How it works
Sentinel Life Summit Bonus Fixed Indexed Annuity: product description and policy
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.
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.
For current rates, see Current Rates ↑.
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.
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 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.
Rates and costs
Rates, bonus, surrender charges, 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.
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:
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.
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.
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 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 and waivers
Riders and waivers
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 the 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 10% of the single premium payment and will be credited to both the Accumulation Account and the Income Account.
For current riders, see Current Riders ↑.
Rider Charge
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.
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
- 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.
Confirm before buying
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.
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.
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. 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.