Chapter 7- Annuities Flashcards
a retirement plan limited exclusively for employees of religious, charity, or educational groups
- accumulation payments often come from voluntary salary reductions
- the annuitant may have an individual account contact
403(b) Plan (also called tax-sheltered annuities)
ways of providing a stream of income for a guaranteed period of time
annuities
1035 Contract Exchange
This provision in the tax code allows you, as a policyholder, to transfer funds from a life insurance, endowment, or annuity to a new policy, without having to pay taxes.
Accumulation Period
the pay-in period, where the contract owner makes the purchase payments
- normally may continue after the purchase payments cease
annuity period (liquidation period, annuitization or pay-out period)
time when the money that has accrued during the accumulation period is paid-out in the form of payments to the annuitant
make up the value of contributions made by the annuitant less a deduction for expenses.
- The value is a credit to the individual’s account and varies depending on the value of the underlying stock investment.
Accumulation Units
Annuitant
the income benefits distributed at regular intervals during the liquidation phase of an annuity contract are normally payable to
the converted accumulation units once variable annuity benefits are to be paid out to the annuitant
Annuity Units
provides that, upon the death of an annuitant before payments totaling the purchase price have been made, the excess of the amount paid by the purchaser over the total annuity payments received will be paid in one sum to designated beneficiaries.
Cash refund option
will pay the beneficiary the same monthly income benefit that the annuitant was receiving until the remaining principal is depleted
Installment refund option
Joint and full survivor option
provides for payment of the annuity to two people
- designed to pay the annuitant guarnteed payments for the life of the annuitant or for a specific period of time for the beneficiary
- it provides that benefit payments will continue for a minimum number of years regarless of when the annuitant dies
Life with Period Certain payout option (life income with term-certain)
Deferred annuities
provide for postponement of the payment of an annuity until after a specified period or until the annuitant attains a specified age.
- May be purchased on either a single-premium or flexible premium basis
- Deferred annuities typically do not begin making income payments for at least one year after the date of purchase.
Equity indexed annuities
a type of fixed annuity that offers the potential for a higher retrun than a standard fixed anniuity
- they are sometimes tied to the S&P 500 or composite stock price index
Fixed annuities
- guarantees a fixed interest rate for a specified period of time
- provide a guaranteed rate of return
- the investment risk is on the insurer
describes an annuity owner making multiple premium payments to accumulate principal. Typically, after the initial premium, these payments are flexible with frequency and amount
Periodic Payments Annuity (Flexible Premium)
Immediate annuities
- provide for payment of an annuity benefit at one payment interval from the date of purchase.
- can only be purchased with a single payment
- begin paying income within one month of purchase
- shift the investment risk from the insurer to the contract owner
- retirement payments will be made periodically to the annuitants, usually over the remaining years of their lives.
- there is no guarantee of the dollar amount of the payments; they fluctuate according to the value of the account invested, primarily in common stocks.
Variable annuities
simple way to determine what portion of each annuity benefit payment is taxable
Exclusion ratio
exclusion ratio =
investment in the contract / expected return
an annuity income option that guarantees a definite minimum period of payments. IE: 10 years
Period certain
can be attached to a deferred annuity that features fixed interest rate guarantees combined with an interest rate adjustment factor that can cause the actual crediting rates to increase or decrease in response to market conditions
Market Value Adjustment
an annuity for which the entire premium is paid in one sum at the beginning of the contract period.
- This can be a deferred or immediate single premium annuity
Single premium Annuity
an annuity income option that pays a guaranteed income for the annuitant’s lifetime, after which time payments stop
Straight life annuity
Because variable annuities are based on non-guaranteed equity investments (such as common stock), a sales representative who wants to sell such contracts must be registered with the _____ as well as hold a ___ insurance license.
Financial Industry Regulatory Authority (FINRA); state
type of annuity is one that has different values available for distribution at maturity depending upon whether the value is taken in a lump sun before annuitization or left with the insurer in order to receive monthly payments
two-tiered annuities
a ____ prior to the annuity starting date is provided since the insurer is obligated to return all or a portion of the annuity cash value if the purchaser dies or voluntarily terminated the contract
guarantee
