Don’t know what a contingent annuity is? Don’t fret: You are not alone. Many states aren’t sure what the product is and, therefore, haven’t a clue how to classify and regulate it. The NAIC has stepped in the fray and formed a task force to study and prepare a report on the matter.

So what are contingent annuities? Often portrayed as “group annuities,” they are standalone guaranteed lifetime withdrawal benefit (GLWB) contracts offered to mutual fund investors. The investor pays a fee equal to the percentage of the account value. However, the contract covers only investments that meet the insurer’s criteria. At a set age, the investor may begin making “systematic withdrawals” equal to a particular percentage of the account value.

That may sound straightforward, but some states might have approved contingent annuities without a full investigation because filings contained abnormalities. Other states have determined the product was not an insurance or annuity product, thereby putting the question of whether insurance companies could sell contingent annuities in doubt. Other states have forbidden insurance carriers from selling the product altogether.

One thing is certain, the NAIC will provide more guidance in the future and is urging state insurance regulators to thoroughly review whether they have received contingent annuity filings and if so, if those filings were properly classified and meet all requirements under state law.

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