Parties to an Annuity

Key Points

-The owner may name two people as joint annuitants

Parties to an Annuity

As with life insurance, there are several parties to the annuity contract. In addition to the insurance company that issues the contract, an annuity involves a(n): 1. owner 2. annuitant (who may or may not be the owner) 3. beneficiary

Beneficiary

An annuity's beneficiary is the person the owner chooses to receive the contract's values if either the owner or the annuitant dies before annuitization. The beneficiary may be the annuitant (assuming the annuitant and owner are two different people). When it comes to beneficiaries, there are two types of annuity contracts: annuitant-driven and owner-driven. With annuitant-driven contracts(Pay out their values when the annuitant dies.), the annuitant's death before annuitization triggers payment of the contract value to the beneficiary even if the owner is still alive. The beneficiary may annuitize the contract then or retain it for later annuitization. If annuitization is deferred, the beneficiary (who is now the new owner) will designate a new beneficiary. If the beneficiary (now the owner) dies before annuitization, the death benefit will be paid to the annuitant's beneficiary. With owner-driven contracts (That pay out their values when the owner dies) the owner's death before annuitization triggers payment of the contract death benefit (which may be larger than the current contract value) to the beneficiary, even if the designated annuitant is still alive. The annuitant has no expectation of pre-annuitization benefits in an owner-driven annuity. Note that with both forms of deferred annuity, if the owner and annuitant are the same person the distinction disappears because in either case contract values are passed on to the beneficiary.

Annuitant

The annuitant is the person upon whose life the annuity payment amount and duration is based. The annuitant may also be the recipient of the annuity payments, but this is a decision for the owner to make. In most cases, the annuitant and the owner are the same person. However, an owner can choose anyone he or she wants as the annuitant. The only restriction is that the annuitant must be a natural person. (A natural person is distinguished from a non-natural person, such as a corporation. or trust) The owner may name two people as joint annuitants. If two people are named jointly, then their joint life expectancy is the basis for determining the annuity payment amount and duration.

Annuity Owner

The annuity owner is the person (or entity) who buys the contract. Annuity owners have all the rights and responsibilities of contract ownership. They control the contract and make the premium payments. They also own the contract's values and, if the owner is a natural person(parent, spouse, or partner in a business relationship.), enjoy the benefits of tax-deferral during the accumulation stage. During the accumulation stage, the annuity contract owner has the right to -decide on the annuity starting date, which is the date on which income benefits are scheduled to begin; -choose or change the income payout option before the annuity starting date; -name the annuitant and the beneficiary; -receive some or all of the cash value in a partial or complete surrender of the contract; and -assign the contract.

Quiz

Question 1 Which of the following is NOT a party to an annuity? the annuitant the owner *the agent the beneficiary In addition to the insurance company that issues the contract, the parties to an annuity are the owner, the annuitant, and the beneficiary. Question 2 George purchased an annuity that will provide his wife, Anna, with monthly income payments for as long as she lives. In this scenario, what is Anna called? the agent the beneficiary *the annuitant the owner The annuitant is the person the owner chooses to receive the periodic annuity payments when the contract annuitizes. Question 3 George is receiving income payments from an annuity. His wife, Ellen, will continue receiving income payments for the rest of her life from George's annuity when he dies. Under this annuity contract, what is Ellen considered? *An annuitant A beneficiary An agent An owner The beneficiary is the person the owner chooses to receive the contract's values if the owner or annuitant dies before annuitization. Question 4 Ann is beneficiary of an annuity owned by Jim. If Jim annuitizes the contract at retirement and dies shortly afterward, what benefits will Ann receive from the annuity? Ann will receive lifetime income. Ann's will receive income for 20 years. Ann will receive the annuity proceeds. *Ann's right to any funds will be based on the income payout option Jim selected. If the owner/annuitant dies after annuitization begins, then the beneficiary's right to any funds will be based on the income payout option the owner selected. Question 1 Ann is the beneficiary of an annuity owned by Jim. Jim intended to annuitize the contract at retirement but died shortly before retiring. What benefits will Ann receive from the annuity? Ann will receive the contract's funds in a lump sum. Ann's right to any funds will be based on the income payout option that Jim selected. Ann will receive income for life. *Ann will receive the annuity's accumulated value and may select a payout option. This would be the case only if Jim dies after annuitizing the contract. Question 2 George purchased an annuity in which his wife will receive income for as long as she lives. In this scenario, what is George most correctly called? the beneficiary the agent *the owner the annuitant The annuity owner is the person (or entity) who buys the contract. Question 3 Sue, an annuity owner, names her 15-year-old son and 10-year-old daughter as joint annuitants of her contract. Upon whose life (or lives) are income payments determined? Sue's son's life *the joint life expectancy of Sue's son and daughter Sue's life Sue's daughter's life If two people are named jointly as annuitants, then their joint life expectancy is the measurement for the contract's income payments. Question 4 What is the only restriction on naming an annuitant? *The annuitant must be a natural person. The annuitant must be related to the owner. The annuitant must not be related to the owner. The annuitant can be a natural or non-natural person. The annuitant must be a natural person.