Annuity Principles and Concepts Flashcards
Concept of an Annuity
Annuities are primarily used to provide a steady stream of income to an individual, typically upon retirement
Owner
The individual who controls the contract, is responsible for making payments into the contract, and has all of the contractual rights in the policy.
Annuitant –
The individual whose life the contract is based on. Upon a lifetime annuitization, payments will be made to the annuitant based upon the annuitant’s age, gender, settlement option selected, and dollar amount used to fund the income benefit payments.
Beneficiary
The individual or person named in the contract to potentially receive benefits if the owner and/or annuitant die prior to annuitization or if the settlement option selected offers any residual benefit after the annuitant’s death.
During the accumulation period, if the contract owner and the annuitant are the same person and the designated beneficiary is the annuitant’s spouse, the IRS code allows the spouse to assume ownership of the annuity once the annuitant dies. The rights of ownership include tax deferment.
The spouse-beneficiary may adopt the annuity as his/her own. As the owner, he/she may name a new annuitant and/or beneficiary, or assign ownership to another person for value.
Insurance Aspects of an Annuity
Annuities are insurance products based on a mortality table. If a life contingency settlement option is chosen, the insurance company guarantees to provide an income benefit payment as long as the annuitant lives.
Death Benefits
In addition to providing a guaranteed income benefit payout for life, an annuity also has another guarantee if the annuitant dies prior to annuitizing the contract. In this case, the policy has a named beneficiary, just like a life insurance policy. The insurer will pay out an amount equal to the total premiums paid or the account value, whichever is greater.
