How it works
Sentinel Life Personal Choice Plus Fixed Indexed Annuity: product description and policy
The Sentinel Life Personal Choice Plus+ is a Fixed Indexed Annuity (FIA) plan that offers the annuitant (annuity investor) an opportunity to earn a part of a market index-linked return without having to incur the risk of market downside. This might be a suitable plan for people who are looking for a fixed-indexed annuity that offers enhanced death benefits and aims to grow and protect their retirement savings.
Let’s have a look at the high-level fine print of the Sentinel Life Personal Choice Plus+ Fixed Indexed Annuity, and then we will discuss each point in detail.
How does the Sentinel Life Personal Choice Plus+ Fixed Indexed Annuity policy work?
Any annuitant (maximum age at the time of policy issue: 90) can purchase the Personal Choice Plus+ 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.
For current rates, see Current Rates ↑.
The Sentinel Life Personal Choice Plus+ 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 3 crediting strategies, and the plan also offers a fixed-rate guaranteed interest strategy to choose from, making a total of 4 strategy options. Apart from this, the annuitant can also choose from four optional paid riders available with this annuity.
1. S&P 500 IndexThe 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 Personal Choice Plus+ 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.
Rates and costs
Rates, bonus, surrender charges, 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, 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.
From the rate chart above, you'll observe that there are interest-crediting options linked to the S&P 500 Index. It offers three interest-crediting options, along with an additional fixed option, bringing the total to four available options. Let’s have a look at different terms that are used by the company in the Personal Choice Plus+ Fixed Indexed Annuity chart rate:
Cap Rate
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.
Cap Rate simulator
Shows how a cap limits the credited return when the index year is higher than the selected cap.
8%
Formula
min(10%, 8%) = 8%
This is a one-year teaching example only. Actual contract credits depend on the index, strategy term, allocation, renewal rates, state rules, and carrier contract language.
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.
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.
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.
In this annuity, I only find the S&P 500 Monthly Sum Cap index option to be competitive enough when compared to other annuities. All other three strategies don’t offer good earning potential, and there are many other annuities that offer better earning potential.
Riders and waivers
Riders and waivers
Riders are a key feature of the Sentinel Life Personal Choice Plus+ Fixed Indexed Annuity, providing policyholders with the flexibility to customize their contracts based on individual needs. This annuity offers four optional riders, each designed to enhance specific benefits and offer added protection, allowing annuitants to tailor their coverage to better suit their financial goals. In the following section, we’ll briefly explore each of the four available riders, highlighting their key benefits and how they can enhance the overall value of the Sentinel Life Personal Choice Plus+ Fixed Indexed Annuity.
Required Minimum Distribution (RMD) Rider
Description: This rider waives the surrender charge and market value adjustment (MVA) for any Required Minimum Distribution withdrawals from tax-qualified plans.
For current riders, see Current Riders ↑.
Example: Imagine John, age 72, has a tax-qualified annuity and is required to withdraw a certain amount annually as per IRS rules. With this rider, if John needs to take out his required minimum distribution, he won't face any surrender charges or MVAs on that withdrawal.
Accumulated Interest Withdrawal Rider
Description: This rider waives the surrender charge and MVA associated with accumulated interest withdrawals.
Example: Sarah has an annuity that has accumulated interest over time. If she decides to withdraw just the interest without touching the principal, this rider ensures that she won’t face any surrender charges or MVAs on that withdrawal.
Description: This rider waives the surrender charges and MVA for the first withdrawal per year, after the first contract year. The annuitant may withdraw up to 10% of the account value or the Required Minimum Distribution, whichever is greater. If multiple withdrawals are made during the contract year, additional fees may apply.
Example: Mark's annuity account is valued at $100,000. If he takes out more or makes multiple withdrawals in the same year, surrender charges may apply for subsequent withdrawals.
Death Benefit Feature Rider
Description: This rider waives the surrender charge for a lump-sum payment in case of the annuitant's death.
Example: If Emma, the annuitant, passes away, her beneficiary would be entitled to a lump sum of the account value without any surrender charges. This provides financial relief to her family during a difficult time.
The Sentinel Life Personal Choice Plus+ Annuity also provides an Enhanced Death Benefit Option designed to offer additional financial security to beneficiaries. This option ensures that, upon the annuitant’s passing, the beneficiary will receive a structured payout over five years, based on the Benefit Base rather than the standard account value.
Key features of the Enhanced Death Benefit include:
- This amplified growth ensures the Benefit Base exceeds the Accumulation Value over time.
- Five-Year Payout: Instead of a lump sum, the Enhanced Death Benefit is paid out over five equal periodic payments. As illustrated in the example, with an initial premium of $100,000 and a Benefit Base growth over five years, the beneficiary would receive a payout of $25,818 in year five.
- Impact of Withdrawals: It's important to note that while the Benefit Base grows, any withdrawals from the Accumulation Value will proportionally reduce the Benefit Base.
One more thing that irked me was the absence of a Terminal Illness and Nursing Home Waiver benefit in the annuity brochure. These waivers are typically offered in many annuities at no additional cost, providing policyholders with crucial financial flexibility in the event of a serious medical condition or the need for long-term care. The lack of these common features in the Sentinel Life Personal Choice Plus+ Fixed Indexed Annuity is disappointing, especially considering that other annuity products include them as standard benefits without requiring additional fees.
Surrender/Early Withdrawal Charge
Should your needs change unexpectedly, and you need to take an excess withdrawal (a withdrawal that is above the free withdrawal amount available in a given contract year), you may be entitled to access additional monies, although certain charges and penalties may apply. Any amount withdrawn in excess of the remaining free withdrawal amount is subject to a Surrender Charge. Below is the Surrender Charge schedule for the Sentinel Life Personal Choice Plus+ Fixed Indexed Annuity.
Market Value Adjustments - In case you need to surrender your policy, a Market Value Adjustment (MVA) will be applied to the portion of the withdrawal or surrender that exceeds the free withdrawal amount during the withdrawal charge period. The surrender charge schedule is different for the different tenures of annuities and also changes for some states.
The surrender charge of Sentinel Life Personal Choice Plus+ Fixed Indexed Annuity is in line with all the other annuity issuers.
Contract/Administrative Charge
The Sentinel Life Personal Choice Plus+ Fixed Indexed Annuity levies no annual contract or administrative fees. However, it comes with four optional paid riders, each designed to enhance specific aspects of the contract. While these riders offer some additional benefits, it's important to consider that each comes with its own cost, ranging from 0.08% to 0.35% of the contract value annually.
Carrier
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:
- Personal Choice Annuity
- Retirement Plus Multiplier Annuity, which I have reviewed thoroughly.
- Guaranteed Income Annuity
- Summit Bonus Index
- New Vantage Life Insurance
- Personal Choice+ Annuity
- The Accumulation Protector Plus Annuity
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 $1.64 billion in annuity contracts, has a total adjusted capital in excess of $177.44 million, and is rated B++ by AM Best.
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The additional fees associated with these riders, ranging from 0.08% to 0.35%, seem excessive, given that similar features are included without cost in competing products.
No Nursing Home or Terminal Illness Waivers
A major drawback is the absence of Nursing Home and Terminal Illness Waivers. These waivers, which provide financial flexibility in case of severe medical conditions, are standard features in many annuity products. Their omission here reduces the appeal of this annuity, especially for policyholders concerned about long-term care needs or critical illness.
Low Cap Rates
Another concern is the relatively low cap rates on indexed strategies, which can significantly limit the potential for growth. In a competitive market where other annuities offer higher caps and better growth opportunities, the low cap rates of this product can restrict returns, making it less attractive for those looking to maximize gains over the long term.
Conclusion
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.