5 - Annuity Products Flashcards
Insurance companies typically market annuities as a ________
-retirement income product
What is an annuity?
-an insurance company issued contract that provides income to an insured during their life
The amount paid in income to an annuitant is based on several factors including…
- amount in the annuity account at time of payout
- age of the annuitant at time of payout
- gender of annuitant
The Annuitant to the Annuity is the…
-insured covered by the annuity contract
The Contract Owner to the Annuity is the…
- usually also the annuitant
- could be another person or entity
The Beneficiary to the Annuity is…
-the person or entity that receives proceeds from the annuity contract upon the death of the annuitant
The different types of Annuities are:
- Fixed Annuities
- Variable Annuities
- Equity Indexed Annuities (EIAs)
Fixed Annuity is also known as a…
-Fixed Dollar Annuity
A Fixed Annuity is considered a…
-“safe” investment
Characteristics of Fixed Annuities:
- guarantees specific sum of money will be paid
- guarantees the retune on the invested principal and accumulated earned interest
- may incur surrender charges if liquidated in early years of contract
- guarantees a min. rate of interest on a tax-differed basis
Fixed Annuities are purchased with….
-“after tax” dollars
Variable Annuities are __________ which means that the premium deposits are invested typically in mutual funds by the contract owner from a portfolio of investment choices.
-“securities based”
Which annuities are designed to provide a hedge against inflation?
-Variable Annuities
Insurance companies issuing Variable Annuities guarantee the _____________ to a beneficiary (minus any payments already made) if the annuitant dies before the payout phase (also referred to as the annuity phase) begins.
-return of the principal investment
Upon the death of the Variable Annuity annuitant, the beneficiary receives the _______ or __________, whichever is greater.
- principle
- value of the account
The contract owner of a Variable Annuity may select to have a _________ payment of the account or receive an ______ from the contract.
- lump sum
- income
___________ Annuities are also based on the value of securities such as mutual funds with minimum guaranteed interest rate combined with an interest rate linked to a market index.
-Equity Indexed Annuities (EIA)
Because of the guaranteed interest rate, EIAs have less risk for the consumer than __________; however, the indexed rate gives the EIA the potential to earn greater returns than ____________.
- Variable Annuities
- Fixed Annuities
Can an Insurance Producer currently sell EIA with just a life Insurance Producer’s license?
-yes
Annuity contracts consist of the following 2 phases:
- Accumulation Phase
- Payout Phase
Annuity: Accumulation Phase
- contract owner deposits funds,
- interest earned in tax deferred
Annuity: Payout Phase
-the period in which the contract owner receives income payments from the annuity.
The Annuity payout phase can be either ________ or _______.
- Immediate
- Deferred
Annuity: Immediate Payout Phase
-annuitant usually starts receiving income payments within one year of purchasing the contract.
Annuity Immediate Payout Phases usually require a ______________.
- large initial deposit
- inherited a large sum of money and wants to start receiving an income
Annuity: Deferred Payout Phase
-The annuitant does not start receiving income payments before at least one year (usually many years) has passed.
Of the two Annuity Payout Phases, which allows more flexibility in premium deposits?
-Deferred Payout Phase
Annuity Payout Phase is also known as the __________ or _________.
- Annuitization Phase
- Annuity Phase
When the Annuity payout phase begins…
-contract owners usually have no further control of the assets in the account
Annuity contracts are funded using one of the following deposit methods:
- Single Premium
- Installment Premium
Single Premium annuities are classified into either a ______________ that begins within 12 months of initial depositto the Annuity account or __________ that begins payments after twelve (12) months from the initial deposits and typically years later.
- Single Premium Immediate Annuity (SPIA)
- Single Premium Deferred Annuity (SPDA)
Installment Premium annuities require deposits are made in installments such as…
- annually
- semi-annually
- quarterly
- monthly
Installment Premium Annuities are also known as a _________
-Flexible Premium Deposit Annuity (FPDA)
Generally, annuities have one annuitant. In some cases, more than one person is an annuitant. Benefit payments can be set-up on the following basis:
- Single (Annuitant)
- Joint (Annuitant)
- Joint Survivor (Annuitants)
Annuitants can be changed during the _______ phase of the contract but not during the ________ (annuity) phase.
- accumulation
- payout
If the contract owner did not choose a guaranteed payout option, the annuity is considered a __________.
-Straight (Pure) Life Annuity
The annuity phase payouts are designed to pay an income to the annuity contract owner as long as the annuitant is living. However, it would be possible that the full amount accumulated would not be paid if the annuitant lived a short period of time. Because of this possibility, the following guaranteed payout options are available to the contract owner.
- Straight (Pure) Life Annuity Option
- Annuity w/ Period Certain Option
- Cash or Refund (Fixed) Installment Option
This Annuity contract payout guarantees a life income payment to the contract owner as long as the annuitant is living.
-Straight (Pure) Life Annuity Option
This Annuity payout option guarantees that a minimum number of payments will be made even if the annuitant dies before all payments have been made. If the annuitant dies before the period certain is over, the annuity will continue payments to a beneficiary until the minimum number of payments has been paid.
-Annuity with Period Certain Option
This Annuity payout option pays an income to the annuitant for his or her life. However, if the annuitant dies before receiving the total of all premium deposits and interest in monthly payments, the insurer refunds the balance in one lump sum or, if requested, in monthly installments to a beneficiary.
-Cash or Refund (Fixed) Installment Option
the following are annuity premium factors
- age
- gender
- assumed interest rate
When the Fixed Annuity is “annuitized”, the ________ becomes fixed and will not fluctuate.
-Monthly Income
When the pay-out (annuitization) phase of a Fixed Annuity begins, who controls the cash account?
-issuing insurance company
J has a Life Income Annuity with a 10-year Period Certain pay-out. If J dies 5 years into the pay-out, what will happen to the balance of the annuity account?
-insurer will pay the beneficiary an income for 5 years
The period of time in an annuity that the contract owner is depositing money into the annuity account is referred to as the:
-Accumulation Phase
M’s variable annuity currently has 3,000 accumulation units. If each unit is valued at $5, the total dollar value of his account is:
-$15,000
Which of the following is NOT a factor when determining the monthly income from an annuity?
a. gender
b. age
c. health
d. amount in the annuity account
-c. health of the annuitant
M has a Life Income Annuity with a Cash Refund pay-out. If M dies 5 years into the pay-out, what will happen to the balance of the annuity account?
-a lump sum of the balance will be paid to the beneficiary
In a Fixed Annuity, the insurance company guarantees that the contract will never return less than ______ of what has been paid into the account if the account is liquidated during the accumulation period.
-100% minus any surrender charge
If a person wants the maximum monthly payment from his or her fixed annuity which settlement option should he or she elect?
a. Life w/ 10 year period certain
b. life w/ 20 year period certain
c. life annuity
d. life w/ 15 year period certain
-c. life annuity
The life annuity option guarantees the payments for the life of annuitant, but does not guarantee a specific period of time. The more guarantees the insurance company gives, the ______ the payments.
-lower
According to the text, the person that desires an immediate pay-out from an Annuity begins receiving payment within what time frame?
-within one year
A retired person purchases an annuity with a single lump sum in the amount of $150,000. One month later the individual begins receiving an income from the annuity. Which type of annuity does the individual have?
-Immediate
An immediate annuity begins payments within _______ of the purchase of the contract.
-12 months/1 year
Which pay-out option will be automatic in an annuity if the contract owner did not pre-select a payout option and the annuitant dies?
-Straight Life Annuity payout
Which of the following types of annuity payout options guarantees at least the full payout of the entire annuity principal?
a. fixed refund
b. period certain
c. joint survivor
d. cash refund
d. cash refund
Which of the following annuities would give the highest rate of return, but with investment risk?
a. variable annuity
b. single premium fixed annuity
c. equity-indexed annuity
d. flexible premium life annuity
-variable annuity
Since the contract owner decides where the money is to be invested, the insurance company will not guarantee the investments or the return in a ________
-variable annuity
J purchases a $100,000 annuity with one payment. Ten years later J begins to receive an income for life. What type of annuity does J have?
-Single Premium Deferred
The annuity payout that provides a benefit on more than one annuitant and continues payments after the death of one annuitant is called:
-Joint Survivorship
Payments begin on an Annuity that is considered an “immediate pay-out” within __________ after purchase of the contract.
-one year
