Immediate vs. Deferred Annuities

Also called retirement annuities, these ________________________________________________________________ are still available for those seeking a specific amount of future income. For example, consider the person who wants to receive $500 a month for life when he or she turns 65. A fixed premium annuity specifies the exact premium amount that must be paid for the contract value to grow to the amount needed to produce the desired income amount upon annuitization.

fixed premium deferred annuities

Accumulated funds in a deferred annuity belong, at all times, to the owner. They are not forfeitable, even if the

owner stops making premium payments.

deferred annuity owners commonly do not annuitize their contracts. Instead, they take their accumulated values through

withdrawals or full surrender of the contract.

Deferred annuities are purchased with either a

a single sum of money or through periodic investments, but in either case annuity payments do not begin until a future date.

Today's annuity buyers generally prefer

flexible premium annuities.

Called surrender charges, they are applied if the owner takes withdrawals from or surrenders the contract within a specified period of time after buying the annuity.

The surrender charge is typically defined as a declining percentage of the contract's accumulated value.For example, a deferred annuity may impose a 7% charge during the first three years of the contract; a 6% charge during the fourth and fifth year of the contract; or a 5% charge during the sixth and seventh year of the contract, and so on. Once the surrender charge period has ended, no charges are imposed on future withdrawals or surrenders.

(Because an immediate annuity is bought with a lump-sum single payment, it is often referred to as a

single premium immediate annuity, or SPIA.)

Immediate annuities are purchased with a

single sum of money to immediately begin distributing periodic payments.

Once a person buys the single premium deferred annuity (SPDA),

no additional premium payments are accepted.

An annuity owner who wants to withdraw any values from his or her contract must simply

notify the insurer. The insurer cannot withhold these funds or refuse to honor the owner's request.

Owner-driven contracts pay the death benefit if the _____________ dies, while annuitant-driven contracts pay the death benefit if the ____________________dies.

owner, annuitant

An immediate annuity provides a guaranteed stream of income beginning one payment cycle

after the annuity is purchased. For example, if periodic payments are to be received monthly, then the first payment is received one month after purchase. If periodic payments are to be received annually, the first payment is made 12 months after purchase.

Some deferred annuities include a _________________________ that allows surrender charge-free withdrawals if the interest rate credited to the accumulated value drops below a specified level. This interest rate bailout feature is sometimes called a_____________________ .

bailout provision, waiver of penalties provision

Most deferred annuities apply surrender charges for the first___________________ after contract issue.

five to ten years (possibly longer)