Advanced Underwriting Consultants

Question of the Day – October 12

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: What are the differences between an owner-driven non-qualified deferred annuity (NQDA) and an annuitant-driven NQDA?

Answer: “Annuitant-driven” and “owner-driven” are not tax terms, nor even terms that are fully-defined or agreed-upon within the life insurance community.  The names create two very loose categories of contracts which may give a vague suggestion of how and when death benefits will be paid out with regard to that category of contract.

Older NQDAs are typically annuitant-driven.  In an annuitant-driven contract, the owner may be changed, but the annuitant may not.  On the death of the annuitant, the contract matures and a death benefit is payable to the beneficiary in whatever manner the contract specifies.

During the life of the annuitant, the owner typically retains the contractual right to change the beneficiary, make partial surrenders, or totally surrender the contract and receive the surrender proceeds.  In these regards, annuitant-driven NQDA contract provisions are similar to life insurance policies.

Newer contracts tend to be owner-driven.  In an owner-driven NQDA, the owner has the ability to change the annuitant under circumstances specified in the contract.  The death of the annuitant does not necessarily cause the maturity of the contract—although it depends on the words in the contract.   If the annuitant dies, and if the contract doesn’t automatically mature, all that happens is the owner names a new annuitant.  However, if the owner dies, the contract is payable to the beneficiary in the manner the contract specifies.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.