Securian Financial Service, Inc. (Securian) offers variable annuities and variable life insurance policies (variable products). Life insurance and annuity products are not sold through CRI Securities, LLC. These variable products are issued by different insurance companies and will be in the form of a contract or policy between you and the insurance company. There are differences from one variable product to the next in the features, benefits, fees and costs of the product and in minimum and maximum premium amounts. Below is general information about most variable products. Information about the particular features, benefits, fees and costs for a specific variable product can be found in the prospectus for that product. You will receive a copy of the prospectus for the variable product that your financial professional recommends to you.
Variable annuities can help with saving for retirement. Funds invested in these annuities can grow tax-deferred. This means you will pay no federal taxes on the income and investment gains on the funds you invest in your annuity until you make a withdrawal, receive income payments, or a death benefit is paid. When you withdraw your funds, however, you will pay tax on the gains at ordinary federal income tax rates rather than lower capital gains rates. When you start taking income payments, you can select payment options that will guarantee you payments for so long as you live. Some annuities offer additional features and guarantees, available as options or riders.
Variable life insurance provides life insurance protection (i.e. a death benefit) and also allows you to build up a cash value that can grow tax-deferred. Most variable life insurance policies allow you to take out loans against your cash value and to make withdrawals (so long as the remaining cash value is sufficient to keep the policy in force). You can also terminate your policy by surrendering it and receiving the remaining cash value. Terminating your policy will terminate your death benefit protection. Most insurance companies offer riders and other options with their variable life insurance policies, such as disability insurance, income benefits or accelerated death benefits.
When you purchase a variable annuity or variable life insurance product, your insurance premium contributions (net of any fees and charges deducted from premiums) are invested in the investment options — typically underlying mutual funds — that you select. The value of your investment — usually referred to as your cash value — will fluctuate as the values of the underlying mutual funds increase or decrease.
Most insurance companies impose a minimum requirement on the initial premium. In the case of variable life insurance, you will likely be required to make premium payments periodically to keep the policy in force. While you may have some flexibility in the amount or timing of these periodic premium payments, you should consider whether you can afford to continue making premium payments when deciding to purchase a variable life insurance policy. If you fail to make sufficient payments to keep the policy in force, the policy will lapse (that is, terminate without value) and you will no longer have any death benefit protection.
Variable products are not short-term savings vehicles. Withdrawing funds or surrendering a variable product in the short-term after purchase will likely trigger surrender fees and charges, and may also trigger tax penalties. You can lose the money you invest in variable products, including potential loss of your initial investment, due to poor performance of the investment options you select and/or the cumulative impact of fees and charges on your cash value.
Fees and Costs — Premium Payment Deductions
In the case of some variable products, the insurance company deducts a fee from your premium payment, with the effect that only the net premium amount is invested or allocated. In the case of variable annuities, the fee deduction is usually to cover a state insurance premium tax. In the case of variable life insurance products, the fee deduction can also cover the insurer’s sales expenses.
Fees and Costs — Surrender and Withdrawal Charges
Most variable products impose a surrender charge if you surrender your variable product or make a withdrawal of your cash value during the surrender charge period. This surrender charge and the surrender period are described in the product prospectus. Surrender charge periods vary by variable product, but are generally around 6 to 8 years for variable annuities, even though they sometimes may range up to 15 years on some variable life insurance policies.
The surrender charges also vary by variable product, and generally begin around 7 to 8% of the purchase payment in year one and end around 2 to 3% of the cash value in the final year of the surrender charge period. Typically, the surrender charges decrease over the duration of the surrender charge period, with the higher surrender charges applying to surrenders and withdrawals made at the beginning of the surrender charge period, and the lower surrender charges applying to surrenders and withdrawals made towards the end of the surrender charge period. Tax penalties can also apply to surrenders or withdrawals under annuities made before age 59-1/2.
Fees and Costs — Ongoing Fees and Expenses
Insurance companies deduct fees and expenses from your cash value to cover fees and expenses. These ongoing fees and expenses commonly include mortality and expense (M&E) risk fees, cost of insurance fees (assessed under variable life insurance policies), administration fees, transaction fees, and fees associated with certain optional riders. The M&E risk fees are calculated as a percentage of your insurance coverage or account value and is described as an annualized rate charged against assets. However, some fees, such as administration or transaction fees, are fixed amount fees charged annually or when specific transactions occur and are deducted from your cash value. The cost of insurance fees charged on variable life insurance are typically calculated by applying a rate based on your underwriting classification to the “net amount at risk” (the difference between your product’s death benefit and cash value). These fees typically are deducted from your cash value on an ongoing basis. If you add riders to your variable annuity or variable life insurance policy, the fees for those riders will be deducted from your cash value.
In addition, you will indirectly pay the ongoing fees and expenses for the mutual funds that are the underlying investment options for your variable product in which you invest. These fees and expenses are separate from the fees charged by the insurance company and will be reflected in the performance of the underlying investment options. These ongoing fees and expenses include the mutual fund’s management fees, servicing fees, and 12b-1 fees, and are typically as an annualized rate charged against fund assets.
The commissions, surrender charges, and ongoing fees and expenses associated with variable products vary by insurance company and the type of variable product. More information regarding the commissions, surrender charges, and ongoing fees and expenses for variable products is available in the variable product’s prospectus.
Fees and Costs — Our Commissions
When you purchase a variable product, the issuing insurance company will pay a commission to us. While you do not pay this commission directly, the insurer factors this commission into the product’s fees and costs in the case of variable products. In this way, you indirectly pay the commission. We receive this commission for our sales efforts and for assisting you with the insurance application, and the underwriting and delivery processes related to the purchase of a variable product. We share a portion of this commission with your financial professional.
Insurance commissions we receive vary based on the variable product and insurance company, and we receive higher commissions for some types of variable products than for others, which creates a conflict of interest for us. In addition, in the case of life insurance, the commissions may vary between initial premium payments and subsequent premium payments. Although insurance commissions vary, we typically receive between 1 and 7% commission for a variable annuity sale based on the amount of the deposit. Typically, with variable annuity commission arrangements that provide a higher percentage payout, compensation is received upfront, without any trailing compensation. With lower up-front commission percentages, trailing commissions are often also applicable, such as a 1% commission up front based on deposit value, and a 1% annual trailing commission based on contract value. Variable life insurance sales typically result in a commission between 50 and 115% based on first year premium payments. These examples are provided for illustrative purposes only, as commission arrangements will vary by insurance company, product and state of sale.