Annuity Having Interest Rate Coupled to a Referenced Interest Rate

Abstract

An annuity provides a guaranteed rate of return for a guarantee period while at the same time providing upward adjustments to the interest rate if there is a corresponding increase in a specified referenced rate, which may be a United States Treasury rate or an interest rate that is used to settle a contract that is traded on a financial futures exchange. The guaranteed base interest rate is set at the beginning of the guarantee period, and the annuity account is credited with the base interest rate for an initial pre-defined period, which is some portion of the guarantee period. Periodically, as defined by the pre-defined period, the then-current referenced rate is compared to a base referenced rate that was defined at the establishment of the guarantee period. If the referenced rate has increased, the interest rate that will be credited to the annuity account value will increase by an amount that is based on the amount of increase in the referenced rate. If the referenced rate has not changed or has decreased, the interest rate that will be credited to the annuity account value will be the guaranteed base interest rate that was set at the beginning of the guarantee period.

Description

CROSS-REFERENCE TO RELATED APPLICATION [0001] This application is a continuation of and claims the benefit of U.S. application Ser. No. 10 / 108,262, filed Mar. 28, 2002, the entirety of which is incorporated herein.FIELD OF THE INVENTION [0002] The present invention relates to an annuity and a method for managing an annuity that provides a guaranteed interest rate. More specifically, the invention relates to a method in which the guaranteed rate of interest paid on the principal of an annuity may increase in conjunction with increases in a referenced interest rate. BACKGROUND [0003] An annuity is a well-known financial vehicle used to pay a person a certain sum of money in a series of distributions made at regular intervals, such as monthly or annually, based on a given amount of principal consisting of an initial contribution of assets and any subsequent contributions and the appreciation (or depreciation) of the contributions. Annuities are characterized by an accumulation phase an...

AI Technical Summary

Problems solved by technology

Because the interest rate of a fixed annuity is locked in for the guarantee period, contract holders feel disadvantaged if prevailing interest rates available in other investment products increase during the guarantee period while the fixed annuity is locked in at a lower rate.

For this reason, fixed annuities are not a desirable investment option for many consumers of investment products; the consumers fear being locked into an interest rate that may, during the guarantee period, be lower than prevailing interest rates available in other investment products.

Variable annuities obviate this problem because the variable annuity is not locked into a guaranteed interest rate.

On the other hand, such investments involve more risk and volatility than guaranteed fixed annuities, and, in addition to reaping the benefits of upturns, the contract holder must suffer through downturns in the markets underlying the variable account as well.

Accordingly, variable annuities may not be desirable for some investors, especially investors operating under relatively short investment time horizons.

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