Ch. 3 - Annuity Features & Characteristics Flashcards
What determines the amount of anonymity’s death benefit?
Generally, the death benefit is defined as the greater of either: the contracts accumulated value at the time of death or the sum of all premiums paid, less any withdrawals. Fixed and index annuities generally pay death benefits equal to the contract’s accumulated value. Variable annuities will pay either the accumulated value or the premiums paid less any withdrawals, whichever is greater.
Death benefit
Payment in the event of the death of the owner or the annuitant if they die before the contract has annuitized.
Funding options for immediate annuities
Immediate annuities require a lump sum premium payment.
Funding options for deferred annuities
Single premium payment or any number of premium deposits.
Annuitization
The accumulated values of annuity contract are converted into a stream of periodic income payments.
Annuitization date (annuity start date, maturity date)
The date on which an annuity’s Annuitization schedule begins.
Annuity dates for immediate annuities
Annuity days for immediate annuity is generally fall soon after the contract is purchased. The timing of this date mirrors the frequency of income payments. e.g., Income paid monthly equals an annuity date one month from purchase.
Annuity dates for deferred annuities
Deferred annuities generally have flexible annuity dates, so the owner has some control over the start date for annuitization. generally, the annuity date falls on the later of the 10th anniversary date for the year the owner reaches age 80 or 85.
Annuity payout options
Generally, fixed and indexed annuities pay a fixed income during payout and variable annuities pay income that fluctuates in line with how the underlying investments perform. Variable annuities, however, may allow the owner to decide which option they prefer.
Fixed annuity fees
Surrender charges, premium tax, market value adjustments
Surrender charge
Fees and insurer assesses for early withdrawal (withdrawal fee) or contract surrenders (surrender charge).
Common approaches for determining surrender charges
Account value method and premium deposit method
Account value method
Assessment of surrender charges equal to some percent of the contracts accumulated value
Premium deposit method
A method for determining surrender charges that calculates charges on the amounts of the contracts invested premium, applying a percentage that usually declines annually over the surrender charge period.
Market value adjustment
Adjustments made to the market value of the contract that is surrendered during the surrender charge period based on interest rates of the market.
Premium tax
A tax on annuity premiums that some states impose on insurers, which ensures pass on to contract owners via fees.
Variable annuity charges
Mortality and expense charge, fund expense charge, administrative service charge, contract maintenance fee, contingent deferred sales charge
Mortality and expense (M&E) charge
The cost of a variable annuity’s death benefit and annuity charge plus related ensure costs such as agent commissions and overhead.
Fund expense charge
The charge for investment companies managing portfolios securities within a variable annuity subaccount.
Administrative service charge
Variable annuity fee to cover the costs associated with servicing the annuity.
Contract maintenance fee
In the annual fee imposed on a variable annuity to cover the administrative costs of maintaining a contract.
Contingent deferred sales charge (CDSC)
A fee associated with early variable annuity contract surrenders.
No load variable annuities (C Share annuities)
Variable annuities that do not have a surrender charge. These annuities generally also do not provide a fixed account investment option.
L share annuities
Variable annuities with shorter surrender charge periods than normal.
Surrender-free withdrawals
Withdrawals allowed by annuities that are limited annually in terms of a percentage of premium invested, a percentage of accumulated values, or a percentage of earnings.
Cumulative surrender free withdrawal
Contract provision that allows any free withdrawal amount that is not taking in any year to rollover to the next year.
Crisis waiver
An instance when an insurer may waive the surrender charge if certain crises happen during the surrender period. Death, disability, unemployment, entry into a nursing home, terminal illness, RMD distribution.
Bonus credits
Additional funds insurers provide to contract owners to entice them to either open a contract or keep any contract open (persistence bonus).
Guaranteed living benefits
Guarantees a variable annuity’s principal will be protected and a minimum level of principal will be available for income, accumulation, or withdrawal.
Three types of guaranteed living benefit riders:
Guaranteed minimum income benefit, guaranteed minimum accumulation benefit, guaranteed minimum withdrawal benefit.
Guaranteed minimum income benefit
A rider that guarantees a minimum level of income payments will be paid if the owner decides to annuitize, regardless of the value of the contract upon annuitization.
Guaranteed minimum accumulation benefit
A rider that guarantees that a contract principal will be safeguarded and will not be drawn down by poor investment performance.
Guaranteed minimum withdrawal benefit
A rider that guarantees that the full amount of the owners invested principal will be available for systematic withdrawals or a specified number of years, regardless of the contract actual values.
Long-term care insurance rider
Hey writer that is designed to provide cash benefit payments in the event that the owner needs long-term care.
Free look provision
A contract feature that allows the contract holder to return the contract within a specified period of time and efforts the livery and receive a full refund of premium.
