Annuities

Question 1

Annuities

Answer 1

Designed to provide a steady cash flow for an individual during their retirement years, and to alleviate fears of outliving one’s assets

Financial product sold by financial institutions

Question 2

Annuities can be used to

Answer 2

Accumulate funds over a period of time
Evenly distribute a fund over a period of time
Both accumulate a fund and then evenly distribute it over a period of time

Question 3

2 annuity phases

Answer 3

Pay in - accumulation period when principal and periodic deposits grow with credited interest

Pay out - distribution phase

Question 4

Accumulation period

Answer 4

Time when annuity is being funded

Interest grows tax deferred

Annuity value belongs to owner

Question 5

Annuitization

Answer 5

Income generated from accumulated money

Money from accumulation or inheritance, lottery winnings, court settlements, etc.

Money belongs to insurance company

Question 6

4 parties involved in annuity contract

Answer 6

Contract owner
Annuitant
Beneficiary
Insurer

Question 7

Contract owner and rights

Answer 7

The person or couple who buy the annuity

Name or change annuitant
Name or change beneficiary 
Choose payout option
Add more money or take withdrawals 
Surrender or terminate the agreement

Question 8

Immediate annuity vs deferred annuity

Answer 8

Immediate- Structured to provide current income

Deferred- Contracts payout is a specific date in future

Question 9

Immediate annuity

Answer 9

Purchased with a single premium (spia)

Has no short accumulation period

Question 10

Surrender penalties or withdrawal charges

Answer 10

10% tax if withdrawn before 59.5

Surrender period is waiting period

Surrender fee - penalty for early withdrawal

Question 11

Death benefit for an annuity

Answer 11

Accumulated contract value is paid to a selected beneficiary, if the annuity owner dies during the accumulation period

Question 12

Annuity payout options

Answer 12

Life annuities (payment is guaranteed to last for as long as the annuitant lives)

Temporary (which do not)

Question 13

Life only annuity option

Answer 13

Guaranteed income for life

Death stops payments (even if only one payment)

Largest monthly check from life options

Question 14

Life with refund annuity option

Answer 14

Income for life

If Death payments less than contract value

• balance to beneficiary
• • lump sum or monthly payments

Question 15

Life with period certain annuity option

Answer 15

Income for life they live

Choose period such as 10-20 years
- annuity will pay beneficiary if annuitant dies within that period

Question 16

Joint life and survivor annuity option

Answer 16

Annuitants paid even after one dies

Same amount or reduced

Question 17

Joint life annuity option

Answer 17

Two annuitants paid until one dies

Question 18

Factors affecting payment amount

Answer 18

Annuitants age
Annuitants gender
Length of payment guarantee
Assumed interest rate

Question 19

4 basic types of annuities

Answer 19

Fixed
Variable
Equity indexed
Market value adjusted

Question 20

Fixed annuities

Answer 20

Values are guaranteed against a loss

Genera account
Long term low risk investments
If annuitized fixed income payments
Money guaranteed by company

Question 21

Variable annuities

Answer 21

Have potential to keep pace with inflation because they are supported by investments (stocks and bonds)

Historically stocks have raised faster than cost of living, but not guaranteed to always do so

Question 22

Accumulation units

Answer 22

Value of accumulation unit = total value of separate account/#of existing accumulation units

Question 23

Equity indexed annuity

Answer 23

Fixed annuity
Value is guaranteed by company 
Interest can go up or down like the stock market
Interest tied to S&P 500
No securities license required

Question 24

Market value adjusted annuities

Answer 24

Single premium deferred annuities
Interest rate for a fixed number of years
Not a variable product (no securities license required)

Question 25

Common uses for annuities

Answer 25

Lifetime income at retirement
Accumulating funds prior to retirement
Funding individual retirement accounts
Education funds