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An insurance company that sells variable annuities must provide a contract overview, called an annuity prospectus, to all potential customers. It helps customers understand the details, costs and available benefits of a variable annuity contract. The purpose of an annuity prospectus is to help consumers make an informed decision regarding the purchase of a variable annuity. Fixed annuities prospectuses are less common, and detailed information is usually provided to consumers in other formats.
A variable annuity prospectus usually includes any optional riders that can be purchased with the contract, information about fees and other expenses charged to the contract holder, investment options, and financial highlights. Financial highlights usually include the total funds allocated to each investment option and their past performance. Instructions for withdrawing and moving funds between investment options are generally included in the prospectus too.
The different investment options in a variable annuity contract are called sub-accounts. These sub-accounts are similar to mutual funds and returns are tied to the stock market. The annuity prospectus includes detailed information about all the sub-accounts available with a particular annuity. This information includes the investment objective, the fund manager, investing style, and stocks held in each sub-account. A low-risk, fixed investment option, such as a money market account that is not directly tied to stock market performance, is usually included.
In the United States, variable annuity contracts are registered securities products that are regulated by the Securities and Exchange Commission (SEC). It is the SEC that requires that an annuity prospectus be provided to consumers prior to the purchase of the variable annuity contract. The prospectus can be delivered in hard copy form, and mailed or handed to the customer. It can also be posted on a company website where the customer can easily access it and print it out.
The SEC also requires that all variable annuity contract owners are informed of any changes regarding available investment options. When changes are made to an annuity prospectus, the issuing insurance company sends out an update, or supplement, to all current variable annuity contract holders. All supplements should also be provided to new customers along with the prospectus, until revised prospectuses are provided by the issuing insurance company.
Fixed annuity contracts are not securities products. As a result they are not regulated by the SEC. While a prospectus is generally not required, some insurance companies issue fixed annuity prospectuses. Other insurance companies provide detailed fixed annuity contract information in a brochure, or other format.
An annuity prospectus is generally a long document. It is not uncommon for a prospectus to be over 100 pages long. Potential variable annuity buyers can review all information about the annuity contract, and ensure that the contract fits the purchaser's investment objectives. Individuals may also rely on their investment advisers to review this information and choose the variable annuity that best fits their investment needs. In this event, a prospectus must still be made available the person actually purchasing the variable annuity contract.