Annuities

Annuity

a contract that provides income for a specified period of years, or for life; protects a person against outliving his or her money; do not pay face amount upon death, they do just the opposite, payments stop upon death

Nonforfeiture

a deferred annuity has a guaranteed surrender value that is available if the owner decides to surrender the annuity prior to annuitization

The Joint and Survivor Arrangement

a modification of the life income option in that it guarantees an income for two recipients that neither can outlive; although it is possible for the surviving recipient to receive payments in the same amount as the first recipient to die, most contracts provide that the surviving recipients will receive a reduced payment after first dies

Joint Life Arrangement

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

License Requirements

a variable annuity is considered a security and is regulated by the the SEC in addition to state insurance regulations

Education Funds

an annuity can provide savings on a tax-deferred basis for the education expenses of the annuitant; accumulates funds for college education

Individual Retirement Annuities

an annuity may be used to accumulate retirement funds on a tax-deferred basis

Multiple Life Annuities

annuities that cover 2 or more lives

Death Benefits

if an annuitant dies during the accumulation period, the insurer is obligated to return to the beneficiary either the cash value or the total premiums paid, whichever is greater

Short-Term Annuities

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

Fixed-Period Installments

the annuitant selects the time period for the benefits, and the insurer determines how much each payment will be, base on the value of the account and future earning projections

Flexible Premium Deferred Annuity

the annuity is purchased with multiple payments that can vary from year to year, and the benefit payment begin sometime after one years from the date of purchase

Life Only Settlement Option

insured cannot outlive income; any monies not paid out are retained by company at insured's death; pays highest monthly amount

Installment Refund Life Annuity

when the annuitant dies, the annuitant's beneficiary will continue to receive guaranteed installments until the entire principal amount has bee paid out

Pure Life

pay a specific amount for the remainder of the annuitant's life; this payment ceases at the annuitants death; provides the highest monthly benefits

Uses of Annuities

principal use is to provide income for retirement; however it can be used for cash accumulation or liquidation of estate

Fixed Annuity

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

Immediate Income Payments

purchased with a single premium; start within one year from the date of purchase

Deferred Income Payment

purchased with either lump sum or period-payments premium; benefits start sometime after one year from the date of purchase

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

Cost Basis

the amount of premium contributed on which taxes have already been paid out

Fixed-Amount Installments

the annuitant selects how much each payment will be, and the insurer determines how long the benefits will be paid by analyzing the value of the account and future earnings

Life with Period Certain

the annuity payments are guaranteed for the lifetime of the annuitant, and for a specified period of time for the beneficiary

Single Premium Deferred Annuities

the annuity purchased with a single payment, but the benefit is not paid until after one year or more has elapsed

Underlying Investment

the payments that the annuitant invests into the variable annuity are invested in the insurer's separate account, not their general account

Accumulation Period

the period of time over which the annuitant makes payments into an annuity; payments earn interest on a tax-deferred basis; payments in, to insurer

Beneficiary

the person who receives annuity assets if the annuitant dies during the accumulation period, or to whom the balance of annuity benefits is paid out

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; has all the rights, such as naming the beneficiary and surrendering the annuity

Surrender Charges

the purpose is to help compensate the company for loss of the investment value due to an early surrender of a deferred annuity; levied against the cash value, and is generally a percentage that reduces over time; owner gets the premium plus interest, minus the surrender charge

Annuity 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; can last for the whole lifetime of the annuitant or for a specified period of time; payments out, to insured

Exclusion Ratio

used to determine the annuity amount to be excluded from taxes

Tax-Deferred Growth

values that accumulate within an annuity contract are not subject to current income taxation; value's in excess of the owner's basis are taxable as ordinary income

Cash Refund Life Annuity

when the annuitant dies, the annuitant's beneficiary receives a refund of the principal, or the original amount paid into the annuity minus benefit payments already made to the annuitant; guarantees the return of amount of purchase the annuity but it does not guarantee to pay any interest

Market Value Adjusted

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

Interest Only Income

a type of fixed annuity that allows the annuitant to receive interest income from the annuity, in much the same manner as with a bank CD; the principal is left intact for future delivery

Deferred Annuities

an annuity that either is purchased with a single lump sum or is purchased through periodic payments; unique in that they grow tax deferred; often used to accumulate funds for retirement

Single Premium Immediate Annuities

an annuity that is purchased with a single, lump sum payment and provides income payments that start within 1 year from the date of purchase; typically this type of annuity will make the first payment as early as 1 month from purchase date

Qualified Retirement Plans

annuities are a popular means to provide retirement income, so they are often used to fund this type of plan; meet IRS guidelines to receive favorable tax treatment

Lump Sum Settlements

annuities may serve as an ideal financial vehicle for someone who comes into a large lump sum of money, such as inheritance, lottery, award of damages from a lawsuit, proceeds from a sale of a business, or a lump-sum distribution from a qualified pension plan

Single Life Annuities

annuities that cover one life ; contributions can be made on a period or on a single premium basis with subsequent values accumulating until the contract is annualized; highest monthly premium

Personal Uses of Annuities

commonly used as retirement planning vehicles to assure that income will be provided to the annuitant; provides guaranteed income by liquidation of the principal sum in accordance with its terms and provisions

Guaranteed Interest Rate

company must pay this minimum percentage; typically 3%

Retirement Income

deferred annuities are a popular means of income because they can provide income that cannot be outlived

Level Benefit Payment Amount

during the payout phase of a fixed annuity, the amount of benefit is also guaranteed; with the fixed payment in times of inflation, the benefit payment will have less purchasing power and in time of deflation the benefit will have more purchasing power

Current Interest Rate

exceeds guaranteed rate; paid to annuitant when a company's own investment is better than expected to be, "bonus"

Equity Indexed Annuities

fixed annuities that invest on a relatively aggressive basis to aim for higher returns; has a guaranteed minimum interest rate

General Account

fixed annuity premiums are deposited into the life insurance account of the company; comprised mostly of conservative investments life bonds

Refund Life Annuity Settlement Option

guaranteed lifetime income; if annuitant dies, balance is "refunded" to beneficiary; gives beneficiary gives beneficiary payments until purchase amount is paid out

Guaranteed Minimum

if the annuitant dies before the principal amount has been paid out, the remainder of the principal amount will be refunded to the beneficiary; guarantees that the entire principal amount will be paid out