kentucky life insurance

The annuity income amount is based on the following;

1: The amount of premium paid or cash value accumulated 2: The frequency of the payment 3: The interest rate 4: the annuitants age and gender an annuitant whose life expectancy is longer will have smaller income installments. For example, all other factors being equal, at 65-year-old male will have a higher annuity income payments over a 45-year-old male (because he is younger), or than a 65-year-old female (because women statistically have a longer life expectancy) shorter life expectancy= higher benefits; longer life expectancy= lower benefit. 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, which ever is greater. If the beneficiary is not named, the death benefit will be paid to the annuitants estate.

It is a producers responsibility to make sure the annuity transactions address consumers needs and financial objectives. To ensure's suitability, producers must make a Reasonable effort to obtain relevant information from the consumer and evaluate the following factors;

1: age 2: annual income 3: tax status 4: Financial needs and timeline 5: investment objectives 6: Liquidy needs and liquid net worth 7: existing assets 8: intended use of annuity 9: Financial experience 10: risk tolerance

there are two types of refund life annuities;

1: cash refund— when the annuitant dies, The beneficiary receives a lump sum refund of the principal minus benefit payments already made to the annuitant. cash refund option does not guarantee to pay any interest. 2: installment refund— when the annuitant dies, The beneficiary will continue to receive guaranteed installments until the entire principal amount has been paid out

classifications of annuities

1: premium payment method; single premium vs. periodic 2: when income payments begin: immediate vs. deferred 3: how premiums are invested: fixed vs. variable 4: disposing of proceeds: pure life, annuity certain, or life refund annuity

Listed below are three main characteristics of variable annuities;

1: underlying investment— The payments that are made to the annuitant makes into the variable annuity are invested into the insurer separate account, not their general account. The separate account is not part of the insurance companies are an investment portfolio, and is not subject to the restrictions that are applicable to the insurers own general account 2: interest rate— issuing insurance company does not guarantee the minimum interest rate 3: license requirements— A variable annuity is considered a security and is regulated by the securities exchange commissions (SEC) in addition to state insurance regulations. An agent selling variable annuity must hold a securities license in addition to a life insurance license. agents or companies that so variable annuities must also be properly registered with FINRA variable premiums purchase accumulation units in the fund, which is similar to buying shares in a mutual fund. Accumulation units represent ownership interest in the separate account. upon annuitization, the accumulation units are converted to a annuity units. The income is then paid to the annuitant based on the value of the annuity units. The number of annuity units received remains level, but the unit values will fluctuate until actually paid out to the annuitant

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403(b) plans are for nonprofits and public school systems

Deferred Annuity

A deferred annuity is an annuity in which the income payments begin sometime after one year from the date of purchase. Deferred annuity's can be funded with either a single lump sum (single premium deferred annuities— SPDAs) or through periodic payments (flexible premium deferred annuities— FPDAs). periodic payments can vary from year to year. The longer the annuity is deferred, the more flexibility for payment of premiums it allows.

other types of annuity products; market value adjusted annuities

A market value or market value adjusted annuity (MVA), also known as a modified guaranteed annuity (MGA), is a single premium deferred annuity that allows the owner to lock in a guaranteed interest rate over a specified maturity period, anywhere between 3 to 10 years. in a MVA, penalties for a premature surrender depend upon current interest rates at the time of the surrender. EX: assume that a client purchased a 10 year 6% fixed annuity tied to the bond fund index interest rate (moody's). if the client withdraws their money in five years in the current interest rate at that point is 6%, there is no adjustment if the current interest rate at the time of the surrender is 8%, a penalty will be assessed. If the interest rate at surrender is 4% the insurance company May pay a bonus. The market value adjustment is usually a percentage of the difference between the contracted rate of interest in the annuity and the current right at surrender. The insurance company requires the annuitant to share in the market risk of changing interest rates, if the annuity is surrendered early

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. The annuitant and the contract owner do not need to be the same person, but most often are. A corporation, trust or other legal entity may I want and annuity, but the annuitant must be a natural person

retirement income Annuities

A retirement income annuity is an ordinary annuity caring an additional feature; A decreasing term life insurance policy is added to it that provides term life insurance with a face amount that decreases each year the policy is in force. The effect is that if the annuitant reaches retirement age, the decreasing term insurance death benefit expires and annuity payments begin providing retirement income. If, however, the annuitant dies before retirement, the decreasing term insurance death benefit is combined with the value of the annuity and is then paid to the annuitants beneficiary in any settlement option chosen

variable annuities

A variable annuity is a variable from the standpoint that the annuitant May receive varying rates of return on the funds that are paid into the annuity. Thus, The value of the investment account in the annuity may be subject to variation. It is because of this feature that variable annuities were developed primarily as a way to provide a hedge against inflation

single vs. multiple life

SINGLE LIFE: Single life annuities cover one life, and annuity payments are made with reference to one life only. Contributions can be made with a single premium or on a periodic premium basis with subsequent values accumulating until the contract is annuitized. MULTIPLE LIFE: multiple life annuities cover two or more lives. The most common multiple life annuities are joint life, and joint and survivor.

how annuities work: the accumulation period

The accumulation., Is also known as the pay in., Is a period of time which the owner makes payments (premiums) into an annuity. Furthermore, it is the period of time during which the payments earn interest on a tax deferred basis

how annuities work: the annuity period

The annuity., Also known as the annuitization period, Liquidation period, Or payout period, is the time during which the sum that has been accumulated during the accumulation. Is converted into a stream of income payments to the annuitant. The annuity. May last for the lifetime of the annuitant or for a specified period, which could be longer or shorter. The annuitization Day is the time when the annuity benefit payouts begin (trigger for benefits)

premium payment options

The first way to classify annuities can be based on how they can be paid for. there are two options: A single premium (One-time lump sum payment) OR though periodic payments in which the premiums are paid in installments over a period of time. periodic payment annuities can be either level premium, in which the annuitant/owner pays a fixed installment, or a flexible premium, in which the amount and frequency of each installment varies

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The fix. Option pays for a specific time only, whether or not the annuitant is living

premium determination

The following are five factors used to determine annuity premiums; 1: age- the annuitants age is important because the insurer must determine how long the annuitant Will be paying premiums and for how long the ensure is likely to have to pay benefits 2: annuitants gender- because, based on actuarial statistics, Women live longer than men, the insurer will have to pay the benefits how longer period if the annuitant is female 3: assumed interest rate- when determining premiums for annuities, the ensure estimates or assumes that the invested premium dollars will earn a specified interest rate. this is known as an "assumed rate of interest" 4: income amount and payment guarantee- this factor is made up of the amount of periodic income and payment guarantees the insurer has made concerning the total amount or number of required payments. The longer the guarantee or. certain is, the higher the premium must be 5: loading- as with other products sold by insurance companies, the purchaser, when paying the premium, helps pay for the insurers operating expenses. therefore, premiums charged have an expense factor added in

Joint and Survivor

The joint and survivor arrangement is a modification of the life income option in that it guarantees an income for two recipients that neither can out live. although it is possible for the surviving recipients 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 the first recipient dies. most commonly, this option is written as "JOINT AND 1/2 SURVIVOR" or "JOINT AND 2/3 SURVIVOR", in which the surviving beneficiary receives 1/2 or 2/3 of what was received when both beneficiaries were alive. this option is commonly selected by a couple in retirement. As a life income option, there is no guarantee that all the proceeds will be paid out of both beneficiaries are shortly after the installments begin.

Life Contingency Options- pure life vs. life with guaranteed minimum: PURE LIFE

The life annuity will pay a specific amount for the remainder of the annuitants life. with pure life, also known as life only or straight lies, this payment ceases at the annuitants death (no matter how soon in the annuitization period That occurs). this option provides the HIGHEST MONTHLY BENEFITS for an individual annuitant. under this option, while the annuity payments are guaranteed for the lifetime of the annuitant, there is no guarantee that all proceeds will be fully paid out.

beneficiary

The person who receives annuity assets (either the amount paid into the annuity or the cash value, which ever is greater) if the annuitant dies during the accumulation period, or to whom the balance of the annuity benefits is paid out

personal uses of annuities

The principal use of an annuity is to provide income for retirement; however, an annuity may be used for any accumulation of cash or to simply liquidate in a state. Because of its various uses for annuities, agents should always assess how well a recommended product will meet the applicants needs and resources - The suitability of a product (The main use of annuity is to provide retirement income)

owner

The purchaser of an annuity contract, but not necessarily the one who receives benefits. The owner of annuity has all of the rights, such as naming the beneficiary and surrendering the annuity. The owner of an annuity may be a corporation, trust, or other legal entity

surrender charges

The purpose of surrender charge is to help compensate the company for the loss of the investment value due to an early surrender of a deferred annuity A surrender charges levied against the cash value, and is generally a percentage that reduces overtime. A common surrender charge might be 7% the first year, 6% the second year, and 5%, 4%, 3%, 2%, 1%, and 0% respectfully there after. Therefore, if the annuity is surrendered in the eighth year or after there would be no further surrender charge. at surrender, the owner gets the premium, plus interest (The value of the annuity), minus the surrender charge EX: Assume that the annuity owner paid $700 in premium, which accumulated a total of $35 interest, and a surrender charge is $70. if the annuity is surrendered prematurely, what will the annuity value be at surrender? The answer is $665 ($700 premium + $35 interest) - $70 surrender charge = $665 value of the annuity

joint life

joint life is a payout arrangement where two or more annuitants receive payments until the first death among the annuitants, and then payments stop.

Tax sheltered Annuities

a 403(b) plan or a tax sheltered annuity (TSA) as a qualified plan available to employees of certain nonprofit organizations under section 501(c)(3) of the internal revenue code, and two employees of public school systems. contributions can be made by the employer or by the employee through salary reduction and are excluded from the employees current income. As any other qualified plan 403(b) limits employee contributions to a maximum amount that changes annually, adjusted for inflation. The same catch-up provisions also apply

Fixed annuities

a fixed annuity provides the following features; 1: a guaranteed minimum rate of interest to be credited to the purchase payments 2: income (Annunity) payments that do not vary from one payment to the next 3: The insurance company guarantees the specified dollar amount for each payment and the link of the period of payments as determined by the settlement option chosen by the annuitant with fix annuities, the annuitant knows the exact amount of each payment received from the annuity during the annuity period. this is called a level benefit payment amount. A disadvantage to fixed annuities is that the purchasing power that they afford may be eroded overtime due to inflation

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pure life annuity provides the HIGHEST MONTHLY BENEFIT, but there is no guarantee that the entire principle will be paid out

Guaranteed minimum withdrawal benefit

retirement annuities my offer a guaranteed minimum withdrawal benefit GMWB option to the annuitant. with this option, the annuitant can withdraw a maximum percentage of his or her investments annually until the initial investment has been recovered. This option protects the annuitant against investment losses

Annunity

an annuity is a contract that provides income for a specified period of years, or for life. An annuity protects a person against out living his or her money. Annuities are not life insurance, but rather a vehicle for the accumulation of money in the liquidation of an estate. Annuities are marked by life insurance companies. License life insurance agents are authorized to sell some types of annuities. annuities do not pay face amount upon death of the annuitant. and unity is use mortality tables, but these tables reflect a longer life expectancy than mortality tables used for and life insurance. mortality tables indicate the number of individuals within a specific group for example, (males, females, smokers, non-smokers.) Starting in a certain age who are expected to be alive at a succeeding age.

interest rate guarantees (minimum vs. current)

and fix annuities, the insured bears the investment risk. Future interest rates actually paid by an insurer are based upon the performance of the insurance companies general account. However, the rate may not drop below a policy is guaranteed minimum (typically 3%). should interest rates drop below this guaranteed rate the insurer is obligated to pay the guaranteed rate amount during the accumulation phase, the insured well invest the principal, or accumulation, 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. The minimum rate is lowest rate that the principal can contractually earn

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and immediate annuity is purchased with a single premium

immediate vs. deferred annuities; immediate annuity

annuities can also be classified according to win the income payments from the annuity begin. an immediate annuity is one that is purchased with a single lump sum payment and provides income payments that start WITHIN ONE YEAR from the date of purchase. typically, and immediate annuity will make the first payment as early as one month from the purchase date. Most commonly, this type of annuity is known as a single premium immediate annuity (SPIA)

Types of Annuities

annuities can we classified according to how premiums are paid into the annuity, how premiums are invested, and win and how benefits are paid out.

Annuity Investment Options

annuities may be classified as fixed or variable based on how the premium payments are invested.

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 the sale of business, or a lump sum distribution from a qualified pension plan. In this case, a person may purchase a single premium immediate annuity, which will convert the lump sum into a series of periodic payments, providing a stream of income for the annuitant

annuity benefit payment options

annuity payment options specify I have annuity funds are to be paid out. They are very similar to settlement options used in life insurance that determine how the policy proceeds are distributed to the beneficiaries.

Purpose of Annuities

annuity share a lot of features and provisions with life insurance contracts. For example, annuity options (settlement options or benefit options) are similar to life insurance settlement options and are structured in much the same way. Also, like in life insurance payments for an annuity our computed on the basis of a mortality table, the difference being that the mortality table used for annuities has a greater life expectancy than the mortality table that is used in life insurance.

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because annuities are based on the life expectancy of a annuitant, the annuitant must be a natural person, regardless of who owns a policy.

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during the accumulation period funds are paid INTO the annuity. during the annuity period funds are paid OUT to the annuitant

General account assets

fix the new ready premiums are deposited into the life insurance companies general account. The general account is comprised mostly of conservative investments like bonds. These investments are secure enough to allow the insurance company to guarantee A specified rate of interest, as well as assure the future income payments that the annuity will provide

education funds

in addition to providing income for retirement and estate liquidation, annuities can be used to accumulate funds for a college education. An annuity can provide savings on a tax deferred basis for the education expenses of the annuitant

Annuities Certain (Types)

in contrast with life contingency benefit payment options, annuities certain our short term annuities and limit the amount paid to a certain fix. Or until a certain fixed amount is liquidated

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in fixed annuities, the premiums are deposited in the companies general account

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income payments from a deferred annuity begin sometime AFTER ONE YEAR from the date of purchase

Equity Indexed Annuities

indexed (or equity indexed) annuities are fixing new it is that invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity, the indexed annuity has a guaranteed minimum interest rate. The current interest-rate that is actually credited is often tied to a familiar index like the standard and poors 500 generally, the insurance companies reserve the initial returns for themselves but pay the excess to the annuitant. EX: The company may keep the first 4% earned for itself, but any accumulation in excess of 4% is credited to the annuitants account. serve the interest earned is 12%, the company keeps 4% in credits the clients account with 8%. Equity index annuities are less risky than a variable annuity or a mutual fund, but are expected to earn a higher interest-rate than a fixed annuity.

Life with Period Certain

is another life contingency payout option. Under this option, the annuity payments are guaranteed for the lifetime of the annuitant, and for a specified period of time for the beneficiary. EX: a life income with a 20 year period certain option would provide the annuitant with an income while he is living (for entire life). if, however the annuitant dies shortly after payments begin, the payments will be continued to a beneficiary for the remainder of the period (for a total of 20 years)

retirement income

since annuities are a popular means to provide retirement income, they are often used to find qualified retirement plans, which means they meet the IRS guidelines to receive favorable tax treatment. qualified retirement annuities can be individual (such as individual retirement accounts—IRAs), and group (such as tax sheltered annuity— TSA, or profit sharing pension plans)

nonforfeiture

the nonforeiture law stipulates that a deferred annuity must have a guaranteed surrender value that is available if the owner decides to surrender the annuity prior to annuitization (EX: 100% of the premium is paid, less any prior withdrawals & related surrender charges) however, a 10% penalty will be applied for early withdrawal's (prior to age 59 1/2)

two tiered Annuities

under a two-tiered annuity, the insured pays a higher rate of interest relative to the market right of a traditional fixed annuity; however the end every owner is required to annuitize The contract with the insure at some future date. In the event the annuity owner decides to surrender the contract for his cash value prior to annuitization, The interest rate is retroactively credited to a lower rate and applicable surrender charges are added

Life with guaranteed minimum

under the life with guaranteed minimum settlement option, if the annuitant dies before the principal amount has been paid out, the remainder of the principal amount will be refunded the beneficiary. this option is also called refund life. It guarantees that the entire principal amount will be paid out

Variable annuities

variable Annuities premiums are invested in securities, hopefully maintaining a constant purchasing power, as a protection against inflation. As a result, the investment risk is borne by the account holder. Premiums paid during the accumulation period are placed into the insurers separate account that is usually invested in common stocks. This means that the investment will vary according to fluctuation in stock prices. Separate accounts provide professional management and diversification. A variable annuity serves as a hedge against inflation, and is a variable from the standpoint that the annuitant May receive different rates of return on the funds that are paid into the annuity.

Accumulation Units

variable premiums purchase accumulation units in the fund, which is similar to buying shares in a mutual fund. Accumulation units represent ownership interest and the separate account. upon annuitization, the accumulation units are converted to annuity units. The income is then paid to the annuitant based on the value of the annuity units. The number of annuity units received remains level, but the unit values will fluctuate until actually paid out to the annuitant

Annuity units

when a variable annuity is selected during the income period, the total dollar amount (including interest) is converted into annuity units. the annuity units represent the number of shares in an investment account and are invested in the stock market. the value of these units rise and fall based upon the current value of the securities into which the money is invested

fixed amount

with fixed amount installments, the annuitant select how much each payment will be, and the insured determines how long the benefits will be paid by analyzing the value of the account and future earnings. This option pays a specific amount until funds are exhausted, whether or not the annuitant is living

fixed period

with fixed period Installments, the annuitant selects the time period for the benefits, and the insurer determines how much each payment will be, based on the value of the account and future earnings projections. this option pays for a specified amount of time only, wether or not the annuitant is living