Insurance

Question 1

Pure Life Annuity

Answer 1

AKA Straight Life annuity is one that provides periodic benefit payments as long as the annuitant lives, with payments ceasing upon the death of the annuitant. The pure life annuity has the following advantages and disadvantages

Question 2

Advantages of a Pure life immediate fixed annuity

Answer 2

• Annuitants has a guaranteed stream of income no matter how long the annuitant lives.
• No residual value remains in the policy at the annuitant’s death that would be subject to estate taxes.
• This annuity has the highest payout of all the settlement options.

Question 3

Disadvantages of a pure life immediate fixed annuity

Answer 3

• Annuitant receives a fixed payment (no inflation)
• Annuitant cannot commute the remaining value. In other words, the annuitant cannot change his mind and ask for the principal back after his health changes.
• Annuitant may die before the return of the entire principal is realized. Nothing is left for the annuitant’s beneficiaries.

Question 4

Period Certain Annuity

Answer 4

Guarantee periods are 5, 10, 15, and 20 years. helps lower the risk of potential loss of wealth (often to a family) in comparison to a pure life. The longer the guarantee period, the lower the annuity payout.

Question 5

Single Premium Deferred Annuity (SPDA)

Answer 5

The annuity is purchased with a single premium rather than periodic payments. The principal feature is that earnings accumulate tax-deferred until distributed.

Question 6

Variable Annuity

Answer 6

An annuity may be variable during the accumulation period and variable during the payout period or fixed during the payout period. Premiums are normally invested in a portfolio of mutual fund-like investments (called sub accounts or allocation accounts or separate accounts). Both an insurance and security license are required to sell the variable annuity (or variable life insurance)

Question 7

Refund Annuity

Answer 7

With this feature, the contract can promise, upon the death of the annuitant, to pay to the annuitant’s estate or to designated beneficiary a lump sum that is the difference, if any, between the purchase price of the annuity and the sum of monthly payments.