Annuities Flashcards
Deferred
Withheld or postponed until a specified time or event in the future
Life contingency
Dependent upon whether or not the insured is alive
Liquidation of an estate
Converting a person’s net worth into cash flow
Natural person
Human being
Qualified plan
A retirement plan that meets the IRS guidelines for receiving favorable tax treatment.
Suitability
A requirement to determine if an insurance product or an investment is appropriate for a particular customer
How do annuities differ from life insurance policies?
Aunnities liquid (put money in) to an estate
Life insurance policies create an estate
What is the difference between mortality tables for annuities vs life insurance?
Annuities use the table to reflect a longer life expectancy and life insurance policy use them to reflect shorter life expectancy.
The person who purchases the annuity contract and has all the rights such as naming the beneficiary and surrendering the annuity
Owner
The person who receives benefits or payments from the annuity, whose life is taken into consideration and for whom the annuity is written.
Annuitant
The person who receives annuity assets (either the amount paid into the annuity or the cash value, whichever, is greater) if the annuitant dies duri g the accumulation period, or to whom the balance of annuity benefits is paid out.
Beneficiary
AKA: pay-in period
Is the period of time where a person makes payments or premium into the annuity.
Accumulation Period
AKA: Annuitization Period, Liquidation period or pay-out
The time during which the sim that has been accumulated during the accumulation period is converted into a stream of income payments to the annuitant.
Annuity period
Accumulation Period
Funds are paid INTO the annuity
Annuity Period
Funds are paid OUT to the annuitant
Shorter life expectancy =_________; Longer life expectancy = __________.
Higher benefit; lower benefit
The annuitant must be a:
Natural person
If an annuitant dies during the accumulation period, the insurer is obligated to return to the beneficiary either:
The cash value or the total premiums paid; whichever is greater.
If the beneficiary is not named, the death benefit will be paid to the:
Annuitant’s estate
Classification of annuities
- Premium payment method: single premium vs periodic
- When income payments begin: immediate vs deferred
- How premiums are invested: fixed vs variable
- Disposing of proceeds: pure life, annuity certain or life refund annuity
Fixed annuities are deposited in the company’s
General account
Fixed annuities provides
Guaranteed minimum rate of interest to be credited to the purchase payments
In fixed annuities, the insurer bears the:
Investment risk.
Fixed annuities that invest on a relatively aggressive basis to aim for higher returns.
Index (equity indexed) annuities
A single premium deferred annuity that allows the owner to lock in a guaranteed interest rate over a specified maturity period, anywhere between 3 to 10 years.
AKA: modified guaranteed annuity (MGA)
Market Value or Market Value Adjusted (MVA)
An immediate annuity is purchased with a :
Single premium
Income payments from a deferred annuity begin sometime after :
1 year from the date of purchase
At surrender, the owner gets the premium, plus interest (the value of the annuity),
Minus the surrender charge
Provides the highest monthly benefit, but there is no guarantee that the entire principal will be paid out.
AKA: life-only or straight life
Pure life annuity
Under this settlement option, if the annuitant dies b4 the principal amount has been paid out, the remainder if the principal amount will be refunded to the beneficiary.
AKA: Refund life
Life with Guaranteed Minimum
2 types of Refund life annuities
Cash Value
Installment Refund
When the annuitant dies, the beneficiary receives a lump-sum refund of the principal minus the benefit payments already made to the annuitant.
Cash Value
When the annuitant dies, the beneficiary will continue to receive guaranteed installments until the entire principal has been paid out.
Installment Refund
Life Contingency payout option where tha annuity payments are guaranteed for the lifetime of the annuitant, and for a specified time for the beneficiary.
Life with period certain
Covers one life and annuities payments are made with reference to only one life.
Single life annuities
Covers two or more lives.
Multiple life annuities
Payout arrangements where two or more annuitants recieve payments until the first death among the annuitants, and then payments stop.
Joint life
Guarantees an I come for two recipients that neither can outlive.
Joint and survivor
Are short term annuities that limit the amounts paid to a certain fixed period or until a certain fixed amount is liquidated.
Annuities certain
Pays for a specific time only, whether or not the annuitant is living. The annuitant selects the time frame and the insurer selects the amount paid.
Fixed period installment option
This option pays a specific amount until the funds are exhausted, whether or not the annuitant is living. Annuitant selects amount and insurer selects time frame based on value of account and future earnings.
Fixed-amount installments option
The main use of annuities is to provide:
Retirement income
Option where the annuitant can withdraw a maximum percentage of his/her investment annually until the initial investment has been recovered. Protects the annuitant against investment losses.
Guaranteed Minimum Withdrawal Benefit (GMWB)
Annuities can also be used to accumulate funds for _________ _____.
COLLEGE EDUCATION
What can provide savings on a tax-deferred basis for education expenses of the annuitant?
An annuity
