Annuity Income Payment Options
Annuity Certain Payout Options
-Fixed period (10,15, 20, 25 years) -Fixed amount
Straight Life Income
-Life insurance settlement option with a life contingency under which the policy's proceeds are converted into payments that are made for the life of the payee. The payments stop upon his or her death. Under a straight or pure life income option, income payments are made for the annuitant's lifetime, regardless of how long that may be. At the annuitant's death, no further payments are made to anyone—the contract ends. Of the various life contingency income options, the straight life income option provides the largest monthly income payment for a given amount of annuitized funds.
Key Points
-Most people select an annuity income payment option that includes a life contingency, which guarantees that income payments are made for as long as the annuitant lives, no matter how long that is. -Of the various life contingency income options, the straight life income option provides the largest monthly income payment for a given amount of annuitized funds. -Common period certain options include the fixed period option and the fixed amount income option.
Life Income with Refund Guarantee
A life income with refund guarantee settlement option pays the annuitant an income for life no matter how long he or she lives. If the annuitant dies before total income payments equal the annuity's annuitized sum, the refund guarantee option provides that the balance is paid to the designated beneficiary. The beneficiary's payment may be in the form of a lump-sum cash payment or as continuing monthly installment payments until the balance is zero.
Fixed Amount Payout Option
The fixed amount payout option makes income payments for as long as it takes to entirely liquidate the annuitized principal. The contract owner chooses a monthly amount. Then the insurance company computes how long it will take to liquidate the principal at the selected amount. If the owner dies before the principal reaches zero, then the same payments are made to a beneficiary until the principal is entirely liquidated. The table shows a quick view of which payout options have a life contingency and which ones do not (annuity certain):
Fixed Period Payout Option
Under a fixed period annuity payout, payments are made for the specified number of years and then end. Common fixed period payouts are 10, 15, 20, and 25 years. Depending on the interest an insurer pays, a ten-year payout of a $100,000 annuity fund may generate monthly payments of about $970 for ten years. A 15-year payout of the same fund may produce monthly payments of $730 for 15 years. Obviously, the longer the payout period and the lower the interest paid by the insurer, the smaller the amount of each monthly payment. If the annuitant dies during the period, income continues to the beneficiary for the remainder of that period.
Life Contingent Payout Options
-Straight (pure) life income -Life income with refund --Refund as lump sum --Refund as continuing payments -Life income with term certain -Joint life income --Joint and last survivor --Pure joint life
Annuity Income Payment Options
-Intended to be income for the life of the owner -An annuity settlement option with a contingency means guaranteed income for life. Amount in payments is determined by the annuitants death, -- Without a life contingency the annuity can be outlived bc its not determined by the annuitants death. ---fixed period= payments are made for a specified length of time ----fixed amount= Payments are made in specified amounts. An annuity owner has a variety of options for receiving annuity income payments. These income payment options may be selected either at purchase or upon annuitization. Annuity income payments are usually made monthly, but the owner may request that they be paid on another basis, such as quarterly or annually. Once periodic payments begin, they are usually irrevocable, which means they cannot be stopped, changed, or discontinued. They will continue for the length of the payout period
Annuity Certain Income Options
Annuity settlement options do not require a life contingency. Options that do not include a life contingency pay benefits for a specified period of time, at the end of which payments stop even if the annuitant is alive. This type of settlement option is generally known as a period certain option. Common period certain options include the fixed period option and the fixed amount income option.
Life Income with Period (Term) Certain
The life annuity with period (or term) certain settlement option guarantees that income is paid for the length of the annuitant's life, but for no less than a certain number of years. If the annuitant dies before the selected term period ends, then income payments continue to his or her beneficiary for the balance of the period. The certain period can be any the owner wants (and the insurer agrees to). Certain periods of 10 years, 15 years, and 20 years are the most common.The life annuity with period (or term) certain settlement option guarantees that income is paid for the length of the annuitant's life, but for no less than a certain number of years. If the annuitant dies before the selected term period ends, then income payments continue to his or her beneficiary for the balance of the period. The certain period can be any the owner wants (and the insurer agrees to). Certain periods of 10 years, 15 years, and 20 years are the most common.
For test
-Actuarial equivalent meaning the payment amount may appear different depending on option chose the value of that payout option offsets the payment difference so that to the insurance company they are actuarial the same or mathematical equivalent in value -life contingency= payment for life of annuitant --"Vanilla" Option (most money and fewest?) = Straight life Option (Annuitant receives payments until they pass away then they're done) --Joint life= attractive to spouses. One dies the other inst left high and dry. Ends when the second person dies. Options= 100% joint survivor(same payment forever), 50% joint survivor(decreases by 50 % overtime) BUTTTT the 100% will pay less monthly income than the 50% option bc it has the added value of no reduction when the first annuitant dies -Period certain annuity= specified time for annuitant to receive payment -some plans have both. minimum period guaranteed and if the annuitant lives longer than period certain then payments continue. -
quiz
Question 1 Settlement options can be based on the length of the joint lives of which of the following? the beneficiary and his or her spouse -two or more annuitants the owner's life the owner and the annuitant Settlement options can be based on the length of the joint lives of two or more annuitants, but probably not the owner and the annuitant. Question 2 Mark and Mary are preparing to annuitize their deferred annuity. They want a settlement option that will continue making payments for as long as either is alive, no matter which of them dies first. Which of the following settlement options best suits their need? straight life income (also referred to as pure life income) life income with guaranteed minimum (refund guarantee or life annuity certain) -joint survivor life income life income with period certain Under a joint survivor life income option, an income is paid until the second of the two annuitants dies. When the second annuitant dies, no further payments are made to anyone. Joint life income options are common for married couples who want to assure a continued income stream for both lives. Question 3 Sam is planning to buy a deferred annuity. When will he select a settlement option? He can only choose the settlement option when the deferred contract annuitizes. He can only choose the settlement option at the time the contract is issued. The choice of settlement option is built into the contract; the owner chooses a contract with the preferred settlement option. -He can choose the settlement option when the deferred contract annuitizes or when he buys the annuity. The annuity owner can choose a settlement option when the deferred contract annuitizes or when he or she buys the annuity contract. Question 4 Which of the following is NOT a common joint life settlement option? -joint and one-quarter survivor joint and 100 percent survivor joint and one-half survivor joint and two-thirds survivor At this point, the purpose for owning a joint survivor annuity is defeated. The minimum (standard) joint and survivor percentage is 50 percent (one-half). Question 1 What type of annuity option pays income over a set number of years or in specified amounts? life contingent payout option -annuity certain income option annuity contingent income option life annuity certain option An annuity certain income option pays income over a set number of years or in specified amounts. Question 2 Under which settlement option is an income paid until the second of the two annuitants dies, and at the second death, no further payments are made to anyone? -joint survivor life income straight, or pure, life income life income with guaranteed minimum (refund guarantee or life annuity certain) life income with period certain Under a joint survivor life income option, an income is paid until the second of the two annuitants dies. When the second annuitant dies, no further payments are made to anyone. Question 3 Grace's annuity pays her an income for her lifetime, regardless of how long she lives. When she dies, no further payments are made to anyone. Which of the following types of settlement options does she have? life income with period certain joint survivor life income life income with guaranteed minimum (refund guarantee or life annuity certain) -straight, or pure, life income Under a straight or pure life income option, the annuitant receives an income for his or her lifetime, regardless of how long the owner lives. At the owner's death, no further payments are made to anyone; the contract ends. Question 4 Which of the following best describes income payments under the period certain payout option? the shorter the payout period, the smaller the amount of each monthly payment the longer the payout period, the larger the amount of each monthly payment -the longer the payout period, the smaller the amount of each monthly payment the shorter the payout period, the longer the number of monthly payments Under a period or term certain annuity payout, payments are made for the specified number of years and then end. Common term certain payouts are 10, 15, 20, and 25 years. Thus, the larger the payout period, the smaller the amount of each monthly payment.
Life Income Payment Options
There are similarities between annuity income payment options and life insurance death benefit settlement options. For example, they can be based on a life contingency, where the payments last as long as the annuitant lives. The settlement options can be based on the length of the joint lives of two or more annuitants. The settlement options can also be paid on a certain basis, under which either the term or the amount of the payments is fixed. They may also combine a life contingency and a period certain (e.g., life annuity with ten years certain). Most people select an annuity settlement option that includes a life contingency, which guarantees that income payments are made for as long as the annuitant lives, no matter how long that is. Typical settlement options involving life contingencies include: -straight life income (also referred to as pure life income) -life income with refund guarantee -life income with period certain (settlement option with a life contingency under which a payee receives income payments for life. However, he or she is guaranteed that the payments will be made for a specified term.) -joint life income