Chapter 9 - Annuities Flashcards
What is an annuity?
An agreement for one person or organization to pay another a stream or series of payments. It is considered to be a mirror image of life insurance.
What is the accumulation phase?
Is the period of time wherein the annuity builds up its value.
What is the annuitization phase
When it disburses the stream of payments
Attractive features of annuities
Tax deferral on investment earnings capital gains and investment income
Protection from creditors
An array of investment options
Tax free transfers among investment options
Lifetime income
Benefits to your heirs
Is there tax consequences if you change how your funds are invested?
No
Annuitant.
Also known as the measuring life. This is the person who receives the benefits or payments from the annuity.
Owner.
The person who purchases the contract. All rights of ownership such as naming beneficiaries, selecting payout option.
Beneficiary.
Person designated to receive the benefits from the annuity if the annuitant dies during the accumulation period.
Free look provision
10 calendar days from the date of contract to return for a full refund.
Grace period.
31 days following the premium due date to pay the overdue premiums. If claims arise insurer may deduct from death benefit.
Incontestability provision.
Other than age gender and identity required as a condition of contract The contract shall be incontestable after 2 years
Entire contract clause
The contract together with a copy of the application is the entire contract.
Reinstatement
Can reinstate policy within 3 years and by paying the overdue premiums plus interest, any loans outstanding, and provide evidence of insurability.
Policy surrenders.
Annuities or back end loaded products. Charge on cash value upon termination or withdrawal of funds. Surrender charge is a % of withdrawals and decreases over time.
Fixed annuities
Pay a fixed rate of return. The pay out is a set amount and is guaranteed.
Insurance company guarantees the principle.
A minimum rate of interest.
A level death benefit. Part of the insurer general account.
Variable annuities
Allows you to invest in stock or bond market.
Stock market will determine end value
Amount paid out is determined by investment performance (net expenses) of the fund.
Immediate annuities
Designed to convert a lump sum into an annuity so that income is immediately received. Provides income that you cannot outlive. Taxes only paid on earnings. Not taxed on principle.
When do payment start for immediate annuities.
A month after your purchase of the annuity
Deferred annuities.
Designed to accumulate premiums for a later payout. Payment of income taxes are deferred until withdrawal. No limits on annual contributions. Death benefit.
Annuity pay out - interest only
Insurance company keeps principle amount in the annuity earning interest and sends said interest to the annuitant.
Annuity pay out - Fixed amount
Pays the annuitant a set amount until the principle and interest are used up. Set amount depends on the period.
Annuity payout - fixed period.
Pays the annuitant an income a specified period of time. Fluctuation in interest rate effects amount.
Life contingency option - life Income No Refund
Straight life income or Pure life
Annuitant will receive income for life. Even after all money put in annuity is used. If death occurs money is forfeited.
Why would you open an annuities account.
For retirement. To ensure your income last as long as you do.
Tax deferral on investment earnings capital gains and investment income
Protection from creditors
An array of investment options
Tax free transfers among investment options
Lifetime income
Benefits to your heirs
Attractive benefits to annuities
Also known as the measuring life. This is the person who receives the benefits or payments from the annuity.
Annuitant
Grace period - survivorship annuity
Insurer may reduce annuity payments to take into account portion of any unpaid payment applicable to the period
31 days. Insurer may reduce annuity payments to take into account portion of any unpaid payment applicable to the period
Grace period - survivorship annuity
Other than age gender and identity required as a condition of contract The contract shall be incontestable after 2 years
Incontestability provision
Annuities or back end loaded products. Charge on cash value upon termination or withdrawal of funds. Surrender charge is a % of withdrawals and decreases over time.
Policy surrender
Pay a fixed rate of return. The pay out is a set amount and is guaranteed.
Insurance company guarantees the principle.
A minimum rate of interest.
A level death benefit.
Fixed annuities
Allows you to invest in stock or bond market.
Stock market will determine end value
Amount paid out is determined by investment performance (net expenses) of the fund.
Variable annuities
Designed to convert a lump sum into an annuity so that income is immediately received. Provides income that you cannot outlive. Taxes only paid on earnings not on principle.
Immediate annuities
Designed to accumulate premiums for a later payout. Payment of income taxes are deferred until withdrawal. No limits on annual contributions. Death benefit.
Deffered annuity
Insurance company keeps principle amount in the annuity earning interest and sends said interest to the annuitant.
Annuity payout - interest only
Pays the annuitant a set amount until the principle and interest are used up. Set amount depends on the period.
Annuity payout - fixed amount
Pays the annuitant an income a specified period of time. Fluctuation in interest rate effects amount.
Annuity pay out - fixed period.
Straight life income or Pure life
Annuitant will receive income for life. Even after all money put in annuity is used. If death occurs money is forfeited.
Life contingency option - life income no refund.
Life income with cash or installment funds.
Guaranteed minimum. Income for life however if annuitant dies before receiving all benefits then beneficiary gets left over.
Guaranteed minimum. Income for life however if annuitant dies before receiving all benefits then beneficiary gets left over.
Life income with cash or installment refund
Life income period certain
Cannot outlive income. If annuitant dies before stipulated time frame payments will continue to beneficiary for remainder of period.
Cannot outlive income. If annuitant dies before stipulated time frame payments will continue to beneficiary for remainder of period.
Life income period certain
Life income joint and survivor
Pays benefit over two lifetimes as opposed to 1. Provides the least income because of length of time.
Pays benefit over two lifetimes as opposed to 1. Provides the least income because of length of time.
Life income joint survivor
Exclusion ratio
Annuity payment that is not income taxes because it is return of original principle
Annuity payment that is not income taxes because it is return of original principle
Exclusion ratio
Single premium arrangement
Single payment that might be invested in growth for a long period of time for deferred annuity or for a short period of time for immediate annuity. Sales of assets or rollovers.
Single payment that might be invested in growth for a long period of time for deferred annuity or for a short period of time for immediate annuity. Sales of assets or rollovers.
Single premium payment
Flexible premium payment
Pay whatever and whenever annuitant wants
Pay whatever and whenever annuitant wants
Flexible premium
Fixed or level premium payment
Payment for same amount of premium for a specified time. Can only be used for deferred annuity
Payment for same amount of premium for a specified time. Can only be used for deferred annuity
Fixed or level premium.
Equity indexes annuities
A type of fixed annuity. Credits minimum rate of interest but it’s value is also based on performance of stock index
A type of fixed annuity. Credits minimum rate of interest but it’s value is also based on performance of stock index
Equity indexes annuities
Guaranteed minimum withdrawal benefit
Found in variable annuities and protects the annuitant against market risk by guaranteeing the right to withdraw a % of entire investment each year until the entire initial investment is recovered.
Found in variable annuities and protects the annuitant against market risk by guaranteeing the right to withdraw a % of entire investment each year until the entire initial investment is recovered.
Guaranteed minimum withdrawal benefit
