Annuities

Question 1

403(b) plan

Answer 1

retirement plan for certain employees of public schools employees of specific tax exempt organizations, and ministers

Question 2

1035 contract exchange

Answer 2

if annuity is exchanged for another annuity, a gain is not realized. annuity cannot be exchanged for a tax-free life insurance policy. This particular provision allows policyholder to transfer funds from a life insurance/endowment/annuity to a new policy without having to pay taxes

Question 3

accumulation period

Answer 3

when premiums an annuitant pays in to annuities are credited as accumulation units; may continue between time after premiums average ceased but payout has not begun. at end of accumulation period, accumulation units are converted to annuity units

Question 4

annuity units

Answer 4

value of contributions made by annuitant.

value=credit to the account and varies depending on the value of the stock investment

Question 5

cash refund option

Answer 5

upon death and before all payments have been made, the excess amount paid by purchaser over the total payments received will be paid in one sum to beneficiaries

Question 6

deferred annuity

Answer 6

postponement of payments until a specified period of time or until annuitant reaches a certain age
-purchase this with single or flexible premiums

Question 7

equity index annuity

Answer 7

fixed deferred annuity, offers guarantee minimum interest rate and excess interest feature based on the current market index

Question 8

exclusion ratio

Answer 8

faction used to determine amount of annual annuity income exempt for federal income tax; total contributions in annuity/expected ratio

Question 9

fixed annuity

Answer 9

guaranteed rate of return; interest payable in any year is given in advance by insurer and is no less than minimum specified in the contract; this is risky for insureres

Question 10

immediate annuity

Answer 10

provide payment of annuity benefit at one payment interval from date of purchase; purchase only with single payment; typically begin paying income within 1 month of purchase

Question 11

joint life and survivor option

Answer 11

if either person dies, the income payments go to the survivor for life; when survivor dies, no payments are made to anyone

• full: pays same benefit amount to survivor
• 2/3: pays 2/3 of original joint benefit
• 1/2: pays 1/2 of original joint benefit

Question 12

life with period certain annuity (life income with term optoin)

Answer 12

provides income to annuitant for life but guarantees a min period of payments; if death during this period, beneficiary get the payments for remainder of period

Question 13

market value adjustment

Answer 13

attached to a deferred annuity, featuring guarantee fixed interest rates combined with interest rate adjustment factor (rates that increase or decrease in response to the market)

Question 14

period certain annuity

Answer 14

annuity income option that guarantees definite minimum period of payments, as opposed to annuity which gives out when annuity dies

Question 15

periodic payment annuity (flexible premium)

Answer 15

annuity owner making mulitple premium payments to accumulate principal. typically flexible with frequency and amount

Question 16

principal

Answer 16

original sum of money paid into annuity through premiums

Question 17

single premium annuity

Answer 17

entire premium is paid in one sum at the beginning of the contract period. can be deferred or immediate single premium

Question 18

straight life annuity

Answer 18

guaranteed income of annuitant’s lifetime, and the stops after death

Question 19

variable annuity

Answer 19

payments will be made periodically and the amount fluctuates with common stock; given in separate accounts instead of general accounts; to sell this, agent must have Financial Industry Regulatory Authority (another license)

Question 20

annuitant

Answer 20

one who annuity is payable