Annuities Flashcards
Synonymous terms for the payout period of an annuity
Annuity Period
Annuitization Period
Liquidation Period
Pay-Out Period
Period of time over which the payor makes payments (premium) into an annuity. The period of time during which the payments earn interest on a tax deferred basis
Accumulation period
aka
Pay-In Period
The 5 factors used to determine annuity premiums
1 Age 2 Gender 3 Assumed Interest Rate 4 Income Amount & Payment Guarantee 5 Loading
Term used for determining premiums for annuities, the insurer estimates or assumes that invested premium dollars will earn a specified interest rate
Assumed interest rate
This factor is made up of the amount of the periodic income and any payment guarantees the insurer has made concerning the total amount or number of required payments. The longer the guarantee or period certain is, the higher the premium must be
Income amount and payment guarantee
This is the term used when the purchaser, when paying the premium, helps pay for the insurer’s operating costs; premiums charged have an expense factor added in
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2 modes of funding an annuity:
1 Lump sum
2 Installment
3 methods for determining frequency and amount of premiums for annuities:
1 Fixed
2 Flexible
3 Single
Type of annuity when payments begin within one year
Immediate annuity
Term for feature of a deferred annuity that has a guaranteed surrender value that is available if the owner decides to surrender the annuity prior to annuitization
No forfeiture
The payment option in which payments are a specific amount paid for the remainder of the annuitant’s life. This option provides the highest monthly benefit for an individual annuitant. Payments cease upon annuitant’s death, no matter how soon in the annuitization occurs. Payments are guaranteed for life, but no guarantee that all the proceeds will be fully paid out.
Pure Life or Straight Life
Settlement option where if the annuitant dies before the principal amount has been paid out, the remainder of the principal amount will be refunded to the beneficiary.
Life with Guaranteed minimum
Two types of refund life annuities
1 Cash refund
2 Installment refund
When the annuitant dies, the beneficiary receives a lump sum refund of the principal minus benefit payments already made to the annuitant. This option does not guarantee to be paid out
Cash refund
When the annuitant dies the beneficiary will continue to receive guaranteed installment until the entire principal amount has been paid out
Installment refund
Under this payment option, the annuity payments are guaranteed for the lifetime of the annuitant and for the specified period of time for the beneficiary.
Life with period certain
A payout arrangement where two or more annuitants receive payments until the first death among the annuitants, and then payments stop
Joint life
A modification of the life income payout option, in that it guarantees an income for two recipients that neither can outlive. Most contracts receive a reduced payment after the first recipient dies.
Joint and survivor
Term for when the annuitant knows the exact amount of each payment received from the annuity during the annuity period
Level benefit payment amount
Fixed annuity premiums are deposited into the life insurance company’s _________ account.
General
The accumulated money is converted into a stream of income during which phase?
Annuitization period
With an SPDA when will the annuity payments become available?
No sooner than one year after the annuity purchase
If the annuitant dies before the annuitization period starts, what will the beneficiary receive?
Either the amount paid into the annuity or the cash value, whichever is greater
If an annuity provides a set amount of income for two or more persons with the income ceasing upon the first death, what type of annuity is that?
Joint life annuity
In flexible premium payment annuities, the term flexible refers to what?
Amount of premium
What causes a variable annuity to vary?
The annuity’s underlying investments
How are annuities classified depending on how many lives they cover?
Single life & multiple life annuities
What type of annuity credits it’s interest based upon an index such as S&P 500?
Equity indexed annuity
What are the two types of refund life annuities?
Cash refund & installment refund
What annuity settlement option provides income payments to the annuitant for the duration of his or her life, and ceases at the annuitant’s death?
Pure life
How long is income paid under a pure life annuity?
Only for the life of the annuitant
What is the difference between a single premium and a flexible premium payment options in a deferred annuity?
The number of payments that purchase the annuity
If the current interest rate on an annuity is higher than the guaranteed rate, which rate will the annuitant receive as part of the annuity payment?
Current
Who bears the investment risk in a fixed annuity?
The insurer
An annuity purchased with multiple payments that begins income payments after one year from huge moment of purchase is known as what type if annuity?
Flexible premium deferred annuity
What is a disadvantage of owning a fixed annuity, as opposed to variable?
In times of inflation, the benefit of a fixed annuity will have decreased purchasing power
What type of annuity is suitable for someone who wants to select the benefit option that will pay the largest amount only for as long as the annuitant lives?
Straight life
What are accumulation units?
Ownership interest in the separate account (instead of buying shares, annuity holder purchases accumulation units)
