An SPDA is a Single-Premium Deferred Annuity. It provides, as its name implies, a promise that an annuity will begin at some time in the future in return for a single premium.
For fixed annuities (variable annuities are rarely single premium contracts), a minimum stated rate of interest is guaranteed but most insurers pay competitive market rates. The actual rate paid is a function of: (1) the current investment earnings of the insurer; and (2) how competitive the insurer is determined to be. The rate is subject to change by the insurer.
The SPDA, like the FPDA, is back-end loaded. No front-end charges are imposed. Surrender charges are graded and partial withdrawals are often allowed without charge. Bailout provisions allow the contract owner to withdraw all funds without the imposition of a surrender charge if the interest rate actually credited falls below the bailout rate (typically set at the inception of the contract as 1 percent to 3 percent below the rate being credited at that time). Keep in mind that on any withdrawal both an ordinary income tax and a penalty tax may apply.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM