Annuitization with Overflow

OIPA supports the annuitization of a Variable Annuity policy, where the investments are converted into guaranteed periodic payments. These are guaranteed in that it is possible for the sum of all payments over the policy life-cycle to exceed the value of the deposits if the annuitant outlives the original projections and the policy runs out of funds (Overflow). The underlying allocation of these payments is made from sub accounts (funds) linked to the policy’s current investments. If a fund overflow has occurred then an offsetting deposit, identified with a special money type, equal to the shortfall will be made into the applicable fund(s).

When configuration is present to support this process, a segment (typically a Benefit Split) will be available to add to the policy. There will also be several activities that drive the annuitization process. Usually a payout activity will first need to be processed, which spawns a disbursement activity. Other activities may be present that support business processes.

How the Process Works

Certain events are expected when starting a Payout Annuity/Annuitization. Best Practices recommend that the following occur. The final calculation of the benefit split records is triggered by an activity so that Price Correction logic can initiate an activity that will cause the calculated benefit to be recalculated using the corrected price. Calculate General will not be used after the final benefit split is calculated so activities using other attached rules will be used to adjust the benefit split records. Fixed funds during the deferral period (may) accumulate interest but once annuitized, interest ceases to accrue. Upon annuitization, all assets in the deferred fixed funds are transferred to the fixed benefit fund. The Annuity Payment activity calculates the amount of the active current benefit split record on the segment. The activity then splits that benefit amount and passes those into a number of disbursement activities depending on the number of benefit recipients.

Fund Movement During Annuitization