Annuities

Question 0

Owner

Answer 0

The purchaser of the contract, not necessarily the one who receives the benefits. The owner has all the rights such as naming the beneficiary and surrendering the annuity.
Owner can be a corporation, trust, or other legal entity.

Question 1

Annuity

Answer 1

Provides income for a specified period of years or life.
Protects a person from outliving his/her money.
Vehicle for the accumulation of money and liquidation of an estate.
Payments stop upon death of annuitant.
Mortality tables reflect a longer life expectancy than life insurance.

Question 2

Annuitant

Answer 2

The person who receives the benefits or payments from the annuity, whose life expectancy is taken into consideration, and for whom the annuity is written.

Question 3

Beneficiary

Answer 3

The person who receives annuity assets either the amount paid into the annuity or the cash value, whichever is greater, if the annuitant dies during the accumulation period.

Question 4

Accumulation period

Answer 4

Pay in periodic the time the owner makes premium payments into the annuity which earn interest on a tax deferred basis.

Question 5

Annuity period

Answer 5

Annuitization period, liquidation period or payout period is the time during which the sum that has been accumulated is converted into a stream of income payments to the annuitant.

Question 6

Why buy an annuity

Answer 6

Supplement retirement income
Fund college education
Structured settlements
Accumulate cash for any reason
Liquidate an estate

Question 7

Lump sum settlements

Answer 7

An additional 10% penalty can be levied on the taxable portion if liquidated prior to the age of 59 1/2.

Question 8

Group annuity

Answer 8

Owned by an employee or other entity

Question 9

IRA

Answer 9

Individual retirement annuity

Question 10

Immediate annuity

Answer 10

Lump sum payment
Income payments begin within one year
SPIA single premium annuity

Question 11

Deferred annuity

Answer 11

Income payments begin sometime after one year of purchase date
Can be either lump sum payment or periodic payments
The longer the annuity is deferred the more flexible for premium payments it allows.

Question 12

Fixed annuity

Answer 12

Guaranteed minimum rate of interest to be credited to the purchase payment or the payments.
Income payments do not vary from one to the next
Insurance co. guarantees the specific dollar amount for each payment and the length of the period of payments as determined by the settlement option chosen by the annuitant.

Question 13

Level benefit payment amount

Answer 13

Purchasing power may be eroded due to inflation

Question 14

Variable annuities

Answer 14

Serves as a hedge against inflation. Annuitant may receive different rates of return on the funds paid into the annuity.
Underlying investment: monies paid in
Interest rate: no guaranteed minimum
License requirement: agents must have a securities license to sell and be registered with FINRA in addition to life insurance license.

Question 15

Indexed annuities

Answer 15

Are fixed annuities that invest on a relatively aggressive basis to aim for higher returns.
Guaranteed minimum interest rate usually tied to an index ie S&P 500.
Less risky than a variable rate annuity or mutual fund but earn a higher rate than a fixed annuity.

Question 16

Pure life annuity

Answer 16

Straight life / life only
Pays the annuitant until death
Highest monthly benefits
No guarantee all the proceeds will be paid out

Question 17

Life with guaranteed minimum

Answer 17

If annuitant dies before the principal amount has been paid out the remainder will be refunded to the beneficiary. (Refund life)
Cash refund
Installment refund

Question 18

Life with period certain

Answer 18

Annuity payments are guaranteed for the lifetime of the annuitant and for a specified period of time for the beneficiary.
ie life plus 10 year certain

Question 19

Single Vs multiple

Answer 19

Single - cover one life highest monthly payment
Joint life - two or more annuitants receive payment unlike the first death
Joint survivor - guarantees income that neither can outlive. Second to die usually receives a reduced payment 1/2 or 2/3

Question 20

Annuity with period certain

Answer 20

Short term

Limit amounts paid to a fixed period of time

Question 21

Fixed period installments

Answer 21

Annuitant selects time period
Insurer determines payment amount
Pays regardless of death

Question 22

Fixed amount installments

Answer 22

Annuitant selects the payment amount
Insurer determined length of payment
Pays regardless of death

Question 23

Accumulation units

Answer 23

Represent ownership interest in the separate account. Instead of buying shares the annuity purchases units.