Chapter 11 annuities

Annuitant

Contract owner of an annuity

annuity

Designed to protect the annuitant against the risk of living too long and possibly outliving his or her financial resources during retirement. (Interest earned is not taxed, which in the end earns more interest.)

Immediate annuity

When income payments to annuitant are to begin one payout interval after purchase of the annuity

Nonforfeiture options

- privileges allowed under a life insurance contract after cash values are created

Retirement Income Annuities

A deferred annuity with a decreasing term life insurance rider that provides term life insurance with a decreasing face amount each year the policy is in force. (If annuitant dies before retirement the decreasing term insurance death benefit is combined with the value of the annuity and then paid to a designated beneficiary in any settlement option chosen.)

Market value Adjusted Annuity (MVA Annuity)

A locked deferred annuity that allows a contract owner to lock in a guaranteed interest rate over a specified maturity period. (If annuitant has a contract of 10 years, he or she has to pay premiums plus invested interests or else will be charged a surrender charge and a market-value adjustment charge.)

Period Certain Annuity

A savings plan that pays out for a lifetime or set length of time, whichever is greater. Beneficiary will receive the set length of payment the insurer promised to pay annuitant if he or she should die before specified exact time.

Assumed rate of interest

A third party factoring tactic in determining an amount of payout by a specified amount of interest rate.

Tax sheltered annuity

A type of annuity that allows an employee to make contributions from his or her income into a retirement plan. Contributions are deducted from the employee's income and are not taxed until withdrawal

Refund Life Annuity

Life annuity payout option in which the annuitant receives income for life and the beneficiary will receive the balance of premiums plus interest minus benefits already paid when the annuitant dies. Two types: cash refund and installment refund.

Joint Life Annuity

Payments continue to two annuitants for only as long as both live. On the death of either one, payments stop.

Single premium immediate annuity (SPIA)

Premium pavements made immediately so annuity insurance takes effect after one single premium payment. (There is no accumulation period.)

Determining annuity payouts

The annuitants age, sex, assumed interest rate, income amount and payment guarantee, loading for company expenses.

Equity Indexed Annuity

The annuity that has a guaranteed minimum interest rate and allows the annuitant to invest money in an index (i.e.: S&P 500). The investments grow as the index grows.

Accumulation Units

The money paid to purchase variable annuity insurance over the years is accumulated into a separate account from all other fixed Annuity and insurance sales. This is what the variable annuity contract owner is actually buying from the insurance company. (Page 229 for detail.)

Assumed Interest Rate (AIR)

The net rate of investment return that must be credited to a variable life insurance policy to ensure that at all times the variable death benefit equals the amount of the death benefit. The AIR forms the basis for projecting payments, but it is not guaranteed.

Straight Life Annuity/ life annuity

The payout option that will guarantee an annuity payment for the remainder of an individual's life. This option typically provides the largest monthly payment. (No guarantee of minimum benefits.)

Annuity Period

The payout period of an annuity during which the annuitant receives periodic income payments. Synonymous with annuity phase.

Flexible Premium Annuity

an annuity contract that permits the owner to vary the size and frequency of premium payments; the amount of retirement income depends on the accumulated sum in the annuity at retirement

compound interest

interest calculated on both the principal and the accrued interest over at least 2 years paying premiums

Variable Annuity

pays a lifetime income, but the income payments vary depending on common stock prices, no guaranteed rate of interest.

single premium deferred annuity

purchased with a lump sum (single premium payment with accumulation period) but payment of benefits is delayed until a later date selected by the annuitant. (Perhaps when annuitant is no longer working.)

Loading

the amount that must be added to the pure premium for other expenses, profit, and a margin for contingencies

Annuity Units

At the time the variable annuity benefits are to be paid out to the annuitant, the accumulation units in the participant's individual account are converted into _________________.

Two-Tiered Annuity

An Annuity that has different values available for distribution at maturity, depending on whether the value is taken in a lump sum before annuitization or left with the issuer for periodic payments.

Deferred annuity

An annuity in which the payments begin after a specified number of periods. (Perhaps several years after the purchase of annuity and a few premium payments.)

Fixed Annuity

An annuity that offers fixed payments and guarantees a minimum rate of interest to be credited to the purchase payment or payments.

Level Premium Annuity

Annuitant agrees to make monthly payments in level amounts into the annuity during the accumulation period.

Temporary Annuity Certain

Annuity certain payout option where the insurer guarantees annuity payments for a certain number of years or life, whichever is shorter. (Beneficiary will receive the set length of payment the insurer promised to pay annuitant if he or she should die before specified exact time.)