Unit 9 Annuities Flashcards
accumulation period
a phase of an annuity
paying-in money
interest grows tax deferred
annuity value belongs to owner
annuitization period
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
parties involved in the annuity contract
contract owner
annuitant (insured) - usually same person as contract owner
beneficiary
insurer (bank, agent, etc.)
annuities vs life insurance
annuities premiums are used to accumulate money or provide an income while living
life insurance premium buys a death benefit
immediate annuity
purchased with a single premium (SPIA)
has no or short accumulation period
income payments begin within one month after purchase (up to 12 months)
deferred annuity
bought with a single premium (SPDA) or flexible premiums (FPDA)
has an accumulation period
owner decides annuitization at a later time
surrender or withdrawal
10% tax if withdrawn before 59.5
surrender period (waiting period)
surrender fee (penalty for early withdrawal)
death benefit
accumulated value paid if owner dies
not life insurance
life annuity
guarantees income for life - regardless of how long
death stops payments (even if after one payment)
largest monthly check from options
life - refund certain annuity
income for life
death payments less than contract value (amt paid for the annuity). balance to beneficiary in either lump sum or monthly payments
life with period certain annuity
income for life they live
choose period such as 10 or 20 years. annuity will pay beneficiary if annuitant dies within that period
joint life and survivor annuity
one dies, payments to survivor until their death
may be the same amount or reduced amount
joint life annuity
payment stops when first of two annuitants die
factors affecting life annuity payment amount
annuitants age
annuitants gender
length of payment guarantee
assumed interest rate
fixed annuities
general account
long term low risk investments
if annuitized, fixed income payments
money guaranteed by company
variable annuities
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)
equity indexed annuities
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
4 uses of annuities
life income
tax favored savings
funding individual retirement accounts (IRA)
education funds
group annuities
funded by employer contributions
distributions determined by employer
