Ch 5: Annuities
Annuity
A contract that provides income for a specified period of years, or for life.
Joint Life
A payout arrangement where two or more annuitants receive payments until the first death among the annuitants, and then payments stop.
Qualified plan
A retirement plan that meets the IRS guidelines for receiving favorable tax treatment.
Which of the following is a short-term annuity that limits the amounts paid to a specific fixed period or until a specific fixed amount is liquidated?
Annuity certain
Guaranteed Living Benefit Rider
Assures that the annuitant will receive at least the amount of money invested or a certain amount of income, usually up to the annuity purchase amount, regardless of market conditions.
Which of the following is NOT true regarding an annuity certain?
Benefits stop at the annuitant's death.
Life contingency
Dependent upon whether or not the insured is alive
Suitability
How well a recommended product will meet the applicant's needs and resources
Mortality Tables
Indicate the number of individuals within a specified group (e.g., males, females, smokers, nonsmokers) starting at a certain age, who are expected to be alive at a succeeding age.
Immediate annuity
One that is purchased with a single lump sum payment and provides income payments that start within one year from the date of purchase
Under a pure life annuity, an income is payable by the company
Only for the life of the annuitant
All of the following statements are true regarding installments for a fixed amount EXCEPT
The payments will stop when the annuitant dies.
Annuitant
The person who receives benefits or payments from 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 necessarily the one who receives the benefits
Cash refund
When the annuitant dies, the beneficiary receives a lump sum refund of the principal minus benefit payments already made to the annuitant. Cash refund option does not guarantee to pay any interest
Joint and Survivor Arrangement
a modification of the life income option in that it guarantees an income for two recipients that neither can outlive
A couple receives a set amount of income from their annuity. When the wife dies, the husband no longer receives annuity payments. What type of annuity did the couple buy?
Joint Life
Indexed (or equity indexed) annuities
are fixed annuities that invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity the indexed annuity has a guaranteed minimum interest rate.
Variable Annuity
serves as a hedge against inflation, and is variable from the standpoint that the annuitant may receive different rates of return on the funds that are paid into the annuity.
Underlying Investment
the payments that the annuitant makes into the variable annuity are invested in the insurer's separate account, not their general account
Beneficiary
the person who receives annuity assets (either the amount paid into the annuity or the cash value, which ever is greater) if the annuitant dies during the accumulation period, or to whom the balance of annuity benefits is paid out.
Annuitization Date
the time when the annuity benefit payouts begin (trigger for benefits)
Deferred
withheld or postponed until a specified time or event in the future
IRS
Internal Revenue Service: a U.S. Government agency responsible for collecting of taxes, and enforcement of the Internal Revenue Code
Installment Refund
When the annuitant dies, the beneficiary will continue to receive guaranteed installments until the entire principal amount has been paid out.
The main difference between immediate and deferred annuities is
When the income payments begin.
Suitability
a requirement to determine if an insurance product or an investment is appropriate for a particular customer.
License Requirements
a variable annuity is considered a security and is regulated by the SEC in addition to state insurance regulations
Annuity Period
aka annuitization period, liquidation period, or pay-out period, the time during which the sum that has been accumulated during the accumulation period is converted into a stream of income payments to the annuitant.
Accumulation period
aka pay-in period, the period of time over which the owner makes payments (premiums) into an annuity.
Deferred Annuity
an annuity in which the income payments begin sometime after one year from the date of purchase.
All of the following statements about equity index annuities are correct EXCEPT
c. A. They invest on a more aggressive basis aiming for higher returns. B. They have a guaranteed minimum interest rate. C. The annuitant receives a fixed amount of return. D. The interest rate is tied to an index such as the Standard & Poor's 500.
Liquidation of an estate
converting a person's net worth into a cash flow
Fixed annuities provide all of the following EXCEPT
hedge against inflation
Natural person
human being
Interest Rate
issuing insurance company does not guarantee a minimum interest rate.
