Annuities

Joint life

A payout arrangement where two or more annuitants recieve payments until the first death among the annuitants, and then payments stop

Life with period certain

Another life contingency payout option. Annuity payments are guaranteed for the lifetime of the annuitant, and for a specified period of time for the beneficiary

Two types of refund life annuities:

Cash refund and Installment refund

(Variable Annuity characteristic) Interest Rate

Does not guarantee a minimum interest rate

Advantage of having a qualified annuity:

Favorable tax treatment. Annuities meeting the IRS guidelines receive favorable tax treatment for funding qualified retirement plans.

Joint and Survivor

Guarantees an income for two recipients that neither can outlive. Most contracts provide that the surviving recipients will receive a reduced payment after the first recipient dies. Most commonly this is written as "Joint and 1/2 survivor" or "Joint and 2/3 survivor"

Suitability of a product

How well a product meets the applicant's needs and resources

Life annuity:

Pay a specific amount for the remainder of the annuitant's life.

Annuities Certain

Short term annuities that limit the amounts paid to a certain fixed period or until a certain fixed amount is liquidated

Level benefit payment amount

The annuitant knows the exact amount of each payment received from the annuity during the annuity period.

Deferred annuity

The income payments begin sometime after one year from the date of purchase. The longer the annuity is deferred, the more flexibility for payment of premiums it allows

Annuitant dies during the accumulation period:

The insurer is obligated to return to the beneficiary either the cash value or the total premiums paid, whichever is greater

(Variable Annuity Characteristic) Underlying Investment

The payments that the annuitant makes into the variable annuity are invested in the insurer's separate account, not their general account. The separate account is not part of the insurance company's own investment portfolio, and is not subject to the restrictions that are applicable to the insurer's own general account.

Annuity Period (annuitization period, liquidation period, pay-out period)

Time during which the sum that has been accumulated during the accumulation period is converted into a stream of income payments to the annuitant.

Annuity Units

Upon annuitization, accumulation units are converted to annuity units

Annuity income amount is based upon:

- The amount of premium paid or cash value accumulated - The frequency of the payment - The interest rate - The annuitant's age and gender

Fixed amount Installments

Annuitant selects how much each payment will be, and the insurer determines how long the benefits will be paid by analyzing the value of the account and future earnings

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 a sale of a 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.

Multiple life annuities

Cover 2 or more lives. Most common multiple life annuities are joint life, and joint and survivor.

General Account Assets

Fixed annuity premiums are deposited into the life insurance company's general account

Pure life (life-only or straight life)

Payment ceases at the annuitant's death (no matter how soon in the annuitization period that occurs) Provides the highest monthly benefits No guarantee that all the proceeds will be fully paid out

Accumulation period (pay-in period)

The period of time over which the owner makes payments (premiums) into an annuity. Payments earn interest on a tax-deferred basis.

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 in the separate account

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

Indexed (or equity indexed) annuities

Fixed annuities that invest on a relatively aggressive basis to aim for higher returns.

Guaranteed Minimum Withdrawal Benefit (GMWB)

Retirement annuities may offer GMWB which allows the annuitant to withdraw a maximum percentage of their investment annually until the initial investment has been recovered. This protects the annuitant against investment losses

Variable Annuities

Serves as a hedge against inflation, and is variable from the standpoint that the annuitant may receive different rates of return on the funds that are paid into the annuity. Three main characteristics of variable annuities: Underlying Investment, Interest Rate, License Requirements

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. Option pays for a specified amount of time only, whether or not the annuitant is living.

Installment refund

When the annuitant dies, the beneficiary will continue to receive guaranteed installments until the entire principal amount has been paid out.

Surrender value

The sum of money an insurance company will pay to the policyholder or annuity holder in the event his or her policy is voluntarily terminated before its maturity or the insured event occurs

Annuity

Contract that provides income for a specified period of years, or for life. An annuity protects a person against outliving his or her money.

(Variable Annuity Characteristic) License Requirement

Variable annuity is considered a security and is regulated by the SEC in addition to state insurance regulations. Agent selling variable annuities must hold a securities license in addition to a life insurance license. Agents or companies that sell variable annuities must also be properly registered with FINRA.

Single life annuities

Cover one life. Contributions can be made on a periodic or on a single premium basis with subsequent values accumulating until the contract is annuitized. This provides the highest monthly payment.

Types of annuitites

Annuities can be classified according to how premiums are paid into the annuity, how premiums are invested, and when and how benefits are paid out. First way to classify annuities can be based on how they can be funded. Two options: single payment (lump sum) or through periodic payments in which the premiums are paid in installments over a period of time. Periodic payment annuities can be either level premium, or flexible premium, in which the amount and frequency of each installment varies

Immediate annuity

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, an immediate annuity will make the first payment as early as 1 month from the purchase date. This is known as Single Premium Immediate Annuity (SPIA)

Interest Rate Guarantees

In fixed annuities, the insurer bares the investment risk. Rate may not drop below a policy's guaranteed minimum. Should interest rates drop below this guaranteed rate, the insurer is obligated to pay the guaranteed rate amount. During accumulation phase: insurer invests the principal and gives annuitant a guaranteed interest rate based on a minimum rate as specified in the annuity or the current interest rate whichever is higher. Minimum rate is the lowest rate that the principal can contractually earn.

Your client's employer does not offer a company-wide annuity contract. What type of annuity contract could your client obtain?

Individual.

Surrender Charges

Purpose is to help compensate the company for loss of the investment value due to an early surrender of a deferred annuity At surrender, the owner gets the premium, plus interest (the value of the annuity), minus the surrender charge

Nonforfeiture

Deferred annuity has a guaranteed surrender value that is available if the owner decides to surrender the annuity prior to annuitization

Fixed annuities

Guaranteed minimum rate of interest to be credited to the purchase payment(s) Income payments that do not vary from one payment to the next The insurance company guarantees the specified dollar amount for each payment and the length of the period of payments as determined by the settlement option chosen by the annuitant

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 to the beneficiary. This is called refund life. Guarantees that the entire principal amount will be paid out.