Deferred Annuity Security Value Guarantee System
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Solution Overview
Problem
Investors face challenges in protecting the value of securities and portfolios due to the complexity, high costs, and limited availability of option contracts, as well as the unattractive nature of government-backed bonds, which do not effectively hedge individual investors' risks. Additionally, existing annuity products are difficult to understand, expensive, and lack adequate protection against security value declines.
Innovation Solution
A system and method for providing a deferred annuity with a guarantee that insures against changes in the value of securities or portfolios, allowing investors to purchase a guarantee separate from the annuity, with a virtual account value that mimics the actual investment, providing protection without requiring the security to be held within the annuity and offering flexible parameters for coverage.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If option contracts are used to protect against security value decline, then protection against loss is provided, but complexity and cost increase significantly
Solution Approach 1:
The patent extracts the protection function from complex option contracts and transfers it to a simpler deferred annuity product. The annuity contract separately provides security value protection through its guaranteed minimum withdrawal benefit structure, removing the need for investors to navigate complex option contract mechanics while maintaining the protective function.
Solution Approach 2:
The deferred annuity acts as an intermediary product that bridges the gap between direct security ownership and complex option contracts. It provides the protection function of options through its guarantee structure while maintaining the simplicity and accessibility of an insurance product, eliminating the need for investors to directly engage with complex derivative instruments.
2Reliability
If option contracts are used to protect against security value decline, then protection against loss is provided, but cost increases significantly
Solution Approach 1:
The patent extracts the protection function from expensive option contracts and embeds it within the deferred annuity product structure. By using the annuity's inherent guarantee mechanisms rather than purchasing separate option contracts, investors obtain protection at a lower overall cost since the protection is integrated into the product's core structure rather than being an add-on expense.
3Reliability
If government-backed bonds are used to protect against security value decline, then protection is provided, but accessibility is limited to large institutions
Solution Approach 1:
The patent segments the protection function from the bond structure and reintegrates it into the deferred annuity product. This allows individual investors to access protection mechanisms that were previously only available through large-scale government bonds, by embedding the same protective logic into a retail-friendly insurance product with lower minimum investment requirements.
4Productivity
If existing annuity products are used, then income stream is provided, but protection against security value decline is inadequate
Solution Approach 1:
The patent merges the income stream function with enhanced security protection in a single deferred annuity structure. The product combines the guaranteed income features of traditional annuities with protection against security value decline through its guarantee structure, allowing investors to achieve both objectives simultaneously rather than requiring separate products.
Data Source
AI summary
A system for providing a guarantee within a deferred annuity for insuring a security against a change in value of the security is disclosed which comprises a computer system configured to have entered information related to a security to be insured by the guarantee within the deferred annuity, the computer system configured to prepare the guarantee within the deferred annuity based upon the entered information related to the security to be insured, the deferred annuity having an account value, and the security to be insured being held in an account separate from the account value of the deferred annuity.