Ch. 4 - Annuity Income Options Flashcards
Payout option or settlement option
Specifying as to who and for how long payments are to be made.
Annuity purchase rate
The amount of monthly income that each $1000 of the contract values will generate based on specified rates of interest and the annuity payout option selected.
Types of payout options
- ) Payout over a specified number of years (term certain)
- ) Payout for the duration of the annuitant’s life (life income)
- ) Payout for the duration of joint annuitants’ lives (joint and survivor income)
- ) Combined life and term certain payout (life/lives contingency with a term certain)
Components of variable annuitization
The assumed interest-rate, the annuity purchased rates for the first payment, the number of annuity units in each sub account, the ongoing growth and performance of the subaccount values.
Assumed interest-rate (AIR)
The rate of investment return Ross that the contract is assumed are projected to experience during the annuitization stage. The benchmark against which actual future growth of the contracts funds will be measured.
Commutation
The halting of an annuitization in order to take the contract’s remaining value as a lump sum
Split annuitization option
When a portion of an annuity purchases an immediate annuity to produce income while the balance remains invested in the deferred annuity to grow back the original amount over the same period.
Systematic withdrawals
Distributions from an annuity on a programmed basis, such as monthly quarterly semiannually or annually. A contract’s earnings are redeemed first before principal. Fixed annuities allow for systematic withdrawal of specific dollar amounts or percentages of the account. Variable annuities allow for systematic withdrawal of specific dollar amounts or accumulation units. Does not guaranteed life long income.
