Annuities Flashcards
How do annuities differ from life insurance policies?
Annuities liquidate an estate (life insurance creates an estate). Annuities pay income to the annuitant while he or she is still living; life insurance pays the death benefit.
Who has all of the rights in an annuity contract?
The owner of the annuity has all of the rights such as naming the beneficiary and surrendering the annuity.
What happens to the benefit if the annuitant dies during the accumulation period?
If the annuitant dies before annuitization (or payout period), his/her beneficiary will receive the amount paid into the plan or the cash value, whichever is greater.
An annuity has 2 distinct periods. What are they called, and what happens during each?
The accumulation period, also known as the pay-in period, is the period of time over which is the annuitant makes payments (premiums) into an annuity. The annuity period, is the time when money is distributed to the amount.
What are the 2 premium payments options in annuities?
Single premium and periodic premiums.
How soon can payments begin in a deferred annuity?
In a deferred annuity, income payments begin sometime after one year from the date of purchase.
What happens to the contract value if the owner decides to surrender a deferred annuity prior to annuitization?
At surrender, the owner gets their premium, plus interest (the value of the annuity), minus the surrender charge.
How long will a life annuity with 15-year period certain pay benefits?
For the life of the annuitant; however, if he or she dies shortly after the annuity payments begin, the payment to the beneficiary will only last 15 years.
How does inlflation affect the purchasing power of a fixed annuity?
Inflation can erode the purchasing power of income payments.
Where are premiums invested in a fixed annuity?
Into the life insurance company’s general account comprised mostly of conservative investments.
In a fixed annuity, how are the guaranteed and current interest rate related?
During the accumulation phase, the insurer will invest the principal, and give the annuitant a guaranteed interest rate based on a minimum rate as specified in the annuity, or the current interest rate, whichever is higher.
The time period during which an annuitant contributes to an annuity is called
The accumulation period.
An individual inherited a large sum of money at age 40 and wanted to use it to provide a guaranteed income after his retirement at age 60. Which of the following types of annuities would best meet this need?
Deferred.
An annuity that guarantees a minimum rate of return is known as a/an
Fixed annuity.
Annuities can be used for all of the following reasons EXCEPT
To create an estate.
