Chapter 5: Annuities - Snapshot Questions

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How do annuities differ from life insurance policies?

annuities liquidate an estate (life insurance creates an estate. Annuities pay income to the annuitant while he or she is still living; life insurance pays the death benefit.

how long will a life annuity with 15-year period certain pay benefits?

for the life of the annuitant; however. if he dies shortly after the annuity payments begin, the payment to the beneficiary will only last 15 years.

Where are premiums invested in a fixed annuity?

into the lie insurance company's general account comprised mostly of conservative investments.

What happens to the contract value if the owner decides to surrender a deferred annuity prior to annuitization?

the owner gets their premium, plus interest (the value of the annuity), minus the surrender charge.

How soon can payments begin in a deferred annuity?

Income payments begin sometime after one year from the date of the purchase.

How does inflation affect the purchasing power of a fixed annuity?

Inflation can erode the purchasing power of income payments

What is the accumulation period?

the period of time over which the annuitant makes payments (premiums) into an annuity.

What is the Annuitization period?

the time when money is distributed back to the annuitant.

What happens to the benefit if the annuitant dies during the accumulation period?

If the annuitant dies before annuitization (payout period), the beneficiary will receive the amount paid into the plan, or the cash value, whichever is greater

What are the 2 premium payment options in annuities?

Single premium Periodic Premiums

An annuity has 2 Distinct periods, What are they called?

The accumulation period (pay in period) The annuitization period (pay out period)

Who has all of the rights in an annuity contract?

The owner of the annuity has all of the rights such as naming the beneficiary and surrendering the annuity.

In a fixed annuity, how are the guaranteed and current interest rate related?

during the accumulation phase, the insurer will invest the principal, and give the annuitant a guaranteed interest rate based on a minimum rate as specified in the annuity, or the current interest rate, whichever is higher.


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