Unit 9: Annuities

Question 1

accumulation period

Answer 1

“paying in” money
interest grows tax deferred
annuity value belongs to the owner

Question 2

annuitization period

Answer 2

“pay out” phase

income generated from accumulated money

money from the accumulation period or from inheritance, lottery winnings, or curt settlements

money belongs to the insurance company

Question 3

parties to an annuity

Answer 3

contract owner:

• names the annuitant
• names the beneficiary
• can withdraw money
• can end the contract

annuitant (the insured)

• receives the income
• can be more than one person

beneficiary

• receives the accumulation value if owner dies
• may receive income payments if annuitant (insured) dies sooner than inspected

insurer
-issues the contract

Question 4

annuities vs life insurance

Answer 4

______ = death
-premium buys a death benefit

______=living
premium used to :
-accumulate money
-provide an income while living

Question 5

immediate annuity

Answer 5

benefit payments begin within 1 month of purchase (up to 12 months)

• purchased with a single premium (SPIA)
• has no or short accumulation period

Question 6

deferred annuity

Answer 6

benefit payments postponed until retirement age

bought with single premium (SPDA) or flexible premiums (FPDA)

Has an accumulation period

Owner decides annuitization at later time

Question 7

surrender or withdrawal

Answer 7

10% tax if withdrawn before 59 1/2
surrender period - waiting period
surrender fee -penalty for early withdrawal

Question 8

Life

also referred to as: straight life, pure life, or life-no refund

Answer 8

guarantees income for life regardless of how long
death stops payments (even if after one payment)
largest monthly check from life options

Question 9

life - refund certain

Answer 9

cash refund or installment refund

income for life

death payments less than contract value

• balance to beneficiary
• lump sum or monthly payments

Question 10

Life - period certain

Answer 10

income for life they live

choose period such as 10 or 20 years
-annuity will pay beneficiary if annuitant dies within that period

Question 11

joint life and survivor

Answer 11

annuitants paid even after one dies

payments to survivor until their death
same or reduced

Question 12

joint life

Answer 12

two annuitants paid until one dies

payments stop when first of two annuitants dies

Question 13

factors affecting payment amount

Answer 13

!!!
annuitants age 
annuitants gender 
length of payment guarantee 
assumed interest rate

Question 14

fixed annuities

Answer 14

fixed, guaranteed payout

• general account
• long term low risk investments
• if annuitized-fixed income payments
• money guaranteed by company
• can lose purchasing power due to inflation

Question 15

variable annuities

Answer 15

separate account

no guarantees by the company owner assumes the risk

premium buys accumulation units

if annuitized accumulated money buys annuity units

value can go up or down

must be licensed by the state and security regulators (SEC &FINRA)

Question 16

equity-indexed annuities

Answer 16

• are fixed annuities
• value is guaranteed by the company
• interest earned can go up or down like the stock market
• interest is tied to stock market index (S&P 500)
• no securities license required

Question 17

uses for annuities

Answer 17

• life income
• tax favored savings
• funding individual retirement accounts (IRA)
• Education funds

Question 18

group annuities

Answer 18

employer sponsored retirement plans are funded with group annuities

distributions determined by employer