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 even if the index goes down, your principal will remain safe.
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 discusses an in-depth review of the Silac Teton Fixed Indexed Annuity. Silac Teton is a deferred, fixed-indexed annuity that offers accumulation potential, tax deferral benefits, and an optional Rider for enhanced liquidity benefits. After extensive research and due diligence, I have provided an in-depth and unbiased analysis of this plan.
The review of the Silac Teton 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 Silac Teton Fixed Indexed Annuity offers the annuitant (annuity investor) an opportunity to earn a market index-linked return without incurring the risk of market downside. This might be a suitable plan for people who are approaching retirement and aim to grow and protect their retirement savings. This plan is also suitable for retirees who are looking for good accumulation potential and an optional Rider for enhanced liquidity benefits.
Let’s have a look at the high-level fine print of Silac Teton Fixed Indexed Annuity, and then we will discuss each point in detail.
| Product Name | Teton Fixed Indexed Annuity |
|---|---|
Issuing Company | |
AM Best Rating | B+ (6th of 13 ratings) |
Withdrawal Charge Period(s) | 5, 7, 10 and 14 years |
Maximum Issue Age | 85 Years |
Minimum Initial Purchase Amount | $10,000 |
Surrender Charge Schedule | Varies for different tenure policies |
Crediting Period and Strategies |
|
Plan Types |
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Indexes |
|
Free Benefits |
|
Additional Benefits | Free withdrawals can be carried forward to the next policy year |
Free Withdrawals | 5% of the annuity’s Accumulated Value; per year. |
Death Benefit | Beneficiary(s) will receive the full Account Value upon the death of the Owner with no surrender charges |
Riders | Optional Enhanced Liquidity Riders (Elevation and Elevation Plus) |
Surrender Value | Greater of Accumulated Value (less any withdrawal charges/MVA) and the Minimum Guaranteed Surrender Value |
RMD Friendly | Yes |
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The Silac Teton Fixed Indexed Annuity is almost identical for all policy tenures, except the crediting strategies and surrender charge schedule. For ease of discussion and better clarity, we will discuss the Silac Teton 10 Fixed Indexed Annuity for the rest of the article.
Product Policy
How does the Silac Teton Fixed Indexed Annuity policy work?
Any annuitant (maximum age at the time of policy issue: 85) can purchase the Silac Teton 10 fixed indexed annuity with a minimum initial purchase amount of $10,000, 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 “Account Value.” This bucket is your annuity account balance, and all your withdrawals take place from it.
The Silac Teton 10 Fixed Indexed Annuity offers the annuitant to choose from one or more of the five indexes (S&P 500 Index, S&P 500 Duo Swift Index, S&P 500 RavenPack Index, Barclays Atlas 5 Index, Nasdaq Gen 5 Index) to determine their earnings crediting formula. Each index has multiple strategies to choose from. The plan also offers a fixed-rate guaranteed interest strategy to choose from, making a total of 12 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 Silac Teton Fixed Indexed Annuity offers the S&P 500 index with caps, participation rates, and spreads in place, meaning that your interest-earning capacity is limited. These rates change frequently; I will discuss the rates in detail shortly.
2. S&P 500 Duo Swift Index
The S&P 500 Duo Swift Index is a specialized financial index designed to measure the performance of a controlled volatility version of the S&P 500. This index incorporates a risk control mechanism that operates on S&P 500 E-mini futures and includes a 10-year U.S. Treasury Bond futures overlay. The primary objective of the index is to manage volatility and reduce path dependency, making it a dynamic tool for investors seeking stability in volatile markets. While these volatility controls may lead to less fluctuation in returns compared to indices without such mechanisms, they also lower the potential overall rate of return in comparison to those other indices.
3. Barclays Atlas 5 Index
The Barclays Atlas 5 Index is a global financial index designed to provide stable and consistent returns through a diversified portfolio of equities and bonds from around the world. The Atlas 5 Index offers investors an opportunity to participate in approximately 90% of the global economy, expanding beyond the U.S.-centric focus of indices like the S&P 500. It aims to achieve this by targeting a 5% volatility level, utilizing techniques from Modern Portfolio Theory and Momentum Investing to optimize its component allocations daily. The index's dynamic structure allows it to adjust its exposure between equities and bonds depending on market conditions, potentially being fully uninvested if the risk/reward scenario is deemed unfavorable. Similar to any volatility-controlled index, this may lead to less fluctuation in returns compared to indices without such mechanisms; they also lower the potential overall rate of return in comparison to those other indices.
4. S&P 500 RavenPack AI Index
The S&P 500 RavenPack AI Index is a financial index that leverages artificial intelligence to analyze news sentiment and apply it to a sector rotation strategy within the S&P 500. Developed by S&P Dow Jones Indices in collaboration with RavenPack, the index measures exposure to the S&P 500 RavenPack AI Sentiment Index, which identifies sectors with the highest sentiment scores based on news analytics. The index employs a multi-asset approach, combining U.S. equities and fixed income, and incorporates a daily risk control mechanism to maintain a target volatility of 5%. Similar to any volatility-controlled index, this may lead to less volatility in returns compared to indices without such mechanisms; they also lower the potential overall rate of return in comparison to those other indices.
5. Nasdaq Gen 5 Index
The Nasdaq Generations 5 Index is a multi-asset, risk-controlled index designed to provide exposure to both the Nasdaq-100 Total Return Index and the Nasdaq Next Generation 100 Total Return Index. It also includes allocations to 10-year and 2-year U.S. Treasury futures, aiming to maintain a constant 5% volatility target. This index utilizes the truVol® Risk Control Engine, developed by Salt Financial, to dynamically manage allocations between its components and cash, enhancing its responsiveness and accuracy in volatility targeting. While this volatility-controlled mechanism causes less fluctuation in returns compared to indices without such mechanisms, it also lowers the potential overall rate of return in comparison to those other indices. The index is structured as a 70/30 blend of the Nasdaq-100 and the Nasdaq Next Generation 100 Indexes, with the remainder allocated to fixed income or cash.
Note: In addition to allocating the funds in the following indexes, the annuitant also has the option to allocate funds at a fixed interest. The Fixed Value Rate for the 10-year withdrawal charge period at the time of writing this article was 4.25%. These Fixed Rates change from time to time. You can contact your trusted financial advisor to know the latest rates.
Rates and Costs
As mentioned earlier, all earnings, whether in the form of index credits or fixed rate credits, are credited to the "Account 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 a crucial aspect of this annuity discussion. It’s essential to understand that the index return is not directly credited to our annuity. Instead, factors such as participation rates, cap rates, and spreads/boosts set by the company influence our earnings. These rates can change over time, so it’s advisable to consult with your trusted financial advisor for the latest rates.
Let’s have a look at the Silac Teton Fixed Index Annuity rate sheet (as of August 2024) to understand how the earnings are determined.
From the above rate chart, you will notice that there are 12 interest crediting options (1 fixed and 11 indexed). Let’s have a look at different terms that are used by the company in the Teton Fixed Indexed Annuity chart rate:
- Point-to-point with Participation Rate (PR): The participation rate describes the annuitant’s participation percentage in a return of an index. For example, suppose the participation rate is 150%, and the index returned 4% over the agreed time. In that case, the annuitant will be eligible for 150% of the return, i.e., 6%.
- 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 Participation 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, multiplied by the participation rate, helps decide the interest added to the annuity.
- Point-to-point with Boost: The amount of interest that the Company will credit is based on a declared boost on the selected index on an annual point-to-point basis. Once the index gain is determined (if any), the boost amount is added. The remaining amount is what is credited to the contract for that term.
- 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 1-year fixed rate on this policy at the time of writing this article was 4.25%.
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.
Among these indices, I prefer the following strategies (as of August 2024):
- S&P 500 Annual Point-to-Point with Cap: Due to the proven historical track record of the S&P 500 index and a relatively higher cap rate. It's important to note that the S&P 500 Index is different from the S&P 500 Duo Swift and the S&P 500 RavenPack indices, which are volatility control indices.
- Barclays Atlas 5 Annual Point-to-Point with Participation Rate: This strategy is favored because of the high participation rate it offers.
- Nasdaq Gen 5 Annual Point-to-Point with Boost: I prefer this strategy due to its high Boost rate and the high quality of the index.
Riders and Benefits
The most important part of this annuity discussion is the optional Elevation and Elevation Plus riders that this annuity comes with. These riders enable the annuitant to have additional liquidity benefits and/or premium bonuses. However, it’s important to note that you can add either the Elevation or the Elevation Plus rider to Teton®, but not both. Both these riders have distinct benefits and costs associated with them.
Elevation Rider
The Elevation rider is an optional add-on that can be included with the Teton annuity. It enhances the liquidity features of your annuity, providing more flexibility in accessing your funds. Below are the key features of the Elevation rider:
Increased Free Withdrawals: With the Elevation rider, the annual Free Withdrawal percentage is increased to 10% of your account value. This means you can withdraw up to 10% each year without incurring any withdrawal charges, providing greater access to your funds when needed.
Cumulative Withdrawals: The rider also allows for Cumulative Withdrawals if no withdrawals are taken in a given policy year. Unused free withdrawals can be carried over to the next year, up to the maximum specified in the policy. The maximum cumulative free withdrawal percentages are based on different withdrawal periods:
- 5-Year: Up to 40% cumulative free withdrawals
- 7-Year: Up to 50% cumulative free withdrawals
- 10-Year: Up to 50% cumulative free withdrawals
- 14-Year: Up to 50% cumulative free withdrawals
This feature gives you the flexibility to withdraw a larger portion of your account value in a single year if you haven’t utilized your free withdrawal options in previous years.
Life Event Withdrawal: The Elevation rider also includes a Life Event Withdrawal option, available once during the lifetime of the policy. After the first policy year, an additional 10% of the account value is accessible if you meet the qualifications, such as medical costs, repairs on the owner’s home, college tuition, or employment changes. This is designed to provide extra financial support during significant life events.
Cost of the Rider: The Elevation rider has an associated cost of an annual spread of 0.50% of your account value. This spread is applied on each policy anniversary during the withdrawal charge period and will never exceed the policy’s interest credit.
Elevation Plus Rider
The Elevation Plus rider is an enhanced version of the Elevation rider, offering additional benefits and flexibility for those who want to maximize their annuity's value and liquidity options. Similar to the Elevation rider, Elevation Plus can be added to the Teton annuity, but not in combination with the Elevation rider. Here’s what the Elevation Plus rider includes:
Premium Bonus: A significant advantage of the Elevation Plus rider is the 5% Premium Bonus offered for the Teton 10 Fixed Indexed Annuity. This bonus increases your initial premium by 5%, providing a higher starting account value and enhancing the potential for growth and income.
Caregiver Benefit: Exclusive to the Elevation Plus rider is the Caregiver Benefit, which provides access to the account value if the owner or the owner’s spouse meets specific health conditions, such as being unable to perform certain activities of daily living (ADLs). This feature offers critical financial support during challenging times when health issues arise.
Increased Free Withdrawals: Just like the Elevation rider, Elevation Plus increases the annual Free Withdrawal percentage to 10% of your account value. This allows you to access up to 10% of your funds each year without incurring withdrawal charges.
Cumulative Withdrawals: Elevation Plus also allows for Cumulative Withdrawals. If no withdrawals are taken in a given policy year, the unused free withdrawals can be rolled over to the next year, up to the maximum specified in the policy. The cumulative percentages are the same as those offered by the Elevation rider, allowing for up to 50% of your account value to be withdrawn without penalties over certain periods.
Life Event Withdrawal: The Life Event Withdrawal option is also included in the Elevation Plus rider, offering an additional 10% of the account value during significant life events, such as medical costs, repairs on the owner’s home, college tuition, or employment changes. This withdrawal is available once during the lifetime of the policy, after the first policy year.
Cost of the Rider: The Elevation Plus rider comes at a higher cost than the standard Elevation rider. The annual spread for Elevation Plus is 1.00% of your account value, compared to 0.5% for Elevation. This cost is deducted annually on each policy anniversary during the withdrawal charge period and is never more than the policy’s interest credit.
In my opinion, if you're looking to enhance the liquidity of your annuity, the Elevation Plus rider is the better option. While the regular Elevation™ rider does offer increased free withdrawals and cumulative withdrawal options, it doesn't provide a significant, tangible liquidity benefit compared to what Elevation Plus brings to the table. The Elevation Plus rider not only matches the free withdrawal and cumulative withdrawal features of the regular Elevation rider but also adds a 5% Premium Bonus for the Teton Fixed Indexed Annuity, giving your account value an immediate boost. Additionally, the inclusion of the Caregiver Benefit, which allows access to your funds in case of health-related needs for you or your spouse, adds a crucial layer of financial flexibility and security that the standard Elevation rider lacks.
Given these enhanced features, the slightly higher cost of the Elevation Plus rider is justified, as it offers more comprehensive benefits.
Terminal Illness, Nursing Home, and Home Health Care Benefits
In addition to the standard features of the Teton Fixed Indexed Annuity, the benefits also include the Terminal Illness Benefit, Nursing Home Benefit, and Home Health Care Benefit, each offering different levels of access to the account value under specific circumstances.
Terminal Illness Benefit: The Terminal Illness Benefit allows the annuitant to withdraw up to 100% of their account value if they are diagnosed with a terminal illness. To qualify, the illness must be such that it results in a life expectancy of 12 months or less. This benefit is available after the first policy year.
Nursing Home Benefit: The Nursing Home Benefit provides a similar level of financial flexibility by allowing the annuitant to withdraw up to 100% of their account value if they are confined to a nursing home for at least 90 consecutive days and meet the required eligibility criteria. This benefit is also available after the first policy year. It is designed to help cover the substantial costs associated with long-term care in a nursing facility, ensuring that the annuitant can maintain their quality of life without undue financial stress.
Home Health Care Benefit: The Home Health Care Benefit offers additional support for annuitants who wish to receive care in the comfort of their own home. Under this benefit, the annuitant can withdraw up to 20% of their account value each year for up to 5 policy years if they are unable to perform 2 of the 6 Activities of Daily Living (ADLs) without the assistance of another person and meet the eligibility requirements. Like the other benefits, this option becomes available after the first policy year. It provides a crucial financial resource for those who require in-home care, helping to cover the costs of home health services and enabling the annuitant to remain in their home environment for as long as possible.
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 Silac Teton Fixed Indexed Annuity.
| Completed Contract Years | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
|---|---|---|---|---|---|---|---|---|---|---|
Surrender Charge % (5-year) | 12% | 12% | 11% | 10% | 9% | |||||
Surrender Charge % (7-year) | 12% | 12% | 11% | 10% | 9% | 7% | 4% | |||
Surrender Charge % (10-year) | 12% | 12% | 11% | 10% | 9% | 8% | 7% | 6% | 4% | 2% |
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 found that the surrender charge for the Silac Teton Fixed Indexed Annuity is relatively higher than those of other annuity issuers.
Contract/Administrative Charge
The Silac Teton Fixed Indexed Annuity levies no annual contract or administrative fees. However, if you opt for the Elevate or the Elevate Plus rider, there is an annual spread of 0.50% and 1.00% of your account value, respectively. This spread will never exceed the policy’s interest credit and is applied on each policy anniversary.
What Makes This Product Stand Out
The Teton Fixed Indexed Annuity offers several standout features that make it an attractive option for those seeking a flexible and comprehensive retirement solution. Here’s what sets this product apart:
- Good Annuity for Accumulation: The Teton Fixed Indexed Annuity provides a good potential for accumulation, with relatively higher cap rates, participation rates, and boost rates.
- Cumulative Free Withdrawals: If no withdrawals are taken in a given year, fully unused free withdrawals can be carried over to the next policy year up to the maximum cumulative free withdrawal percentage.
- Free Terminal Illness, Nursing Home, and Home Health Care Benefits: The inclusion of these benefits at no additional cost provides crucial financial support in the event of serious health challenges. With the ability to access up to 100% of your account value under certain conditions, this product offers peace of mind during difficult times.
- No Annual Contract, Mortality & Expense, or Administrative Fees
- Multiple Payout Options: The Teton Fixed Indexed Annuity provides flexibility in how you receive your payouts, whether through a lump sum or various annuitization options, such as Life Only, Life with Period Certain, or Joint and Survivor Life.
What I Don't Like
While the Teton Fixed Indexed Annuity offers many attractive features, there are a few aspects that might not appeal to everyone:
- Lower Free Withdrawal Limit: During the withdrawal-charge period, the annuity allows for standard free withdrawals of only 5% of the account value, which is lower than many competitors that typically allow for 10% free withdrawals. However, you can access 10% free withdrawals if you opt for any of the optional riders, though it comes with an additional cost.
- Cost Consideration of the Riders: While the Riders offer enhanced liquidity benefits, the cost could have been somewhat lower, making it a more attractive option for those looking to access higher liquidity from their annuity without incurring significant additional expenses.
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.
Silac Insurance Company
SILAC Insurance Company, originally founded as Equitable Life & Casualty Insurance Company in 1935, is Utah's oldest active life insurance company. The company, headquartered in Salt Lake City, Utah, has a rich history of providing life and health insurance, particularly focusing on the needs of seniors. In 2018, SILAC entered the annuity market, expanding its offerings to include a variety of innovative annuity products, such as Fixed Index Annuities and Multi-Year Guaranteed Annuities. SILAC is licensed to operate in 48 states and the District of Columbia, making it a significant player in the national insurance market.
It is rated as follows by the rating agencies:
| Rating Agency | Rating |
|---|---|
AM Best | B+ (6th of 13 ratings) |
KBRA | BBB |
SILAC's credit ratings reflect a moderate level of financial stability and suggest adequate creditworthiness. While SILAC is financially sound, it's important to consider its overall financial strength compared to higher-rated insurers. As of year-end 2023, some of the financial highlights for SILAC Insurance Company include its:
- $10.1 billion in total admitted assets
- $583 million of total adjusted capital and surplus
- $51.3 million in net operating income
- 100,000 plus policyholders
Conclusion
With advancements in healthcare and technology, the average American today lives longer than ever. Consequently, it's crucial to have a source of income that grows safely and steadily, and can provide a guaranteed income during retirement years. This strategy not only mitigates the risk of outliving your income but also ensures a decent standard of living in retirement.
The Teton Fixed Indexed Annuity offers a well-rounded package of features designed to provide flexibility, security, and financial support throughout retirement. With its relatively higher accumulation potential, terminal illness, nursing home care, and home health care benefits, this product ensures that annuitants have access to their funds when they need them most. The optional paid “Elevate” riders further enhance its appeal, making it a strong choice for those who want higher liquidity from their annuity.
However, potential buyers should weigh these benefits against certain drawbacks, such as the lower free withdrawal limit during the withdrawal-charge period. Additionally, while SILAC's credit ratings indicate adequate financial stability, prospective annuitants should consider the company's ratings in comparison to other insurers. Importantly, this annuity may not be the best suited for those primarily focused on leaving a legacy, as its structure is more geared toward accumulation and liquidity. As with any financial product, it’s advisable to thoroughly review the details and consult with a financial advisor to ensure that it aligns with your specific 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. Delve deeper into our extensive reviews.