Unit 9 Annuities

Question 1

accumulation period

Answer 1

a phase of an annuity
paying-in money
interest grows tax deferred
annuity value belongs to owner

Question 2

annuitization period

Answer 2

a phase of an annuity
pay-out period
income generated from accumulated money
money from the accumulation period or from inheritance, lottery winnings, or court settlements
money belongs to the insurance company

Question 3

parties involved in the annuity contract

Answer 3

contract owner
annuitant (insured) - usually same person as contract owner
beneficiary
insurer (bank, agent, etc.)

Question 4

annuities vs life insurance

Answer 4

annuities premiums are used to accumulate money or provide an income while living

life insurance premium buys a death benefit

Question 5

immediate annuity

Answer 5

purchased with a single premium (SPIA)
has no or short accumulation period
income payments begin within one month after purchase (up to 12 months)

Question 6

deferred annuity

Answer 6

bought with a single premium (SPDA) or flexible premiums (FPDA)
has an accumulation period
owner decides annuitization at a later time

Question 7

surrender or withdrawal

Answer 7

10% tax if withdrawn before 59.5
surrender period (waiting period)
surrender fee (penalty for early withdrawal)

Question 8

death benefit

Answer 8

accumulated value paid if owner dies
not life insurance

Question 9

life annuity

Answer 9

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

Question 10

life - refund certain annuity

Answer 10

income for life
death payments less than contract value (amt paid for the annuity). balance to beneficiary in either lump sum or monthly payments

Question 11

life with period certain annuity

Answer 11

income for life they live
choose period such as 10 or 20 years. annuity will pay beneficiary if annuitant dies within that period

Question 12

joint life and survivor annuity

Answer 12

one dies, payments to survivor until their death
may be the same amount or reduced amount

Question 13

joint life annuity

Answer 13

payment stops when first of two annuitants die

Question 14

factors affecting life annuity payment amount

Answer 14

annuitants age
annuitants gender
length of payment guarantee
assumed interest rate

Question 15

fixed annuities

Answer 15

general account
long term low risk investments
if annuitized, fixed income payments
money guaranteed by company

Question 16

variable annuities

Answer 16

separate account
no guarantees by company - owner assumes 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 and FINRA)

Question 17

equity indexed annuities

Answer 17

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

Question 18

4 uses of annuities

Answer 18

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

Question 19

group annuities

Answer 19

funded by employer contributions
distributions determined by employer