Hartford VA Option 'Guarantees Principal With Upside Potential'

Furthermore, if the owner adds more money to the contract, these additions “automatically increase the benefit amount,” the company says.

As for the “upside potential” part of the contract, this is the same type of upside potential that all VAs offer–i.e., the chance for contract values to grow with the investment performance of the subaccounts. And, because the “step-up” feature mentioned above allows owners to increase the guaranteed “benefit amount” to the current contract value at the end of every fifth year, the owner can lock in the growth, Ferris says.

(Note: “An additional charge may be assessed for the step-up, equal the current rate for new contract,” the company says.)

“The owner can invest in any subaccount, and we do not require that the owner adopt any particular asset allocation model,” Ferris adds, explaining, “you could put all the money in a technology fund if you wanted, and still keep this feature in force. We dont believe it is the companys duty to determine suitability” on this.

Initially, Hartford is offering the Principal First option with any of its newly issued VAs. “By year-end, we plan to offer it to the lions share existing VA contracts, too,” Ferris says.

Those who buy a VA today but do not elect the feature can always add it later on, if still available, points out Ferris. “I dont know that it will be available” in the future, he adds, but “Im entirely confident that this (feature) is prudent for our organization to offer.” By comparison, he notes, features that Hartford offered in its VAs 10 years ago are still available today.

Who is the target market? People who have grown concerned about the volatility in the stock market and who do not want to lose any (more) money while invested, he says. The guarantee creates a way for them to take money out of their annuity, without annuitizing, and yet have the certainty that their principal amount is guaranteed, he says.

The company is positioning the option against several other conservative products: CDs and fixed annuities that lock up the money for five to 10 years at 2% to 4% interest; bonds and bond funds that offer safety but no tax deferral; and traditional systematic withdrawal plans in mutual funds and VAs.

Early sales suggest the feature is drawing attention. In the first month, the “utilization rates were very high,” Ferris says. There is no cut-off level on volume, so “well write as much of this as we can.”

To support the feature, Hartford has purchased reinsurance. “Its priced so that were confident that we can continue offering the feature,” he says.

Distribution is through banks, broker-dealers, regional brokerages, agents and planners.

In building the feature, Hartford developers applied the take-home test: Can you take this home to Mom and Dad? The conclusion, says Ferris, was “yes.” Why? “Because it guarantees the principal during systematic withdrawal, the client doesnt have to wait to use the feature, it offers upside potential, and you dont need to use any particular asset allocation model.”

This is a way to help people “set aside their fears of the stock market and make more rational decisions about their investments,” he concludes, predicting that people will be “more inclined” to invest in VA equity subaccounts because of the principal protection.

Reproduced from National Underwriter Life & Health/Financial Services Edition, November 18, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.