensive suite of financial products and has also experienced many name changes throughout the years.

According to its 2023 financial statements, Sentinel Group has sold over $1.7 billion in annuity contracts., and is rated B++ by AM Best.

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.

The Sentinel Life Summit Bonus Fixed Indexed Annuity offers a combination of benefits designed to appeal to individuals seeking both growth potential and secure, guaranteed lifetime income. The product’s standout feature is its upfront premium bonus, which provides an immediate boost to your savings, and its competitive 7.25% roll-up rate on the Income Account Value for the first 10 years further enhances its appeal. However, while the annuity delivers in terms of protection and guaranteed income, the rider fee—deducted from the Accumulation Account—could limit growth for some investors, particularly those more focused on accumulation. This product is best suited for individuals prioritizing lifetime income security over aggressive growth, as it effectively balances downside protection and reliable income.

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.

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