Annuities Flashcards
Accumulation Period
Pay in period
Annuity period
Annuitization period
Liquidation period
Pay out period
annuity
contract that provides income for a specified period of years, or for life.
what does an annuity protect a person against?
protects a person from outliving his or her money
annuities are considered life insurance. True or False?
false
Owner
Purchaser of the annuity not necessarily the one who receives the benefits. Owner has all the rights. Owner may be a corporation, trust, or other legal entity.
Annuitant
Person who will receive the benefits, for whom the annuity is written. Annuitant must be a natural person.
Beneficiarty
Person who receives annuity assets( the amount paid into the annuity or the cash value, whichever is greater).
Accumulation period
pay-in-period. the period of time were the owner makes payments into the annuity and period of time were payements earn interest on a tax deffered basis.
Annuity period
Annuitization period, liquidation period, or pay-out period, is the time during which payments are made.
what happens if an annuitant dies during the accumulation period?
beneficiary will receive either the cash value or the total premiums paid, whichever is greater.
What are the premium payment options?
two options Single premium ( one time lump sum payment) or Periodic payments which they are paid in installments.
Periodic payment annuities
level premium or flexible premium.
Immediate annuity
purchased with a single lump-sum payment, payments start within one year from the date purchased
Deferred annuities
income payments begin sometime after one year than can be funded with a single lump sum or periodic payments.
Nonforfeiture
deferred annuity has a guaranteed surrender value that is available if owner decides to surrender the annuity prior to annuitization. 100% of the premium paid, less any prior withdrawls and a surrender charge. 10% penalty for early withdrawls
Surrender Charge
Purpose of surrender charge is to help compensate the company for loss of the investment value due to an early surrender of a deferred annuity.
Pure life
- also known as life-only or straight life
- payment eases at the annuitant’s death
- this option provides the highest monthly
- benefitspayments are guaranteed for a lifetime but no guarantee that all the proceeds will be fully paid out
Life with guarenteed minimum: Refund life
if annuitant dies before the principal amount has been paid out, the remainder of the principal amount will be refunded to the beneficiary. This option is also called refund life.
- cash refund:does not guarantee to pay any interest and when the annuitant dies the beneficiary receives a lump-sum refund minus benefit payments that had been paid to the annuitant.
- installment refund:beneficiary will continue to receive guaranteed installmetns until the entire principal amount has been paid out.
Period certain
annuity payments are guaranteed for the lifetime of the annuitant, and for a specified period of time for the beneficiary
single vs multiple
- single covers one life
- multiple life covers 2 or more lifes. most common are joint and joint and survivor
Joint life
two or more annuitants receive payments, payments stop after stop after the first death
Joint and Survivor
guarantees an income for two recipients that neither can outlive. after the first death the surviving beneficiary receives 1/2 or 2/3 of what was being received when both were alive.
Annuities certain
are short term annuities that limit the amounts paid to a certain fixed period or until a certain fixed amount is liquidated.
fixed period
annuitant selects the time period for payments and insurer determines how much each payment will be.
fixed amount
annuitant selects howm uch each payment will be and insurer determines the time period of payments
fixed annuity
- guaranteed minimum rate of interest
- insurer bares the investment risk
- premiums are deposited into the lifei nsurance company’s general account
- disadvantage to fixed annuities is that the purchasig power that they afford may be eroded over time due to inflation.
General Account
consists mostly of conservative investments like bonds. These investments are secure anough to allow the insurance company to guarantee a specified rat3e of interest.
guaranteed minimum
should interest rates drop below a guaranteed rate, the insurer is obligated to pay the guaranteed rate amount. ( in fixed annuities the insurer bears the investment risk.)
what does the insurer do during the accumulation phase with the accumulated money?
insurer will invest 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.
Equity Annuity
- Equity indexed annuities are fixed annuities that invest on a relaatively aggressive basis to aim for higher returns.
- has a guaranteed minimum interest rate.
- current interest rate is actually credited is often tied to an index like standard and poor’s 500
- insurance companies reserve the initial returns for themselves but pay the excess to the annuitant.
- less risky than a variable annuity or mutual fund
- expected to earn a higer interest rate than a fixed annuity
- less risky than a variable annuity or mutual fund
Market value or market value adjusted
also known as a modified guaranteed. it is a single premium deferred annuity that allows the owner to lock in a guaranteed interest rate over a specified maturity period.
uses of annuities
principal use of an annuity is to provide income for retirement; may be used for any accumulation of cash ohr simply to liquidate an estate.
Uses of annuities
- Lump-sum settlements
- retirement income
- education funds
- long-term care needs
Nebrska senior protection in annuity transaction act
set the standards and procedures for advice given by insurance producers and insurers with regards to annuities.provides protection to consumers of annuity products.
