Chapter 7 Annuities Fixed and Variable Flashcards
Life insurance based on building a ________
Annuity based on liquidating a _______
Estate
Accumulation Phase
before payout period begins
Payout Period
after accumulation phase
quarterly, semi annual, or annual payment schedules
2 types of annuity payments (depending on contract)
- Immediate
2. Deferred
Immediate Annuity
Payment of annuity benefit at one payment interval from date of purchase
Deferred Annuity
postponement of commencement of annuity until after a specified period or until reaching a certain age.
Fixed Annuity
guaranteed fixed benefit amount payable for life.
guaranteed rate of return
Variable Annuity
No guarantee of $ amount of payments due to fluctuations of common stock
no guaranteed rate of return
Straight Life Income Annuity
guarantees income for lifetime
Cash Refund Option
guaranteed income for lifetime, or if dies before funds are depleted beneficiary receives a lump sum payment.
Installment Refund Option
guaranteed income for lifetime, if dies, pays beneficiary in periodic installments
Life with Period Certain Option
guaranteed income for lifetime, if dies before period expires, policy pays beneficiary installments until period ends
Period Certain Option
Guarantees only for a certain time, if dies before period ends, pays beneficiary through end of period.
Joint and Full Survivor Option
payments split among 2 annuitants. if 1 dies, other gets rest of principal, when they die no more payments are made.
Joint and 2/3 option
survivors income reduced to 2/3 of original joint income
Joint and 1/2 option
survivors income reduced to 1/2 of original income
Equity Indexed Annuities
form of fixed rate annuity.
credits interest to annuities value
uses formula based on changes to index, determines how interest (if any) is calculated and credited.
2 Features of Equity Indexed Annuities
The Indexing Method- approach used to determine amount of change in the index
The Participation Rate- decides how much of the increase with be used to calculate index linked interest
Annuity Payout Options
can be for specified term of years, for life, or combination of the 2
Exclusion Ratio
fraction used to determine amount of annual income exempt from federal income tax
total contribution divided by expected ratio
Single Premium Annuity
Purchased with entire premium paid in one sum at time of purchase
Structured Settlements
used to distribute funds from lawsuits or lottery winnings.
Tax Sheltered Annuity
Non-profit organizations and employees
funds contributed are excluded from current taxable income and only taxed when benefits are paid.
