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A two-tier annuity is an annuity that has three different values. These annuity values ​​are the tier one value, the tier two value, and the surrender value of the annuity. Although these values ​​may sound confusing, it is important to understand how these values ​​work and the effect they can have on an annuity contract.

The value of the first level

The level one value is the value of the annuity that earns interest. Earnings are growing tax-deferred and work like a fixed annuity. The client will receive the total accumulated value of the annuity contract after the redemption term of the contract has been completed.

level two value

The value of surrender

Surrender value only comes into play if the customer decides to redeem the policy before the anticipated time period. The surrender value is the value of the contract minus the surrender charge and/or the market value adjustment that will give the net surrender value. If you’re thinking of replacing your current annuity, it’s a good idea to ask your current company what the net surrender value is before you surrender the annuity.

Two Tier Advantages

  • High income for life
  • Interest rates could be higher
  • Better participation rates and caps

Two Tier Disadvantages

  • Not suitable for short-term liquidity
  • You will not be able to transfer a lump sum to heirs
  • Client may have to wait a long time to access level two value
  • Annualization required

Clients should make sure that these types of annuities are right for their situation. These annuities are not right for everyone, and agents should make sure their clients understand the different contract values ​​before purchasing a two-tier annuity.

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