Ch. 5 (Annuities) Flashcards
In an annuity, the accumulated money is converted into a stream of income during which phase?
Annuitization period.
What are the two classifications of annuities according to the time when annuity payments begin?
Immediate and deferred.
In flexible premium payment annuities, the term “flexible” refers to what?
Amount of premium.
An individual has a contract that will provide him with a certain amount of income for the rest of his life. However, this is not a life insurance policy. What type of contract does this person have?
Annuity.
What are the two phases of an annuity?
Accumulation and annuitization (or pay-in and pay-out).
What are the two types of refund life annuities?
Cash refund and installment refund.
If the current interest rate on an annuity is higher than the guaranteed rate, which rate will the annuity owner receive as part of the annuity payment?
Current.
What type of annuity requires an agent to have a securities license?
Variable annuity.
Who possesses all the rights in an annuity?
Annuity owner.
How long will an annuity with a 15-year period certain pay?
For the life of the annuitant unless he/she dies within the first 15 years of the annuitization period; then the payments will last for 15 years.
What type of annuity can be purchased with a single premium?
Immediate annuity.
What annuity settlement option provides income payment to the annuitant for the duration of his or her life, and also guarantees payment for a specified number of years?
Life income with period certain.
What is the main reason for purchasing an annuity?
To provide income that the annuitant cannot outlive.
What annuity settlement option provides income payments to the annuitant for the duration of his or her life, and ceases at the annuitant’s death?
Pure life.
Regarding annuity payments, what is the difference between the annuitant and the beneficiary of an annuity?
The annuitant receives payments from the annuity during the annuitization period; the beneficiary receives payments after the annuitant’s death.
With a single payment deferred annuity, when will the annuity payments become available?
No sooner than one year after the annuity purchase.
Whose life expectancy is taken into consideration in an annuity contract?
Annuitant.
Can a business or a corporation be an annuitant?
No, an annuitant must always be a natural person.
If an annuity provides a set amount of income for two or more persons with the income ceasing upon the first death, what type of annuity is that?
Joint life annuity.
What causes a variable annuity benefit to vary?
The annuity’s underlying investments.
If the annuitant dies before the annuitization period, what will the beneficiary receive?
Either the amount paid into the annuity or the cash value, whichever is greater.
How are annuities classified according to how many lives they cover?
Single life and multiple life annuities.
In flexible premium payment annuities, the term “flexible” refers to what?
Amount of premium.
How long is income paid under a pure life annuity?
Only for the life of the annuitant.
Who bears the investment risk in a fixed annuity?
The insurer.
If there is no named beneficiary for the annuity benefits, to which entity will the benefits be paid?
Annuitant’s estate.
What type of annuity credits its interest based upon an index such as the S&P 500?
Equity indexed annuity.
Who receives income payments from an annuity?
Annuitant.
If the annuitant dies during the accumulation period, who will receive the annuity benefits?
Beneficiary.
An annuity purchased with multiple payments that begin income payments after one year from the moment of purchase is known as what type of annuity?
Flexible premium deferred annuity.
How soon can income payments begin in an immediate annuity?
No later than one year from the time of annuity purchase.
What is the disadvantage of owning a fixed annuity, as opposed to variable?
In times of inflation, the benefit of a fixed annuity will have decreased purchasing power.
What is the difference between a single premium and a flexible premium payment option in a deferred annuity?
The number of payments that purchase the annuity.
What are accumulation units in annuities?
Ownership interest in the separate account (instead of buying shares, the annuity holder purchases accumulation units).
What type of annuity is suitable for a person who wants to select the benefit option that will pay the largest amount only for as long as the annuitant lives?
Straight life.
