Chapter 2.2 - Annuities

Question 1

What is an Annuity?

Answer 1

a contract that provides income for a specified period of years, or for life. An annuity protects individuals against outliving their money.Annuities arenot life insurance, but rather a vehicle for the accumulation of money and theliquidation of an estate.

Question 2

Annuity payments stop upon the _____ of the annuitant

Answer 2

death

Question 3

What do Mortality Tablesindicate ?

Answer 3

the number of individuals within a specified group (e.g., males, females, smokers, nonsmokers) starting at a certain age, who are expected to be alive at a succeeding age.

Question 4

Who is the purchaser of the annuity contract, but not necessarily the one who receives the benefits?

Answer 4

Owner

Question 5

Who is the person who receives benefits or payments from the annuity, whose life expectancy is taken into consideration, and for whom the annuity is written?

Answer 5

Annuitant

The annuitant and the contract owner do not need to be the same person, but most often are.

Question 6

An annuitant must still be a _____ person in a corporation, trust or other legal entity.

Answer 6

natural

Question 7

Who is the person who receives annuity assets (either the amount paid into the annuity or the cash value, whichever is greater) if the annuitant dies during the accumulation period, or to whom the balance of annuity benefits is paid out?

Answer 7

Benificiary

Question 8

Why must the annuitant must be a natural person, regardless of who owns the policy?

Answer 8

Because annuities are based on the life expectancy of an annuitant.

Question 9

What is the period of time called over which the owner makes payments (premiums) into an annuity. as well as earn interest from the payments on a tax-deferred basis?

Answer 9

Accumulation Period (Pay-In Period)

Question 10

What is the timecalled during which the sum that has been accumulated during the accumulation period is converted into a stream of income payments to the annuitant?

Answer 10

Annuity period, also known as theannuitization period,liquidation period, orpay-out period

Question 11

What is theannuitization date?

Answer 11

the time when the annuity benefit payouts begin (trigger for benefits).

Question 12

During the accumulation period, funds are paid _____ the annuity.

Answer 12

INTO

Question 13

During the annuity period, funds are paid _____ to the annuitant.

Answer 13

OUT

Question 14

The annuity income amount is based upon what 4 elements?

Answer 14

• The amount of premium paid or cash value accumulated
• The frequency of the payment
• The interest rate
• The annuitant’s age and gender

Question 15

Shorter life expectancy = _____ benefit

Answer 15

higher

Question 16

Longer life expectancy = _____ benefit

Answer 16

lower

Question 17

Why are annuities purchased?

Answer 17

to provide or supplementretirement income, to fund or to help fund acollege education, or any situation that requires a steady stream of income at some point in the future.

Question 18

What is the basic function of an annuity?

Answer 18

liquidating a principal sum, regardless of how it was accumulated.

Question 19

The 2 Premium payment methods are….

Answer 19

single premium vs. periodic

Question 20

The 2 options for when income payments begin are…

Answer 20

immediate vs. deferred

Question 21

What are the 2 ways that premiums are invested?

Answer 21

fixed vs. variable

Question 22

How are the proceeds of an annuity disposed?

Answer 22

pure life, annuity certain, or life refund annuity

Question 23

What is a single premium?

Answer 23

a one-time lump-sum payment

Question 24

What are periodic payments?

Answer 24

the premiums are paid in installments over a period of time

Question 25

What are the 3 features of a Fixed Annuity?

Answer 25

• Guaranteed minimum rate of interest to be credited to the purchase payment(s);
• Income (annuity) payments that do not vary from one payment to the next; and
• The insurance company guarantees the specified dollar amount for each payment and the length of the period of payments as determined by the settlement option chosen by the annuitant.

Question 26

What is a premium in which the amount and frequency of each installment varies?

Answer 26

Flexible premium

Question 27

What is a premium in which the annuitant/owner pays a fixed installment?

Answer 27

Level premium

Question 28

What is a disadvantage to Fixed annuities?

Answer 28

the purchasing power that they afford may be eroded over time due to inflation.

Question 29

Avariable annuityserves as a _____ against inflation.

Answer 29

hedge