Ch 10: Annuities Flashcards
What are the two primary reasons to purchase an annuity contract?
Income and tax deferred growth
While an annuity contract is being funded, it grows tax deferred. The period of time when the annuity contract is being funded is called?
Accumulation period.
How are annuities funded?
Immediately (single premium) or periodic payments
What is an immediate annuity?
An annuity that is funded with a single payment allowing the annuitant to receive benefits immediately.
What is deferred annuity?
When the payments are made at some future date
What happens when an annuitant dies during the accumulation period of a deferred annuity?
Usually an amount at least equal to the amount accumulated will be paid to the beneficiary
What is an (equity) indexed annuity?
Offers guaranteed interest rate plus excess interest without any loss of principal
What is a variable annuity?
Invest the deferred payments in the insurer’s separate account. The value of the annuity unit may change.
Unless the applicant indicates otherwise, the right to return period in an individual annuity, the premium for a variable annuity will only be invested in?
Fixed income investments and money market funds
What does a straight life income annuity option (life annuity, or pure life annuity) do?
Pays the annuitant for his/her lifetime. Upon the death of annuitant, no further payments are made to anyone.
What is a life with period certain annuity option?
This option will pay the annuitant for life, but guaranteed a minimum period of payments. So basically pays for life when annuitant is alive, but if they die early, the payments will go to beneficiary until the minimum payment is reached.
What’s the unit refund life annuity option (cash refund)?
Guarantees to pay an income at least equal to the purchase price. Pays annuitant fixed payment for as long as the annuitant lives. If they die, payments continue until purchase price is met.
What’s going and survivor annuity option?
Designed to pay an income for two lives. If either dies, payments continue to the survivor for life. When the surviving annuitant dies, all payments stop.
