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Product Review:
Midland National Summit Navigate 7


By , with Annuity FYI

The Midland National Summit Navigate 7 is, in large part, a combination of a growth FIA and a plain vanilla fixed annuity.

One FIA Today Takes a Novel Approach Arguably Better Suited for the Times

If you like annuities, the case can be made, at least ostensibly, that this is a good time to buy one. That’s because as the Federal Reserve aggressively increases interest rates, annuities are pressured to improve their payout potential to remain competitive.

So, for instance, the typical participation rate on the popular S&P 500 index on many fixed indexed annuities (FIAs) is now 40%, double what it was much of last year. In some cases, the index participation rate on FIAs offering low volatility indexes has risen yet more. Even rates on plain vanilla fixed annuities are higher – now about 4.3% on a five year multi-year guaranteed annuity (MYGA), up from about 3% over roughly the last six months.

This doesn’t mean that prospective annuity customers are buying with abandon, however. For one thing, interest rates are certain to continue rising, further pressuring the competitiveness of annuities, and so many potential buyers are inclined to delay a purchase. And in the case of FIAs and some other annuities, the deal you get depends on how much you invest. The best deals typically require a minimum investment of $100,000 – too rich a price for many would-be buyers.

But one annuity in particular – Midland National Summit Navigate 7 – may be as close as you can get for being tailor-made for the times. That’s because, while it is a growth FIA – an FIA that doesn’t come with a guaranteed income rider, and hence offers more attractive growth potential – it is in large part also a combination of a growth FIA and a plain vanilla fixed annuity.

This means it offers a much better shot of at least some growth along the way, notwithstanding tough times, and it also offers every buyer the same deal for a minimum investment of $10,000. As a result, prospective buyers don’t have to take a huge financial haircut to sign onto other highly attractive annuities these days.

Here are the additional details. Summit Navigate 7 offers a 100% participation rate on the low-volatility Fidelity Multi-Factor Yield 5 Percent index. A number of other growth FIAs offer a higher rate on this index and others like it. What they don’t offer, however, is what could be a substantial annual performance credit (APC) – in the first six years of the seven-year contract, investors receive a six percentage point APC on the Fidelity index if it generates even a tiny positive 12 month return. (The six percentage APC is up from 4.35% in the recent past.)

So, for instance, if the Fidelity index generates a 12-month return of 1.00% on its own, the investor will still receive a 6% credit to their account.

The Midland National FIA also offers a guaranteed rate over the 7-year period of 4.30%, which is very similar to how a MYGA is structured. This is separate from the Fidelity Index, and could be worth allocating funds toward for a competitive guaranteed rate.

On the other hand, what could happen in coming years is that the stock market has another losing year or two along the way but mostly posts modest single-digit increases — the thinking of many market pundits these days. In this case, the Midland National annuity would beat the performance of many competitors.

If this sounds appealing, interested readers should know that there is a Summit Navigate 5 as well as Summit Navigate 7. In the former, the annuity generates a 5.7 percentage point APC in a positive year in the Fidelity index.

Readers should note that these two products, while highly competitive in the five- and seven-year timespans, are less competitive against 10-year FIAs. That’s because insurance companies typically offer better terms on a product with a longer life, even when buyers invest only the required minimum.

In today’s difficult environment, however, some investors prefer locking in investments for a shorter span because of the higher uncertainty of what lies ahead. The Midland National product also offers the strong likelihood of a more consistent performance during its tenure.

“It’s not as sure a thing as a MYGA, but it does help smooth out the ride,” says an annuity broker familiar with the product. “Prospective investors know that most years they are highly likely to get a respectable return.”

Here are the positives and negatives of Midland National Summit Navigate 7:

Positives

  • There are two components to earnings, not just one. Investors can benefit from both the performance of the Fidelity Multi-Factor Yield 5 Percent index and 12-month APC contingent on performance.
  • Investors can make annual, penalty-free 10% withdrawals.
  • Unlike the case with many other FIAs, terms of the investment, such as the index participation rate, cannot change during the life of the product.
  • All investors get the same deal once they invest the $10,000 minimum.
  • An AM Best rating of A+.

Negatives

  • Unlike other FIAs, returns along the way are not compounded. So, if total returns one year are, say, 10% and rise the next year by, say, 8%, the 8% is credited to the original principal – not the principal plus previous gains.
  • In a similar vein, a seven-year crediting period means there are no one or two-year crediting calculations along the way and therefore no performance re-sets. By contrast, most FIAs do have re-sets, which capture gains in a more attractive way and are an advantage if the markets rise more than they fall.

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