Annuities
IRS
(Internal Revenue Service) Governmental agency responsible for collecting taxes and enforcement of Internal Revenue Code
income payments
- Immediate - purchased with a single premium; income payments start within 12 months from the date of purchase - Deferred - purchased with either lump sum or periodic payments; benefits start sometime after 1 year from the date of purchase
Indexed Annuities
- Interest rate tied to an index. - Earn higher rate than fixed annuities - not as risky as variable annuities or mutual funds
Pure Life Annuity
- Provides periodic benefit payments as long as the annuitant lives, with the payments ceasing at death.
Pure Life Annuity
- also known as life only or straight life - payment is going to cease at the annuitant's death; - provides the highest monthly benefit due to the omitting of beneficiaries
Premium payments (periodic)
- multiple payments - level or flexible - annuity principal created over time (used only for deferred annuities )
annuity
- payment received every year for a specific number of years - not life insurance - vehicle for accumulation of money and liquidation of an estate - payment often made until death of annuitant
settlement options
1. lump sum 2. life only 3. refund life annuity 4. joint life 5. joint and survivor 6. life with period certain 7. annuities certain
when are annuity contracts uncontestable?
2 years after purchase
Qualified Plan
A retirement plan that meets the IRS guidelines for receiving favorable tax treatment.
Guaranteed surrender value
According to the nonforfeiture law, if the owner decides to surrender a deferred annuity prior to annuitization, the owner is entitled to which of the following?
Types of Refund Life Annuities
Cash refund (lump sum refund minus benefit payments already made - does not guarantee interest installment refund (beneficiary receives payments until the principle amount is paid out) life w/ period (term) certain option - payments are guaranteed for the lifetime of the annuitant and for a specified period of time (ex. 20 yr period certain option insures payment is continued for 20 years)
Life contingency
Dependent upon whether or not the insured is alive
current interest rate
Exceeds guaranteed rate. Paid to annuitant when a company's own investment is better than expected.
agent selling variable annuities must be registered with
FINRA
variable annuity providers must be registered with the
FINRA
Annuitant
Insured, policy issued on annuitant's life, must be a natural person
Premium Payments (single)
ONE lump-sum payment; the principal is created immediately (used for both immediate and deferred annuities)
Variable Annuities
Payment not guaranteed. Premiums are in separate account, and invested in stocks and bonds.
Market Value Adjusted Annuity
a deferred annuity that allows owner to lock in a fixed interest rate over a specified period of time.
suitability
a requirement to determine if an insurance product or an investment is appropriate for a customer
annuity phases
accumulation period (payments to insurer) Annuitization period (payout to the insured)
when are unpaid annuity benefits taxable?
after the death of annuitant
Bail-Out Provision
allows the annuity owner to surrender the annuity without surrender charges if interest rates drop a specific amount within a specific time period
what must be a real human
annuitant
what happens if the annuitant dies during accumulation period?
beneficiary receives benefits - either the amount paid into plan or the cash value accumulated
Liquidation of an estate
converting a person's net worth into a cash flow
if applicant is online
disclosure document and buyer's guide availible on the insurers website satisfy the requirement.
Fixed Annuity
guaranteed, fixed payment amount; premiums in general account
natural person
human being
how is surrender charge determined if deferred annuity is surrendered prematurely?
its a percentage of the cash value and it decreases over time
annuity certain
limits amount paid to a certain fixed period of time or until a certain fixed amount is liquidated
guaranteed interest rate
minimum percentage a company must pay (usually 3%)
If no beneficiary...
money goes to annuitant's estate
owner
owns all rights to the policy (usually annuitant) can be corporation or trust
Accumulation Period
payments put into annuity that earn interest and grow tax deferred
deferred
postponed or delayed
beneficiary
receives annuity (+ any gain) if annuitant dies during accumulation period
Waiver of surrender charges
surrender charges may be waived if the annuitant is confined to a long-term care facility for at least 30 days!
if the surrendering of a market value adjusted annuity happens prematurely...
the current interest rate determines the penalty
who bears all of the investment risk in a fixed annuity?
the insurance company
annuity period
time in which accumulated money is converted into an income stream