14 Flashcards
Period when accumulated funds converted into income payments
Annuity period
It is true regarding accumulation period that
It is period during which payments grow tax deferred
The owner of annuity must be the party to receive benefits
False owner purchases and has rights but doesnt have to rec benefits
Pres starting annuity decides corporation will be annuitant. Annuitant
Must be a natural person
Not true of acc period of annuity
Would not occur in deferred annuity
Whose life expectancy taken into account w annuity
Annuitant
During accumulation period funds are paid
Into annuity
During annuity period
Funds are paid out to the annuitant
Annuity income is based upon the following
Amount of premium paid or cash value accumulated, frequency of payment, interest rate, annuitant’s age and gender
If life expectancy longer
Smaller income installments
65 yr old male has higher annuity income payments than
45 year old male or 65 year old female as women live longer statistically
Shorter life expectancy equals
Higher benefit
Longer life exp equals
Lower benefit
Annuities are purchased to provide supplement
Retirement income
Annuities are purchased to fund or help
College education or any situation requiring steady stream of income in future
Annuities are used to provide
Structured settlements which would take on form of court settlement arising from civil lawsuit or state lottery winner
Function of annuity is that of
Liquidating a principal sum regardless of how it was accumulated
Can be classified according to how prem are paid into the annuity how invested and how benefits are paid out
Annuities
Classification of annuities
Premium payment method: single premium vs periodic
When income payments begin: immediate vs deferred
Classification of annuities
How premiums are invested: fixed vs variable
Classification of annuities
Disposing of proceeds: pure life annuity certain or life refund annuity
Classification of annuities
Two ways to classify annuities
Single premium one lump
Periodic installments
Periodic payment annuities can be either
Level premium where owner pays fixed installment or flexible premium where frequency varies and amount varies
Annuities may be classified as
Fixed or variable depending on how payments are invested
Guaranteed minimum rate of interest to be credited to purchase payments; income payments do not vary one payment to next; company guarantees specified dollar amount for each payment and length the of period as determined by settlement option chosen by annuitant
Fixed annuity
Disadvantage to fixed annuities
Purchasing power may be eroded over time due to inflation
Knows exact amount of each payment recd from annuity during annuity period
Level benefit payment amount
Hedge against inflation and variable from standpoint that annuitant may rec different rates of return on funds paid into annuity
Variable annuity
