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Principal Guaranteed Fixed Annuity (Guaranteed Annuity) Product Details

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Product Description

Principal Guaranteed Fixed Annuity (Guaranteed Annuity) is an integral part of a personal savings plan. Whether for retirement accumulation or college funding, the Guaranteed Annuity is a fixed investment, offering tax-deferred growth and flexible contributions. Your clients can also choose from three different interest rate periods - one year, three years or five years.

In addition to funding IRAs or Rollover IRAs, the Guaranteed Annuity can be used for nonqualified savings. It offers flexibility, convenience, and competitive, market-sensitive interest rates. Additional contributions can be made during the first contract year only with the three and five year guaranteed periods.  Additional contributions are not allowed with the one-year guaranteed period.

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Types of Funds

The Guaranteed Annuity accepts both qualified and nonqualified funds.

Nonqualified Guaranteed Annuity

The Nonqualified Guaranteed Annuity is designed to accept any type of nonqualified funds, which include the following: Maturing CDs, proceeds from a life insurance death benefit, funds in checking or savings accounts, and 1035 exchanges of other nonqualified annuities.

Qualified Guaranteed Annuity

Guaranteed Annuity can be used to fund the following:

IRA An IRA is a personal retirement plan which allows eligible individuals to make both deductible and non-deductible payments with the benefit of tax-deferred growth.
Rollover IRA A rollover IRA receives funds from a previous rollover IRA, tax-deferred annuity (tdA), or a qualified employer pension plan. A triggering event is required for pension plan or tax-deferred annuity funds to be eligible for a rollover IRA.

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Characteristics of the Guaranteed Annuity Buyer

Age and Risk Tolerance

The Guaranteed Annuity buyer may vary depending on age, risk tolerance, or the type of plan the Guaranteed Annuity funds. Asset allocation between fixed and variable investments varies according to the client's age. In general, the older the client, the higher the percentage of assets typically allocated to fixed investments.

Risk tolerance can also influence the Guaranteed Annuity buyer. For example, conservative investors may tend to have a higher percentage of their assets in fixed investments such as the Guaranteed Annuity.

Type of plan

Financial professionals often recommend having at least some portion of assets in fixed investments, regardless of age or risk tolerance. Since the Guaranteed Annuity often serves as a funding vehicle for qualified and nonqualified plans, the Guaranteed Annuity buyer is likely to reflect the characteristics outlined in the following chart:

Plan Primary Market
IRA Individuals not currently covered by a qualified retirement plan who can make deductible IRA contributions; individuals maximizing employee contribution limits to an employer-sponsored retirement plan (who want additional tax deferral) and meeting certain guidelines; individuals whose employer-sponsored retirement plans do not allow employee contributions.
Rollover IRA Individuals with retirement plan distributions; individuals who want to consolidate existing rollover IRAs.
Nonqualified Annuity Individuals maximizing their qualified plan contributions who want additional tax deferral; individuals with maturing certificates of deposit, inheritances, and other lump sums who want tax-deferred growth; individuals who are uninsurable for life insurance under executive bonus plans.

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Types of Needs the Guaranteed Annuity Addresses

Need Solution
Accumulate Retirement or Long-Term Savings Annuities offer tax deferral, which is ideal for retirement or long-term savings goals. IRS penalty taxes on many distributions before age 59 1/2 help ensure the money is used for these purposes.
Consolidate Retirement Savings Since many financial products charge an annual fee, consolidating existing IRA or rollover IRA accounts can reduce the total fees charged. Combining accounts through a Guaranteed Annuity simplifies record keeping. Additional premium contributions made during the first contract year do not begin a new surrender charge period.
Make Choices Regarding pension Distributions Whether individuals change jobs or retire, they must decide how to handle distributions from an employer retirement plan. placing the distribution in a rollover IRA funded with a Guaranteed Annuity can preserve the tax deferral, offer many options, and provide time to make informed choices.
Maximize Tax Advantages With the exception of investments funding qualified pension plans, few investments offer tax deferral. Many stocks, mutual funds, money market accounts, and certificates of deposit lack the tax advantages that the Guaranteed Annuity provides. As tax rates increase, the benefits of tax deferral are even more evident.

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Issue Ages

The maximum issue age is 90 and applies to both owners and annuitants. Contract matures at the later of age 95 or 10 years after the contract is issued. (Maximum issue is 85 in Oklahoma.)

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Minimum/Maximum Premium

The minimum initial premium is $5,000 for qualified and nonqualified contracts. Additional premiums of a minimum of $2,000 may be made during the first contract year only for both qualified and nonqualified contracts.

The maximum initial premium is $1 million. (Higher amounts may be allowed with prior home office approval.)

One-year guaranteed period – Accepts single premium payments only.

Three- or five-year guaranteed period – Accepts additional premium payments in the first contract year only($2,000 minimum).

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Premium limitation

Principal Life Insurance Company reserves the right to limit or prohibit the acceptance of any premiums if the interest rate in effect on the date we receive any premium is equal to the Guaranteed Minimum Interest Rate.

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Premium Credit

At the time each premium payment is made during the first contract year, a lump sum premium Credit of each premium may be credited to the accumulated value. Your premium Credit is set at issue by Principal Life Insurance Company and is determined by the amount of the premium payment applied on the issue date. The premium Credit is only applicable in the first contract year. In subsequent years, the interest rate will be determined annually and will not include an additional premium Credit amount. You may be eligible for a higher premium Credit percentage if your initial premium payment is $100,000 or higher.

If clients elect a benefit option in the first three contract years, any premium credits previously applied through that date will be subtracted from the amount applied to the benefit option.

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Guaranteed Interest Rate

The initial premium earns an initial base interest rate that is guaranteed for one, three or five years.

One-Year Guaranteed period

  • Your initial premium earns an interest rate that is guaranteed for one year. The renewal rate for the second contract year is guaranteed to be no less than the initial base rate.
  • Then on each following anniversary, you receive a renewal interest rate until the next anniversary. Interest rates credited will change over time but are guaranteed not to be less than the guaranteed minimum interest rate stated in your contract.

Three or Five-Year Guaranteed period

  • If you make one premium payment only, this premium will earn the initial interest rate, guaranteed for three or five years. On each contract anniversary after the initial guaranteed period, we will set a renewal interest rate which is guaranteed until the next contract anniversary.
  • If you make additional premium payments during the first contract year, each premium will earn interest at the rate in effect on the date the premium is received by Principal Life. On the first contract anniversary, the interest rate will be the dollar-weighted average of the first year base interest rates. This interest rate will then be guaranteed until the end of the initial guaranteed period (three or five years).  At the end of the initial guaranteed period and each contract anniversary after, we will set a renewal interest rate which is guaranteed until the next contract anniversary.  Interest rates credited will change over time but are guaranteed not to be less than the guaranteed minimum interest rate stated in the contract.

At the end of the initial guaranteed period and each contract anniversary after, we will set a renewal interest rate which is guaranteed until the next contract anniversary.

For example, assume:

  • A single premium interest payment, with a one-year guaranteed period.

  • Initial base interest rate is 3.25%.

  • The contract year two renewal rate is guaranteed to be no less than 3.25%

  • Beginning in contract year three, and each year thereafter, the accumulated value is guaranteed to grow at a renewal rate no less than the guaranteed minimum interest rate stated in the contract.

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Free Surrender privilege

Each contract year, the Guaranteed Annuity allows an unscheduled withdrawal (partial surrender) of the greater of 10% of the contract year's beginning account balance, plus 10% of premiums made during the first contract year (less partial withdrawals made since last contract anniversary), or minimum distribution, without a surrender charge. Each withdrawal must be at least $500, and the minimum account balance after the withdrawal must be $5,000.

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Flexible Withdrawal Option (FWO)

FWO is a unique feature of the Guaranteed Annuity that allows clients to make scheduled automatic withdrawals. FWO allows for withdrawals up to the greater of 10% of each year's beginning account balance, plus 10% of premiums made during the first contract year (less partial withdrawals made since last contract anniversary), or minimum distribution, without a surrender charge. These amounts may be withdrawn on an annual, semiannual, quarterly or monthly basis.

Clients can choose to receive FWO payments based on interest only, a specified percentage, a specified dollar amount, the maximum available without a surrender charge, or the minimum distribution based on life expectancy. A minimum account balance of $5,000 is necessary to initiate FWO and monthly payments must be equal to or greater than $20. there is no additional charge to elect FWO. This privilege can be elected at any time before a benefit option is chosen.

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FWO vs. Annuitization

FWO is only available prior to annuitizing the contract. If the client chooses FWO he/she can stop and start FWO, and elect a benefit option for a future date. FWO terminates when the benefit option is chosen. If the client chooses annuitization (elects a benefit option), he/she can no longer elect the FWO.

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Early Withdrawal Charges

No matter when contributions are made, surrender charges decline based on the contract issue date. The annuity has a graded five-year charge on early withdrawals:

Contract Year 1 2 3 4 5 6+
Surrender Charge % 7 7 7 6 5 0

New premium contributions do not trigger a new surrender charge period.

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Waiver of Surrender Charge Rider

Clients may receive all or a part of their accumulated value without a surrender charge if they develop a terminal illness with a life expectancy of less than 12 months, become totally and permanently disabled and are eligible to receive Social Security disability benefits, or enter a health care facility and are confined for 60 days or more.

The rider has a one-year waiting period before it is effective. For the rider to be valid, the client may not have any of the above-stated critical needs at the time of issue. This rider is not available in Massachusetts and state variations may apply.

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Guaranteed Return of Principal

Clients are assured a return of premiums paid at full surrender (less previous withdrawals).

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Guaranteed Minimum Interest Rate (NAIC Model Index Method)

For the Principal Guaranteed Fixed Annuity, Principal Life sets the guaranteed minimum interest rate determined by a formula, with general parameters established by state law. It will never be less than 1.00% and no greater than 3.00%.

The guaranteed minimum interest rate is set at contract issue and will not change for the life of the contract. In other words, once a contract is issued, the guaranteed minimum interest rate for that contract will never change.

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Interest Rate Bail-Out Rider[1]

Subject to availability at issue - available with the one-year guaranteed period only.  The surrender charges are waived if at time of full surrender the current contract year’s renewal interest rate is less than the Bail-Out Rate stated in your contract.  The Bail-Out Rate is set when the contract is issued and does not change for the life of the contract.  The benefit of this rider will only apply if the entire accumulated value of the account is surrendered.

[1]
Not available in NY. Not available in WA effective 05/15/2010.

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Benefit Options

The annuity offers a full range of fixed-period, guaranteed-life, and joint-life options. A benefit option must be elected on or before the maturity date.

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Ownership

Category Description
Nonqualified The owner can be any person who is not over age 95 (state variations may apply), or any entity that has a separate taxpayer ID number. Because of tax law considerations, joint ownership with right of survivorship is available only between spouses. An owner is a person who has undivided interest with the right of survivorship with another owner. The joint owner must be named as the annuitant and joint owner.
Qualified The owner can be any person who is not over age 95 (state variations may apply). The annuitant must be the owner of the contract under qualified plans or IRAs.

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Death Benefit

Category Description
Nonqualified The nonqualified death benefit is the accumulated value on the date of the owner's death if death occurs before annuitization. If death occurs after annuitization, benefits are distributed according to the benefit option selected.

Spouse Beneficiary

The contract is continued with the surviving spouse as the new owner, or the spouse may elect to apply the death benefit under a benefit option, or receive the death benefit as a single payment.
Qualified - Before Distributions Begin

No Beneficiary

The entire account must be distributed by the end of the calendar year in which the fifth anniversary of the death occurs.

Beneficiary is Not the Spouse

The entire interest must be distributed over the life or life expectancy of the designated beneficiary. Distributions must begin within one year of the end of the calendar year in which the owner died.

Spouse Beneficiary

Distributions need not begin until the later of the end of the calendar year after the year of the owner's death or the end of the calendar year in which the owner would have attained age 70½. the surviving spouse may elect to treat an IRA or Rollover IRA as his/her own. Distributions are based on the surviving spouse's life expectancy. the surviving spouse may elect to place distributions from Tax Deferred Annuities (tdA) and HR10 plans into a Rollover IRA.

Qualified - After Distributions Begin Distributions begin on the required beginning date. If the owner dies after distributions have begun, but before the entire interest has been distributed, the remaining account must be distributed at least as rapidly as before the owner's date of death.

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