Annuities Chap 5

Insurance aspects of an annuity

-based on a mortality table -if a life contingency settlement option is chose, the insurance company guarantees the income benefit as long as the annuitant is alive

Death benefits

-qualifies when annuitant dies before annuitizing the contract -policy has a named beneficiary -insurer pays out amount equal to the premiums paid or the account value (whichever is greater)

accumulating a retirement fund

Deferred annuities are normally purchased to defer taxes on any contract earnings. They are ideal for ___________________________. During the accumulation period, only the contract owner can sign the request for surrender of a deferred annuity. During the early part of the accumulation period, the insurer normally assesses a surrender charge.

Fixed (Guaranteed) Annuity

During the accumulation period, the insurer guarantees a minimum fixed interest rate. At annuitization benefits are paid as a minimum level fixed amount.

Varible Annuity

For a_______________ Both an insurance license and a securities license (FINRA) are required. This annuity is considered a security, and therefore, must comply with the Federal Securities and Exchange Commission (SEC) rules as well as the state insurance laws

irrevocable

If the owner chooses to annuitize the contract, the choice of distribution option is____________ —once selected it may not be terminated or changed to another option. *

70

Sam wants to know at what age he should select a settlement option in order to receive the highest monthly income benefit payment. Which of the following will meet his objective regardless of the settlement option selected? A Age 55 B Age 70 C Age 62 D Age 65

Annuitant

The __________ is the person on whose life the annuity contract's income benefit is based.8

outlive

The fundamental purpose of an annuity is to systematically liquidate a sum of money over time in order to provide a source of income the annuitant cannot ___________. *

10 59

To discourage the use of annuities as short-term tax shelters, a____% penalty tax is levied against any premature withdrawals prior to _______½ years of age. This discourages withdrawals. The tax penalty does not apply if premature distributions occur due to the death or disability of the contract owner.

Annuity payments and cash values fluctuate

Variable annuities are regulated by the SEC, FINRA, and State insurance departments. ________________________________ according to the investment experience of the separate account the contract owner has designated. Payments are based on "units" rather than dollars.

Annuitant

_______ is the individual whose life the contract is based upon. Upon a lifetime annuitization, payments will be made to the annuitant based upon the annuitant's age, gender, settlement option selected, and dollar amount used to fund the income benefit payments.

Life Insurance

___________ creates an estate.

Annuities

______________are used primarily to provide a steady stream of income to an individual typically upon retirement.

Joint and ½ Survivor

annuity pays half of the total payment two or more annuitants were receiving when the contract was first annuitized. Payments continue until the last surviving annuitant has died.

Flexible Premium

contributions may be made as often and in whatever amount the contract owner desires. However, most insurers set a minimum and a maximum dollar amount they will accept.

liquidate an estate

one of the primary functions of an annuity is to ___________, or to pay benefits until the death of an annuitant

Owner of annuity

the individual who controls the contract and is responsible for making payments into the contract as well as having all of the contractual rights in the policy

Single Premium Immediate Annuity

A _________________________ (lump sum) is put into an annuity from which the annuitant may immediately begin drawing benefits (within a year of the issue date). A retirement plan rollover, savings account balances or CDs, mutual funds, deferred annuity values, or the death proceeds of a life insurance policy might be used to purchase a SPIA.

Deferred annuity

A ____________________will pay periodic benefits starting at some specified time in the future; income benefits begin more than 1 year from the issue date.

Single Premium

A lump sum payment is made into an annuity

deferred annuity

A periodic premium annuity, by definition, is a _________________. *

Contract

An Annuity is a contract or Policy?

Liquidates

Annuity________ an estate.

tax-deferred growth of principal

Both annuities and life insurance offer _______________.

assumed interest rate (AIR)

With a Varible Annuity, The investment return varies according to the separate account selected based on the _______________________. If the actual return is lower than the _______________, the monthly annuity payment will be reduced. If the actual return is equal to the ______________ the monthly annuity payment will remain the same as the previous month. If the actual return is greater than the ________________, the monthly annuity payment will increase from the previous month.

Accumulation period

____________Is the period of time from the first deposit to the selection of a settlement option is considered the accumulation period, during which taxes are deferred. These are found within deferred annuities.

Flexible Premium Deferred Annuity (FPDA)

________________ contributions may be made as often and in whatever amount the contract owner desires. However, most insurers set a minimum and a maximum amount for contributions. Benefits begin more than 1 year from the issue date.

Additional payments

_____________________ may be made on annuities in most contracts on a scheduled (monthly, quarterly, semiannual, or annual) or unscheduled basis, with minimum and maximum limitations. *

Annuity Classifications

___________________________________are based on: Method of premium payment (single, flexible, and periodic) Funding (fixed vs. variable) When income benefits are payable (immediate vs. deferred) The payout option selected (Life only vs Annuity certain)

Personal

_________________uses of Annuities Purchase other insurance Education Funding Retirement fund accumulation Retirement Income Long-term care benefits Lump sum structured settlements

Annuitization

__________is the process of converting an annuity investment into a series of periodic income payments.

Beneficiary of annuity

-the individual or person named in the contract to potentially receive benefits if the owner and/or annuitant die prior to annuitization -or if the settlement selected offers any residual benefits -during the accumulation period, if contract owner and the annuitant are the same person and the designated beneficiary is the annuitant's spouse, the IRS code allows the spouse to assume ownership of the annuity upon the death of the annuitant

Annuitant of annuity

-the individual whose life the contract is based upon -payments will be made to the annuitant based upon the annuitant's age, gender, settlement option selected, and dollar amount used to fund the income benefit payments

non-qualified

A _______________ annuity is funded with after-tax dollars, meaning taxes on the money were paid before it goes into the annuity. Upon distribution, only the earnings are taxable as ordinary income.

long term care

A _______________ provision may be offered to help offset ______________ costs. Some companies offer a combination annuity and ______________policy. *

Accumulation and Distribution

Annuities have two distinct "phases" or "periods": _____________ and ________________ (or annuitization or liquidation) *

Life Income (Pure or Straight Life)

Once the Annuitants dies any unpaid annity is kept by the insurer.

Corporate owned

with a annuity, a corporate owner of an annuity will name itself as the beneficiary.

qualified

A _______________ annuity is funded with pre-tax dollars, meaning the contribution itself could qualify for a tax deduction, lowering taxable income. The entire distribution from a _________ annuity (contributions and earnings) is subject to ordinary income taxes.

Single Premium Deferred Annuity (SPDA)

A _______________________ (lump sum) is put into an annuity from which the annuitant will draw the benefits at some specified time in the future, more than 1 year from the issue date.

taxable as income

A qualified annuity holds retirement plan assets (either original contributions or rollover contributions) which are made with pre-tax dollars. 100% of the annuity distributions are ____________ as ____________ . *

life insurance

Although annuities are not _____________________, they enjoy the same tax privileges that _____________ does. Growth of an annuity's cash value is tax-deferred until it is distributed. *

surrender charge

An annuity in the Accumulation phase has cash value, and is subject to specific ____________________s. Most annuities permit partial surrenders each year of up to 10% (of the beginning of the policy year value) without a ___________________. *

Nonforfeiture provisions

An annuity owner will not lose the value accumulated up to the point where they stopped paying into the contract. ___________________________give the owner the rights to the accumulation in the contract. The owner has the right to surrender the contract during the accumulation period. Remember, these provisions only apply to deferred annuities since immediate annuities do not have an accumulation period.

Indexed (or Equity Indexed) Annuity

An annuity product with interest rates that are linked to the positive performance of a stock market related (equity) index, such as the Standard & Poor's 500 Index.

single premium annuity

An annuity purchased with a lump sum of money with no additional money to be added later is called a _____________________. *

lump sums of money

Annuities are commonly purchased with ___________________ from an inheritance, insurance claims, and personal injury settlements or other civil judgments. *

mortality table

Annuities are insurance products based on a ______________ .

seniors

Annuities are marketed primarily to _______________, and state laws impose a variety of disclosure requirements and other duties on agents, including the use of illustrations and suitability testing prior to sale. *

Group Annuity

Annuities are usually purchased by individuals. They may also be purchased as part of a structured corporate pension plan referred to as a ________________. A _______________ is a contract between the insurer and the employer and is set up for eligible employees. Each employee receives a certificate. This is a defined benefit plan under IRS rules.

a specific period of time or for life

Annuities may be annuitized for ______________ of the annuitant

death benefit

Annuities provide a __________________to the beneficiary of the contract prior to annuitization. The full amount of the premiums paid is the minimum amount payable if the annuitant dies before the contract is annuitized. *

living benefit

Annuity Pays a __________.

Annuity Certain

Annuity benefit payments are received for a specified period of time or a specified amount of periodic income. If the annuitant dies with time remaining on the period certain or a balance is left in the account, the named beneficiary receives the balance of the payments. An annuity guaranteed to pay out for a specific number of years (such as a typical, state lottery prize) is called a fixed period. If the periodic amount is specified, but not the number of payments needed to pay out (liquidate) the sum in question, then the annuity certain is called a fixed amount. Both forms are often used in settlement options.

Life Income (Pure or Straight Life)

Annuity is payable for as long as the annuitant lives, and upon death all payments cease. This option provides the highest monthly income than any of the other options.

Life Income Period Certain

Annuity is payable for life, or for a specified period of time, whichever is longer. If the annuitant lives beyond the stated period, benefits continue for life of the annuitant. If the annuitant dies prior to the end of the period, certain a beneficiary receives the balance of the payments for the remaining time period.

Life Income with Refund (Installment or Cash Refund)

Annuity is payable for the lifetime of annuitant. Upon death, if an annuitant has not received an amount equal to the total of all payments made into the annuity (not the growth), the balance is refunded to the beneficiary as a lump sum, or cash refund, or in installments, sometimes referred to as the installment refund.

Life Income Joint & Survivor

Annuity is payable to 2 annuitants (in one check) while both are living. Upon the death of the first annuitant, survivor benefits continue, either paying the full amount or reduced to 2/3 or 1/2 for the survivor's income until the survivor dies. Depending on which option is selected, these options may be referred to as Joint and Full Survivor, Joint and 2/3 Survivor, or Joint and ½ Survivor,

Joint Life

Annuity is payable to 2 or more named annuitants while both are living. Upon the death of the first annuitant, the benefits stop.

steady income

Annuity provides __________ until death of the annuitant

waived

Annuity surrender charges are generally________________ if the annuitant is hospitalized for an extended period, placed in a nursing facility for at least 30 days, becomes disabled, or dies.

Escape Clause

Bailout Provision is also known as the___________________.

suitability

Before determining the use of an annuity, it is important to determine the ________________of the product to the intended purchaser. _______________describes the steps that must be taken by a producer to ensure that an annuity is addressing a prospective owner's needs and financial objectives at the time of the sale. Additional factors used when determining _____________ include the age, income, risk tolerance, and potential use of the annuity.

Periodic Premium

Continuous premiums paid into the contract. The most common example of a ______________ is a flexible premium.

accumulation period

During the ______________________, if the contract owner and the annuitant are the same person and the designated beneficiary is the annuitant's spouse, the IRS code allows the spouse to assume ownership of the annuity upon the death of the annuitant. All rights of ownership are assumed to include tax deferment.

bailout provision

During the accumulation period, some contracts also offer a _____________________ that allows the owner to withdraw money from the annuity without surrender charges if the crediting rate falls by more than a specific amount. This will enable the policy owner to consider other savings and investment options.

premiums paid or account value

In addition to providing a guaranteed income benefit payout for life, an annuity also has another guarantee if the annuitant dies prior to annuitizing the contract. In this case, the policy has a named beneficiary, just like a life insurance policy, whereby the insurer pays out an amount equal to the ________________________________, whichever is greater

after-tax money

Nonqualified annuities are funded with ___________ and the contributions will not be taxed when withdrawn. Only the gains are taxable as income.*

owner

Only the _________ can surrender an annuity.*

interest crediting rate

The "fixed" portion of a fixed annuity is the_____________________, which may change at the discretion of the insurance company, but not less than the guaranteed minimum. A fixed annuity also promises a fixed payment to the annuitant when the contract is annuitized.

immediate annuity

The _____________________does not have an accumulation period and is used to generate immediate income within a year of the issue date.

Surrender Charges

When a contract is fully surrendered, any _________________ will lessen the contract payout. This is also referred to as a back-end load. ________________ diminish over a stated number of years, set by the insurer, until they disappear.

back-end load

When a contract is fully surrendered, any surrender charges will lessen the contract payout. This is also referred to as a _________________________ .

adopt the annuity

When the owner and annuitant is the same person, a spouse beneficiary is permitted ____________ or to name another annuitant under the Internal Revenue Code if the annuitant dies prior to annuitizing the contract

Life income only

Which of these annuity distribution options promises the largest possible payment to a single annuitant? Life income only Life income with period certain Installment refund Lump sum refund

corporate owned nonqualified

With a _____________________ annuity, Interest or gains are taxable as income in the year earned.