Accumulation (Pay-In) Period

Question 1

Accumulation (Pay-In) Period

Answer 1

The period of time from the first deposit to the selection of a settlement option is considered the accumulation period, during which taxes are deferred.

Question 2

Single Premium

Answer 2

A lump sum payment is made into an annuity

Question 3

Periodic Premium

Answer 3

Continuous premiums paid into the contract. The most common example of a periodic premium is a flexible premium.

Question 4

Flexible Premium

Answer 4

Flexible contributions may be made as often and in whatever amount the contract owner desires. However, most insurers set a minimum and a maximum dollar amount they will accept.

Question 5

Immediate annuity

Answer 5

The immediate annuity does not have an accumulation period and is used to generate immediate income within a year of the issue date.

Question 6

Deferred annuity

Answer 6

A deferred annuity will pay periodic benefits starting at a specified time in the future; income benefits must begin more than 1 year from the issue date.

Question 7

Deferred Annuity Characteristics

Answer 7

Deferred annuities are normally purchased to defer taxes on any contract earnings. They are ideal for accumulating a retirement fund. During the accumulation period, only the contract owner can sign the request for surrender of a deferred annuity. During the early part of the accumulation period, the insurer will normally assesses a surrender charge.

Question 8

Tax-Deferred Growth

Answer 8

Since an annuity is an insurance contract, the accumulation value grows tax deferred. Deferred annuities allow for the named beneficiary to receive any policy values if the annuitant dies prior to annuitizing

Question 9

Nonforfeiture Provisions

Answer 9

An annuity owner will not lose the value accumulated up to the point where they stopped paying into the contract. Nonforfeiture provisions give the owner the rights to the accumulation in the contract. The owner has the right to surrender the contract during the accumulation period. Remember, these provisions only apply to deferred annuities since immediate annuities do not have an accumulation period.

Question 10

Tax Penalty

Answer 10

To discourage the use of annuities as short-term tax shelters, a 10% penalty tax is levied against any premature withdrawals prior to 59 ½ years of age. This penalty discourages withdrawals. The tax penalty does not apply if premature distributions occur due to the death or disability of the contract owner.

Question 11

Surrender Charges

Answer 11

When a contract is fully surrendered, any surrender charges will lessen the contract payout. This is also referred to as a back-end load. Surrender charges diminish over a stated number of years, set by the insurer, until they disappear.

Question 12

Bailout Provision (Escape Clause)

Answer 12

During the accumulation period, some contracts also offer a “bailout” provision that allows the owner to withdraw money from the annuity without surrender charges if the crediting rate falls by more than a specific amount.

Question 13

Waiver

Answer 13

Annuity surrender charges are generally waived if the annuitant is hospitalized for an extended period, placed in a nursing facility for at least 30 days, becomes disabled, or dies.