Unit 5: Annuities Flashcards
annuitized
That is, the accumulation is converted into a stream of periodic payments
annuity period begins when
the accumulated fund starts to make payments to the annuitant.
variable annuity
offers a variable, nonguaranteed rate of interest that offers the potential, but not a promise, to act as a hedge against inflation.
fixed annuity
specifies a fixed, guaranteed minimum rate or interest that will be paid on the principle amount invested in the annuity - contract owner knows minimum return
accumulation period for an annuity
may be initiated by the payment of a single lump sum or the first of a series of premium payments
annuitant
person who will receive the payments from annuity- contract owner names beneficiary
an annuity eliminates uncertainty by
converting a sum of money into a series of period payments that can be guaranteed to last a lifetime and sometimes longer
annuity
income stream
What are the two types of annuities?
Not fixed and variable
What is a nonforfeiture option?
the rights to cash value accumulation up to the point the premiums estopped
What are the two categories of annuities?
Immediate and deferred annuity
What are immediate annuities? and what is a key about them related to purchasing them?
- a contract
- they can only be bought with single premium
“A contract is an immediate annuity if income payments to the annuitant
are to begin one payout interval (e.g., one month or one year) after purchase of the annuity
A contract is a deferred annuity if what?
income payments are to begin at some
further point in the future, perhaps as much as several years from the date of purchase.
Even with an immediate annuity, payments do not begin on the very next day after the contract is purchased. Instead, payments begin after one full payment period from the date of purchase has
Even with an immediate annuity, payments do not begin on the very next day after the contract is purchased. Instead, payments begin after one full payment period from the date of purchase has
In addition, keep in mind that if the insurance company is to begin paying the annuitant shortly after the purchase of the contract, then …… what?
the purchaser must pay for the entire contract at once. An immediate annuity must be paid for with a single premium
A deferred annuity can also be what?
a single premium contract or single premium deferred annuity
annuities are not … what? hint: in relation to taxes
they are not tax free
What is a single premium annuity?
An annuity purchased by a single lump-sum payment
There are different types of annuities available and various ways to pay for an annuity
- single premium annuity
- level premium annuity
In the case of a deferred annuity contract, the annuitant could die before he received even one income payment under the contract. Although company policy varies greatly as to what amount is paid to the annuitant’s beneficiary or other heirs, most companies …
refund at least the amount the purchaser has paid for the contract at that point. Some may include interest on that amount,
What is a level premium annuity? what is a common level premium annuity and what is it?
the premiums are paid in periodic installments over the years before the date on which the annuity income.
Common level premium annuity: annual premium annuity
What it is: the premiums are paid in yearly installments up to the time the annuity benefits begin.
Premiums can also be paid semiannually, quarterly, or monthly.
What is a flexible premium annuity?
When the purchaser has the option to vary the amount of each premium payment
What is the disadvantage of a flexible premium annuity?
The actuas
amount of the annuity beneft cannot be determined in advance because there is no way to determine in advance the amount of each premium that will be paid, or indeed, how much will be paid in total for the annuity. The purchaser of a flexible premium annuity must therefore wait until the final premium payment has been made to determine the exact amount of the annuity benefit. Benefits can be projected, of course, based on assumptions about premium payments.
What are the 5 factors used to determine annuity premiums?
- Annuitant’s age
- Annuitant’s sex
- Assumed interest rate
- Income amount and payment guarantee
- Loading for company expenses
When you see variable in questions ….. choose what answer?
investment or separate account?
A life annuity, or straight life annuity, provides for what?
periodic income to be paid to the annuitant for as long as he lives. The payments cease upon the annuitant’s death. There is not a guarantee as to minimum benefits with a life annuity.
the variable annuity contract owner is actually buying what?
accumulation units in the separate account. He is not buying shares of stock or other securities. Thus the money used to biuy accumation units is the net purchase payment
The main difference between the refund and the life annuity is what?
that a refund annuity guarantees that an amount at least equal to the purchase price of the contract will be paid.
If death occurs before an amount equal to the purchase price has been paid, what happens?
The annuitants beneficiary receives the rest of the money in cash or installment payments
Under life annuity with period certain income installments must be paid for what?
the number of years guaranteed in the contract?
Under a life annuity with period certain, if the annuitant lives longer than the certain period stated in the contract, income payments do what?
continue for the lifetime of the annuitant
Under a life annuity with period certain, if the annuitant lives longer than the certain period stated in the contract, income payments continue for the lifetime of the annuitant. This is not the case with a temporary annuity certain, however. what happens in this situation?
If the insured outlives the period of payments stipulated in the temporary annuity certain contract, payments stop at the end of the period.
temporary annuity certain does what?
fixes time
who can get tax sheltered annuities?
non profit + school
To encourage public school systems and tax-exempt charitable, educational, and religious organizations to set aside funds for their employees’ retirements, what can be done?
tax-sheltered annuity (TSA) plans may be set up and the contributions excluded from the current taxable income of the employees.
