Unit 9 - Annuities Flashcards
Accumulation Period
The “Pay-In” period, when an annuity is being funded, before a payout begins. The money paid into an annuity is called a premium.
What can the owner generally do during the accumulation period?
- Make additional premium payments or deposits
- Take withdrawals from the accumulated value
- Surrender the annuity for its cash value
- Make other changes to the contract
Annuitization Period
The “Pay-Out” period, money in the contract is converted into a series of regular income payments that can continue for the life or for a stated period of time.
When the annuitization period starts, who does the money belong to?
The insurance company
- No additional premiums can be made
- No withdrawals can be taken
- The annuity cannot be surrendered
- The owner can’t change the contract
Parties involved in the Annuity Contract
- Contract Owner
- Annuitant
- Beneficiary
- Insurer
Contract Owner
The person or couple who buy the annuity and has certain rights.
- name or change the annuitant
- name or change the bene
- choose the payout option
- add more money or take withdrawals
- surrender or terminate the agreement
Annuitant
“Insured”, they are chosen by the owner to receive the income payments during the annuitization period
- The annuitant’s life is used to determine the amount of guaranteed payments
- The annuitant must be a person, cannot be a corporation or trust
Beneficiary
The bene has no voice in the control or management of the annuity and only benefits upon death of the contract owner.
Can be a person, trust or corporation.
Insurer
The party who issues the annuity contract.
Immediate Annuity
“Single Premium Immediate Annuity” (SPIA)
- Begins as soon as a month after purchase or may be delayed for up to one year.
- Interest is subject to taxes, the rest is treated as a return of principal and is tax free.
Deferred Annuities
Do not start an income stream immediately,
Owner is not required to annuitize the contract.
How can deferred annuities be paid for?
- Single Premium Deferred Annuity (SPDA)
- Periodic Premium Deferred Annuity (PPDA)
- Flexible Premium Deferred Annuity (FPDA)
Surrender or Withdrawal
- 10% tax if withdrawn before 59 1/2
- Surrender period - waiting period
- Surrender fee - penalty for early withdrawal
Death Benefit
The accumulated contract value is paid to a selected beneficiary if the annuity owner dies during the accumulation period.
The amount paid as a death benefit is the greater of:
- the accumulated value of the annuity; or
- the total premiums paid to that point, minus withdrawals
Life Only Payout Option
AKA: Straight Life, Pure Life, Life-no refund
Payments continue on until the annuitant dies, regardless of when that occurs.
- Highest payout
- Only the annuitant’s life expectancy is considered to determine the amount of the monthly payout.