This review is going to be a little different from other reviews because this annuity is a little different from other annuities. After thinking and pondering about how to write about the Aviva BalancedAllocation Annuity I decided to concentrate just on the Aviva BalancedAllocation Annuity 12 because it is the most popular. The Aviva BalancedAllocation Annuity exists in two forms the Aviva BalancedAllocation Annuity 12 and the Aviva BalancedAllocation Annuity 8. They are basically the same product with just subtle differences in maximum issue age, bonus amounts and surrender terms, but keep in mind when I refer to the Aviva BalancedAllocation Annuity in this review I am exclusively referring to the Aviva BalancedAllocation Annuity 12.
To start out what makes this annuity a little different than other annuities is that this annuity was designed and created by a marketing company and then they had to find an insurance company to underwrite the product and that is where Aviva comes in. Another interesting component of the Aviva BalancedAllocation Annuity is that although it is similar to other fixed index annuities in that your principle amount is shielded from market downturns, with the Aviva BalancedAllocation Annuity you have an unlimited upside.
You: How is that different?
Me: Well if you have read any other reviews here (of course maybe you haven’t) well then you know that typically with fixed index annuities they limit how much of the market upside you can get.
You: How so?
Me: Well first off let’s talk about what I mean by “market upside” and “market downside”. In a fixed index annuity your money is never really in the market. Your money actually is just sitting in an account at the insurance company and what happens is that the growth of your money is tied to an index. An index of course is just a measurement of the market. For example the most famous index is the S&P 500 Index and the index of choice for the Aviva BalancedAllocation Annuity.
Me: The SP500 just looks at the individual performance of the 500 biggest companies in the market and then adds together the results. If the performance results of all 500 companies added together is a positive number then the market is said to be up, if the result turn out to be a negative number than the market is said to be down.
Me: Say for example your have a $100,000 in a fixed index annuity account at an insurance company and the account is tied to the performance of the S&P 500 Index. Well the good news is that with all fixed index annuities including the Aviva BalancedAllocation Annuity your money will not suffer declines due to market downturns. So if the SP500 had an -15% annual decrease the first year you opened your account your $100,000 would not have a corresponding decline of $15,000.
Me: Now let’s say the following year the market had a huge upside of +20%. Well what you will typically find in other fixed index annuities is that you will not get all the upside of the market You avoid the downside (nice), but your upside is capped or limited. So in a typical fixed index annuity if the index has a huge +20% gain you might get 5% of it so now your money would grow to $105,000 not $120,000. Still pretty good though, right? Now let’s take a look at the Aviva BalancedAllocation Annuity.
Me: What makes the Aviva BalancedAllocation Annuity different is that they give you all the upside. They do not place limits or caps on the growth that is credit to your money.
You: I’m going to be rich!
Me: Not so fast. If it sounds to good to be true…………………..
Me: First Aviva does not credit your account annually. They actually do it every two years so in my little scenarios above you would end up with 5% growth (-15% end of year 1 and +20% end of year 2). This two year growth amount is however locked in, you won’t lose any of it to market decreases once it is locked in which happens every second anniversary.
You: Oh maybe I’m not going to be as rich as I thought.
Me: I would have to agree with you, but let’s keep going. As I said above Aviva does not put a cap or limit on the growth of your money, but what they do is put a limit on how much of your money can access the unlimited growth.
You: what did you just say?
Me: Let me explain. You put the $100,000 in the Aviva BalancedAllocation Annuity account and after 2 years we said that you had 5% growth. Well 5% of $100,000 is $5000 so you made 5 grand right? Wrong. Aviva does not give that 5% growth from market increases on all your money. They only credit the 5% growth that resulted from market increases to a portion of your money.
You: What portion of my money can have the unlimited growth tied to an index?
Me: Between 40% and 75% of your money depending on which crediting option you choose. So that means only $40,000 of your $100,000 would get the 5% second anniversary growth of the index, or up to a maximum of $75,000 of the $100,000 would get the 5% growth depending on which option you chose for crediting. Let’s take a step back and look at the math:
Minimum credited percentage amount for the two years is ($40,000 X 5%) = $2000
Maximum credited percentage amount for the two years is ($75,000 X 5%) = $3750.
Me: What a surprise that your commissioned sales agent didn’t explain this way. I wonder why?
Me: But it gets worse because if you want the unlimited growth amount option on 75% of your money there is a yearly fee of 2.95%. The minimum 40% growth amount option does not have a yearly fee.
You: What about the other part of my money that is not part of of the index crediting amount? Do I earn anything on that?
Me: Good question. Yes fortunately you will earn a fixed rate of interest on that portion of your money that is not part of the index crediting. The amount of fixed interest you will earn can vary but will never be less than 1%.
You: Anything else I should know?
Me: Glad you asked.
Me: The Aviva BalancedAllocation Annuity 12 offers numerous different riders.
You: What’s a rider?
Me: A rider is just another name for contract addendum’s in insurance products. Riders can add important benefits and features to annuity contracts, like buying an extended warranty when you purchase a car or a new power drill. Sometimes adding the rider makes sense and sometimes it doesn’t (I recently purchased a pre-owned car and bought an extended warranty, but when I got my new power drill at Home Depot they offered to sell me an extended warranty, but it just didn’t make sense to me since it was 20% of the cost of the drill. Insurance contract riders usually cost money, but you probably already guessed that.
You: Tell me more.
Me: The Aviva BalancedAllocation Annuity 12 offers an 8% premium bonus rider. This means that if you open the account with $100,000 Aviva will add $8000 to your account. This premium bonus is not free and is not available in all states so check with your agent or contact us to determine eligibility and cost.
Me: The Aviva BalancedAllocation Annuity 12 also has confinement and terminal illness waivers allowing for 100% free withdrawals due to confinement or terminal illness after the first contract year. This means that if you need to withdraw lump sums from your account for certain medical events after the first year than Aviva will not charge you for the withdrawals. Withdrawals before the first year and withdrawals after the first year that are in excess of certain limits are subject to withdrawal penalties. This means that it can cost you to access your money for lump sum withdrawals unless certain conditions are met. This is typical of fixed income annuities.
Me: The Aviva BalancedAllocation Annuity 12 has many other riders and it is just too numerous to cover all of them. If you have additional specific questions I would urge you to contact us.
A unique and interesting twist on the fixed index annuity, in fact so unique some of the contract terms are actually patented. Overall I would estimate this to be a middle of the pack performer with many available riders that may or may not have benefit to you. My calculations would estimate annual returns of between 1.95% to 4.25%. Your results may very.
This is an independent product review, not a recommendation to buy or sell an annuity. This review is not endorsed by any insurance company and I do not receive any compensation for this review. This review is meant to be an independent analysis to provide the reader with information and concepts to help them make informed decisions. Before purchasing any investment product be sure to do your own due diligence and consult a properly licensed professional should you have specific questions as they relate to your individual circumstances. All names, marks, and materials used for this review are property of their respective owners.