Classification and Uses of Annuities Flashcards
Annuity Classifications are based on:
Method of premium payment (single, flexible, and periodic)
Funding (fixed vs. variable)
When income benefits are payable (immediate vs. deferred)
The payout option selected (Life only vs Annuity certain)
Purchase Other Insurance
Annuities can be used as a funding vehicle for insurance premiums for which the consumer may have a need.
Instead the annuity can be used either through systematic withdrawals or a settlement option to buy life insurance which will pay out a death benefit income tax free to the beneficiary.
Education Funding
An annuity can provide funds to help offset the costs of a college education. Using a systematic withdrawal or a settlement option will provide for an income stream to help meet or offset some of the expenses incurred.
Retirement Fund Accumulation
A deferred annuity that is held outside an Individual Retirement Account (IRA) allows for the accumulation of earnings on a tax-deferred basis. Earnings may come from current or guaranteed interest credits, excess credits linked to the performance of a stock index, or from the performance of a separate account. The premiums are not tax-deductible.
Retirement Income
The funds accumulated inside an annuity can be used to fund all or part of a consumer’s retirement income.
A Guaranteed Minimum Withdrawal Benefit (GMWB) is an optional benefit that can be purchased to help annuitants protect their retirement income from a down market. This option allows the annuitant to withdraw a maximum percentage each year until the initial investment has been paid out.
Long-term Care Benefits
Today’s annuities may offer riders which will help offset some of the costs associated with providing long-term care.
Lump Sum Structured Settlements
–Lump sum payments from lawsuits, lottery winnings, or an inheritance can be used to purchase a structured settlement in the form of an annuity. The annuity can then be used to provide guaranteed lifetime income to the annuitant.
