Chapter 8 Purpose of an Annuities

Life with Period Certain

Annuity Paid Out that is contigent on the annuitant dying.

Deferred Annuity

Annuity in which the income payment begins sometime after the first year.

What else is the Annuity Period called?

Annuitzation period and Liquidation period

Accumulation Units

As variable annuity premium are invested and begin to grow this is known as the accumulation of units.

How can deferred annuity be funded?

In a single lump sum or through periodic payment

Accumulation Period

Is the period of time over which the annuitant makes premium payments into the annuity. It is also the time that the premium payment earn interest on a tax deferred basis.

Under which option does the annuity payment guarantee for the entire lifetime of the annuitant and for a specified period of time to the beneficiary.

Life with Period Certain

Is Annuities Life Insurance?

No. Annuities are NOT life insurance, but a way of accumlating money and liquidating an estate.

Is it a guarantee the annuity payment be for the lifetime of the annuitant?

No. There is no guarantee that all the proceeds will be full fully paid out, because the payment stops after the annuitant's death.

Immediate Annuity

One that is purchased with a single lump sum payment and provides income payment that start within one year from the date of purchase.

What else is accumulation period known as?

Pay-in-Period

Annuitant

Person who receives the payment from the annuity.

Annuity Taxes

Portion of each annuity benefit payment is taxable and a portion if NOT.

Fixed Annuities

Provide a fixed guaranteed paid out. Payments that do not vary from one payment to another and guaranteed minimum rate of interest.

Annuities

Provides income for a specific number of years or for life. An Annuity protects a person against outliving their money.

What other name is Straight Life Insurance Options called?

Pure Life

What is SEC?

Securities and Exchange Commission

An agent selling variable annuities must also have?

Securities license in addition to their Life Insurance License

Variable Annuities

Serves as a hedge against inflation, and is variable because there is NOT a guarantee of paid out. Payments can vary from one payment to another, and there is NOT a set rate of interest.

2 ways to Annuity funding

Single payment (lump sum) or Periodic payment which premium are paid in installments over a period of time.

Annuity Pay Out Options

Specify how annuity funds are to be paid out. They are very similar to the settlement options used in life insurance and determine how the policy proceeds are distributed to the beneficiaries.

A variable annuity is considered a security and is regulated by?

The Securities and Exchange Commission (SEC)

If the annuitant passes during the accumlation period, the beneficiary will receive what?

The cash value or total premiums paid whichever is greater.

Annuity Units

The paid out phase of the variable annuity.

Cost Base

The portion that is nontaxable is anticipated return of the principal paid in.

Tax Base

The portion that is taxable is the interest earned on the principal.

Annuity Owner

The purchaser of the annuity.

Annuity Period

The time during which the money that has accumlated during the accumulation period is converted into income payment to the annuitant

Annuities can also be classified according to what?

To when income payment from the annuity begin.

Straight Life Insurance Options

Will pay a specific amount for the remainder of the annuitant's life. This options provides the highest monthly benefit for an individual annuity.