Annuities Vocab & Notes Chap 7

Question 1

A mathematical concept that is quite simple in its most basic application. Start with a lump sum of money, pay it out in equal installments over a period of time until the original fund is exhausted, and you have an ______________. It is simply a vehicle for liquidating a sum of money.

Answer 1

An annuity

Question 2

One to whom an annuity is payable, or a person upon the continuance of whose life further payment depends.

Answer 2

An Annuitant

Question 3

When the premiums an annuitant pays into annuities are credited as accumulation units. This may continue between the time after premiums have ceased but payout has not yet begun. At the end of the ___________________, accumulation units are converted to annuity units.

Answer 3

The Accumulation Period

Question 4

_____________________ make up the value of contributions made by the annuitant less a deduction for expenses. The value of each ______________________ is credit to the individual’s account and varies depending on the value of the underlying stock investment.

Answer 4

Accumulation Units

Question 5

The converted accumulation units once variable annuity benefits are to be paid out to the annuitant. At the time of the initial payout the _________________ calculation is made. From then on, the number of _______________ remains the same for that annuitant.

Answer 5

Annuity Units

Question 6

The original sum of money paid in to an annuity through premium(s).

Answer 6

The Principal

Question 7

An annuity for which the entire premium is paid in one sum at the beginning of the contract period. This can be delayed or immediate.

Answer 7

Single premium Annuity

Question 8

__________________________ describes an annuity owner making multiple premium payments to accumulate principle. Typically, after the initial premium, these payments are flexible with frequency and amount.

Answer 8

Periodic Payments (Flexible Premium)

Question 9

This provides for payment of annuity benefit at one payment interval from date of purchase. Can only be purchased with a single payment. Typically beginning to pay income within one month of purchase.

Answer 9

Immediate annuities

Question 10

This provides for postponement of the commencement of an annuity until after a specified period or until the annuitant attains a specified age. May be purchased either on single-premium or flexible premium basis. _______________ typically do not begin making income payments for at least one year after the date of purchase.

Answer 10

Deferred annuities

Question 11

An annuity income option that pays a guaranteed income for the annuitant’s lifetime, after which time payments stop.

Answer 11

Straight life annuity

Question 12

Upon the death of an annuitant before payments totaling the purchase price have been made, the excess of the amount paid by the purchaser over the total annuity payments received will be paid in one sum to designated beneficiaries.

Answer 12

The Cash refund option

Question 13

_______________________ with term-certain option is designed to pay the annuitant an income for life, but guarantees a definite minimum period of payments. The ___________________ option provides income to the annuitant for life but guarantees a minimum period of payments. This, if the annuitant dies during the specified period, benefit payments continue to the beneficiary for the remainder of that period.

Answer 13

A Life with Period Certain or life income

Question 14

A __________________ option provides for payment of the annuity to two people. If either person dies, the same income payments continue to the survivor for life. When the surviving annuitant dies, no further payments are made to anyone. A full _____________ option pays the same benefit amount to the survivor. A two-thirds _____________ option pays two-thirds of the original joint benefit. A one-half _____________ option pays one-half of the original joint benefit.

Answer 14

Joint and full survivor

Question 15

An annuity income option that guarantees a definite minimum duration of payments. (IE: 10 years.)

Answer 15

Period certain

Question 16

This provides a guaranteed rate of return. The interest payable for any given year is declared in advance by the insurer and is guaranteed to be no less than a minimum specified in the contract. With _________________, the investment risk is on the insurer.

Answer 16

Fixed annuities

Question 17

These shift the investment risk from the insurer to the contract owner. They are similar to a traditional, fixed annuity in that retirement payments will be made periodically to the annuitants, usually over the remaining years of their lives. Under the _______________, there is no guarantee of the dollar amount of the payments; they fluctuate according to the value of an account invested primarily in common stocks. ________________ invest deferred annuity payments in an insurer’s separate accounts, as opposed to an insurer’s general accounts (which allow the insurer to guarantee interest in a fixed annuity). Because ___________________ are based on non-guaranteed equity investments (such as common stock), a sales representative who wants to sell such contracts must be registered with the Financial Industry Regulatory Authority (FINRA) as well as hold a state insurance license.

Answer 17

Variable annuities

Question 18

A fixed deferred annuity that offers the traditional guaranteed minimum interest rate and an excess interest feature that is based on the performance of an external equities market index.

Answer 18

Equity indexed annuities

Question 19

A feature that can be attached to a deferred annuity that guarantees fixed interest rate with an interest rate adjustment factor that can cause the actual crediting rates to increase or decrease in response to market conditions. An ________________ annuity’s interest rate is guaranteed fixed if the contract is held for the period specified in the policy. If the contract is surrendered before the contract period expires, the ______________________ applies, and the adjustment is made to the amount paid to the annuity owner. It is designed to adjust the account value of the annuity contract to reflect changes in interest rates or market conditions at the time of the surrender.

Answer 19

A Market Value Adjustment

Question 20

A fraction used to determine the amount of annual annuity income exempt from federal income tax. ____________________ is the total contribution or investment in the annuity divided by the expected ratio.

Answer 20

The Exclusion ratio

Question 21

_______________________ applies to annuities. If an annuity is exchanged for another annuity, a gain (for tax purposes) is not realized. This is also true for a life insurance policy or an endowment contract exchanged for an annuity. However, an annuity cannot be exchanged for a life insurance policy. This provision in the tax code allows you, as a policyholder, to transfer funds from a life insurance, endowment or annuity to a new policy, without having to pay taxes.

Answer 21

1035 Contract Exchange

Question 22

A retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers

Answer 22

The 403(b) Plan

Question 23

The annuity that represents the largest possible monthly payment to an individual annuitant is a_______________________

Answer 23

Straight Life Annuity

Question 24

A contract owner terminates an annuity before the income payment period begins. What will the owner then receive?

Answer 24

the current contract surrender value

Question 25

A _______________ annuity pays based on units rather than stated dollar amounts.

Answer 25

Variable annuity