Annuities

Question 1

Owner

Answer 1

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 2

Annuity

Answer 2

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 3

Annuitant

Answer 3

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 4

Beneficiary

Answer 4

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 5

Accumulation period

Answer 5

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

Question 6

Annuity period

Answer 6

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 7

Why buy an annuity

Answer 7

Supplement retirement income, fund college education, structured settlements, accumulate cash for any reason, liquidate an estate.

Question 8

Lump sum settlements

Answer 8

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

Question 9

Group annuity

Answer 9

Owned by an employee or other entity.

Question 10

IRA

Answer 10

Individual retirement annuity.

Question 11

Immediate annuity

Answer 11

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

Question 12

Deferred annuity

Answer 12

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 13

Fixed annuity

Answer 13

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 14

Level benefit payment amount

Answer 14

Purchasing power may be eroded due to inflation.

Question 15

Variable annuities

Answer 15

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 16

Indexed annuities

Answer 16

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 17

Pure life annuity

Answer 17

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

Question 18

Life with guaranteed minimum

Answer 18

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 19

Life with period certain

Answer 19

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 20

Single Vs multiple

Answer 20

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 21

Annuity with period certain

Answer 21

Short term. Limit amounts paid to a fixed period of time.

Question 22

Fixed period installments

Answer 22

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

Question 23

Fixed amount installments

Answer 23

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

Question 24

Accumulation units

Answer 24

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