Annuity Principles and Concepts

the annuity period

(annuitization period, liquidation period or payout period) , is the time during which the sum that has been accumulated during the accumulation period is converted into a strem of income payments to the annuitant

Accumulation period

(pay in period) is the period of time over which the owner makes payments into an annuity. Furthermore it is the period of time during which the payments earn interest on a tax deferred basis

life with guaranteed minimum

(refund life) if the annuitant dies before the principal amount has been paid out, the remainder of the principal amount will be refunded to the beneficiary. it guarntees the entire principal will be paid out

Fixed period installments

- annuitant selects the time period for the benefits, and the insurer determeines how much each payment will be based on the value of the account and future earnings projections. - pays for a specified amount of time only, wheter or not the annuitant is living

fixed annuity

-guaranteed minimum rate of interest to be credited to purchase payment. - income payments that do not vary from one payment to the next - the insurance company guarantees the specfied dollar amount for each payment and the length of the period of payments as determined by the settlement option chosen by the annuitant

waiver

Annuity contracts porvide for a waiver of surrender charges if the annuitant is confied to a long term care facility for at least 30 days

Annuity characteristics

Marketed by life insurance companies licensed to sell the payments stop upon the death of annuitatnt use mortality tables

license requirements

a variable annuity is considered a security and is regulated by the sec. agents or companies that sell variable annuites must also be registered with finra

Annuity income period is based upon the following

amount of premium paid or cash value frequency of the payment interest rate annuitants age and gender

Life with period certain

another life payout option the annuity payments are guaranteed for the lifetime and for a specefied time the beneficiary

two types of refund life annuities

cash refund installment refund

guaanteed minimum

company must pay this minimum typically 3 percent

general account

comprised of mostly conservate investments like bonds. help the insurance company with general intrest and to make future income payments

Annuity

contract that provides income for a specified period of years or for life. helps protect a person against outliving his or her money

single life

cover one life contributions can be made on a periodic or on a single premium basis with subsequent values accumulating until the contract is annuitized. - provides the highest monthly payment

Nonforfeiture

deffered annuity has a guaranteed surrender value that is available if the owner decides to surrender the annuity prior to annuitlization.

advantage of qualified annuity

favorable tax treatment

indexed annuities

fixed annuities that invest on a relatively agressive basis to aim for higeher return s&p 500

surrender charges

help compensate the company for loss of the investment value due to an early surrender of a deferred annuity. At surrender, the owner gets the premium, plus interest (the value of the annuity), minus the surrender charge.

deferred annuity

in which the income payments begin sometime after one year of the purchase date. can be purchased through single payment or periodic payments

joint life

is a payout arrangement where two or more annuitants recieve payments until the first death among the annuitants, and then payments stop

bail- out provision

is found in some annuity contracts. allows the contract holder, in the event that interest rates drop a specified amount within a specified time frame to surrender the contract without any charge.

Immediate annuity

is purchased with a single, lump sum payment and provides income payments that start within one year form the date of purchase. first payment typically one month from start date

interest rate

issuing insurance company doesnt guarantee a minimum interest rate

Multiple

life annuities cover 2 or more lives. (joint life), (Joint and survivor)

joint and survivor

life income option in that guarantees an income for 2 recipients that neither can outlive. commonly selected by a coupe in retirement

Pure life

life only or straight life, this payment ceases at the annuitants death. provides the highest monthly benefits.

Use of annuities

provide income for retirement

variable annuity

serves as a hedge against inflation and is variable from the standpoint the annuitant may receive different rates or return on the funds that are paid into the annuity

2 payment options

single payment (lump sum) periodic payment- level or flexible payments

market value (market value adjusted) or modified guaranteed

single premium deferred annuity that allows the owner to lock in a guaranteed interes rate over a specified maturity period anywhere between 3-10 years.

short term annuities

that limit the amounts paid to a certain fixed period or until a certain fixed amount is liquidated

level benefit payment amount

the annuitant knows the exact amount of each payment received from the annuity during the annuity period

fixed amount installmnets

the annuitant selects how much each payment will be, the insurer determines how long the benefits will be paid by analyzing the value of the account and futer earnings. - pays a specific amount until funds are exhausted, whether or not the annuitant is living

underlying investment

the payments that the annuitant makes into the variable annuity (invested in the insurer's separate account, not the general account

beneficiary

the person who receives annuity assets (either the amount paid into the annuity or the cash value)

Annuitant

the person who recieves benefits or payments form the annuity, whose life expectancy is taken into consideration and for whom the annuity is written

Owner

the purchaser of the annuity contract. but not necessarly the one who receives the benefit

cash refund

when the annuitant dies the beneficiary receives a lump sum refund of the principal minus benefit payments already made to the annuitant. doesn't guarantee any interest

installment refund

when the annuitant dies, the beneficiary will continue to receive guaranteed installment until the entire principal amount has been paid out