CHAPTER 12.5. NONFORFEITURE PROVISIONS OF ANNUITY CONTRACTS
IC 27-1-12.5
Chapter 12.5. Nonforfeiture Provisions of Annuity Contracts
IC 27-1-12.5-1
"Annuity contract" defined
Sec. 1. The term "annuity contract" as used in this chapter means:
(1) any individual deferred annuity contract; and
(2) any group annuity contract delivered or issued in connectionwith a plan providing individual retirement accounts orindividual annuities under Section 408 of the Internal RevenueCode;
but does not refer to any other group annuity or to any reinsurance,premium deposit fund, variable annuity, investment annuity,immediate annuity, any deferred annuity contract after annuitypayments have commenced, or reversionary annuity, and any annuitycontract delivered outside this state through an agent or otherrepresentative of the company issuing the contract.
As added by Acts 1977, P.L.286, SEC.1. Amended by P.L.2-1987,SEC.36.
IC 27-1-12.5-2
Provisions of contract
Sec. 2. (a) No annuity contract shall be delivered or issued fordelivery in this state unless it contains in substance the followingprovisions, or corresponding provisions, which in the opinion of theinsurance commissioner are at least as favorable to the contractholder, upon cessation of payment of considerations under thecontract:
(1) Upon:
(A) cessation of payment of considerations under an annuitycontract; or
(B) the written request of the contract holder;
the company shall grant a paid-up annuity benefit on a planstipulated in the contract of such value as is specified insections 4, 5, 6, 7, and 9 of this chapter.
(2) If an annuity contract provides for a lump sum settlement atmaturity, or at any other time, that upon surrender of thecontract at or prior to the commencement of any annuitypayments, the company shall pay in lieu of any paid-up annuitybenefit a cash surrender benefit of such amount as is specifiedin sections 4, 5, 7, and 9 of this chapter. The company mayreserve the right to defer the payment of such cash surrenderbenefit for a period of not more than six (6) months afterdemand therefor with surrender of the contract but only after:
(A) submitting to the commissioner a written request thataddresses the:
(i) necessity of the deferral; and
(ii) equitability of the deferral for all the company'scontract holders; and
(B) receiving the commissioner's written approval to defer. (3) A statement of the mortality table, if any, and interest ratesused in calculating any minimum paid-up annuity, cashsurrender or death benefits that are guaranteed under thecontract, together with sufficient information to determine theamounts of such benefits.
(4) A statement that any paid-up annuity, cash surrender ordeath benefits that may be available under the annuity contractare not less than the minimum benefits required by any statuteof the state in which the contract is delivered and anexplanation of the manner in which such benefits are altered bythe existence of any additional amounts credited by thecompany to the contract, any indebtedness to the company onthe contract or any prior withdrawals from or partial surrendersof the contract.
(b) Notwithstanding the requirements of this chapter, any annuitycontract may provide that if no considerations have been receivedunder a contract for a period of two (2) full years and the portion ofthe paid-up annuity benefit at maturity on the plan stipulated in thecontract arising from considerations paid prior to such period wouldbe less than twenty dollars ($20.00) monthly, the company may at itsoption terminate such contract by payment in cash of the then presentvalue of such portion of the paid-up annuity benefit, calculated onthe basis of the mortality table, if any, and interest rate specified inthe contract for determining the paid-up annuity benefit, and by suchpayment shall be relieved of any further obligation under suchcontract.
As added by Acts 1977, P.L.286, SEC.1. Amended by P.L.59-2004,SEC.1.
IC 27-1-12.5-3
Minimum nonforfeiture amounts
Sec. 3. (a) The minimum values as specified in sections 4, 5, 6, 7,and 9 of this chapter of any paid-up annuity, cash surrender or deathbenefits available under an annuity contract shall be based uponminimum nonforfeiture amounts as defined in this section.
(b) With respect to any annuity contract, the minimumnonforfeiture amounts at any time at or prior to the commencementof any annuity payments shall be equal to an accumulation up to suchtime at an annual rate of interest determined under subsections (d)and (e) of the net considerations as set forth in subsection (c) paidprior to such time, decreased by the sum of the following:
(1) Any prior withdrawals from or partial surrenders of theannuity contract accumulated at an annual rate of interestdetermined under subsections (d) and (e).
(2) The amount of any indebtedness to the company on theannuity contract, including interest due and accrued.
(3) An annual contract charge of fifty dollars ($50),accumulated at the annual rate of interest determined undersubsections (d) and (e).
(c) The net considerations for a given contract year used to define
the minimum nonforfeiture amount shall be an amount equal toeighty-seven and one-half percent (87.5%) of the grossconsiderations credited to the annuity contract during that contractyear.
(d) Except as provided in subsection (e), the interest rate used indetermining minimum nonforfeiture amounts is an annual rate ofinterest determined under either of the following methods:
(1) The five-year constant maturity treasury rate, rounded to thenearest five-hundredths of one percent (0.05%), as reported bythe Federal Reserve as of a date specified in the annuitycontract. Reduce this amount by one hundred twenty-five (125)basis points.
(2) An average of the five-year constant maturity treasury rateas reported by the Federal Reserve, rounded to the nearestfive-hundredths of one percent (0.05%), over a specified periodas set forth in the annuity contract. Reduce this amount by onehundred twenty-five (125) basis points.
The date under subdivision (1) or the average period used undersubdivision (2) may not be longer than fifteen (15) months before theannuity contract issue date or the redetermination date as determinedunder subsection (f).
(e) If the rate of interest determined under subsection (d) is:
(1) less than one percent (1%), the interest rate used indetermining minimum nonforfeiture amounts is one percent(1%); or
(2) greater than three percent (3%), the interest rate used indetermining minimum nonforfeiture amounts is three percent(3%).
(f) The interest rate determined under subsections (d) and (e)applies for an initial period and may be redetermined for subsequentperiods. The redetermination date, basis, and period, if any, must bespecified in the annuity contract. The basis is:
(1) the date; or
(2) an average calculated over a specified period;
that produces the value of the five-year constant maturity treasuryrate reported by the Federal Reserve to be used at eachredetermination date.
(g) During the period or term that an annuity contract providessubstantive participation in an equity index benefit, the contract mayincrease the basis point reduction described in subsection (d) by notmore than an additional one hundred (100) basis points to reflect thevalue of the equity index benefit. The present value at the annuitycontract issue date, and at each redetermination date after the annuitycontract issue date, of the additional reduction may not exceed themarket value of the benefit. The commissioner may require ademonstration that the present value of the additional reduction doesnot exceed the market value of the benefit. If the demonstration is notacceptable to the commissioner, the commissioner may disallow orlimit the additional reduction.
(h) The commissioner may adopt rules under IC 4-22-2 to provide
for further adjustments to the calculation of minimum nonforfeitureamounts for:
(1) annuity contracts that provide participation in an equityindex benefit; and
(2) other annuity contracts for which the commissionerdetermines adjustments are justified.
As added by Acts 1977, P.L.286, SEC.1. Amended by P.L.130-2002,SEC.1; P.L.59-2004, SEC.2.
IC 27-1-12.5-4
Paid-up benefits
Sec. 4. Any paid-up annuity benefit available under any annuitycontract shall be such that its present value on the date annuitypayments are to commence is at least equal to the minimumnonforfeiture amount on that date. Such present value shall becomputed using the mortality table, if any, and the interest ratespecified in the contract for determining the minimum paid-upannuity benefits guaranteed in the contract.
As added by Acts 1977, P.L.286, SEC.1.
IC 27-1-12.5-5
Cash surrender benefits
Sec. 5. If an annuity contract provides cash surrender benefits, theamount of these benefits available prior to maturity shall not be lessthan the present value as of the date of surrender of that portion ofthe maturity value of the paid-up annuity benefit which would beprovided under the contract at maturity arising from considerationspaid prior to the time of cash surrender reduced by the amountappropriate to reflect any prior withdrawals from or partialsurrenders of the contract, such present value being calculated on thebasis of an interest rate not more than one percent (1%) higher thanthe interest rate specified in the contract for accumulating the netconsiderations to determine such maturity value, decreased by theamount of any indebtedness to the company on the contract,including interest due and accrued, and increased by any existingadditional amounts credited by the company to the contract. In noevent shall any cash surrender benefit be less than the minimumnonforfeiture amount at that time. The death benefit under such anannuity contract shall be at least equal to the cash surrender benefit.
As added by Acts 1977, P.L.286, SEC.1.
IC 27-1-12.5-6
Paid-up annuity benefit available as nonforfeiture option where nocash surrender benefits
Sec. 6. If an annuity contract does not provide cash surrenderbenefits, the present value of any paid-up annuity benefit availableas a nonforfeiture option at any time prior to maturity shall not beless than the present value of that portion of the maturity value of thepaid-up annuity benefit provided under the contract arising fromconsiderations paid prior to the time the contract is surrendered in
exchange for, or changed to, a deferred paid-up annuity, such presentvalue being calculated for the period prior to the maturity date on thebasis of the interest rate specified in the contract for accumulatingthe net considerations to determine such maturity value, andincreased by any existing additional amounts credited by thecompany to the contract. The present values for an annuity contract,not providing any death benefits prior to the commencement of anyannuity payments, shall be calculated on the basis of the interest rateand mortality table specified in the contract for determining thematurity value of the paid-up annuity benefit. However, in no eventshall the present value of a paid-up annuity benefit be less than theminimum nonforfeiture amount at that time.
As added by Acts 1977, P.L.286, SEC.1.
IC 27-1-12.5-7
Maturity date determination
Sec. 7. For the purpose of determining the benefits calculatedunder sections 5 and 6, in the case of an annuity contract underwhich an election may be made to have annuity payments commenceat optional maturity dates, the maturity date shall be deemed to be thelatest date for which election shall be permitted by the contract, butshall not be deemed to be later than the anniversary of the contractnext following the annuitant's seventieth birthday or the tenthanniversary of the contract, whichever is later.
As added by Acts 1977, P.L.286, SEC.1.
IC 27-1-12.5-8
Statement of benefits not provided
Sec. 8. Any annuity contract which does not provide cashsurrender benefits or does not provide death benefits at least equal tothe minimum nonforfeiture amount prior to the commencement ofany annuity payments shall include a statement in a prominent placein the contract that such benefits are not provided.
As added by Acts 1977, P.L.286, SEC.1.
IC 27-1-12.5-9
Allowance for lapse of time and payment of scheduledconsiderations
Sec. 9. Under any annuity contract with fixed scheduledconsiderations, any paid-up annuity, cash surrender or death benefitsavailable at any time, other than on the contract anniversary, shall becalculated with allowance for the lapse of time and the payment ofany scheduled considerations beyond the beginning of the contractyear in which cessation of payment of considerations under thecontract occurs.
As added by Acts 1977, P.L.286, SEC.1.
IC 27-1-12.5-10
Life insurance; additional benefits
Sec. 10. If any annuity contract provides, within the same contract
by rider or supplemental contract provision, both annuity benefitsand life insurance benefits that are in excess of the greater of cashsurrender benefits or a return of the gross considerations withinterest, the minimum nonforfeiture benefits shall be equal to thesum of the minimum nonforfeiture benefits for the annuity portionand the minimum nonforfeiture benefits, if any, for the life insuranceportion computed as if each portion were a separate contract.Notwithstanding the provisions of sections 4, 5, 6, 7, and 9,additional benefits payable (i) in the event of total and permanentdisability, (ii) as reversionary annuity or deferred reversionaryannuity benefits, or (iii) as other policy benefits additional to lifeinsurance, endowment and annuity benefits, and considerations forall such additional benefits, shall be disregarded in ascertaining theminimum nonforfeiture amounts, paid-up annuity, cash surrender anddeath benefits that may be required by this chapter. The inclusion ofsuch additional benefits shall not be required in any paid-up benefitsunless such additional benefits separately would require minimumnonforfeiture amounts, paid-up annuity, cash surrender and deathbenefits.
As added by Acts 1977, P.L.286, SEC.1.
IC 27-1-12.5-11
Rules
Sec. 11. The commissioner may adopt rules under IC 4-22-2 toimplement this chapter.
As added by P.L.59-2004, SEC.3.