Annuities (5)

Multiple life annuity

covers 2 or more lives (joint life, joint and survivor)

Indexed (or equity indexed) annuities

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

General account assets

fixed annuity premiums are deposited into the life insurance company's general account. This account is mostly of conservative investment like bonds

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

Why is an equity indexed annuity considered to be a fixed annuity?

it has a guaranteed minimum interest rate

Installments for a fixed amount option has no

life contingencies

Short term annuities

limit the amounts paid to a certain fixed period or until a certain fixed amount is liquidated

The longer the annuity is deferred the

more flexibility for payments of premiums it allows

An annuity protects a person against

outliving his/her money

The principal use of an annuity is to

provide income for retirement but it may be used for any accumulation of cash or simply to liquidate an estate

What best describes a pure life annuity settlement option?

pure life provides payments for as long as the annuitant is alive

Annuity benefit payment options

specify how annuity funds are to be paid out

Which type of annuity will generally provide the highest monthly income?

straight life

Flexible premium

the amount and frequency of each installment varies

Annuity contracts provide for a waiver of surrender charges if

the annuitant is confined to a long-term care facility for at least 30 days

Fixed amount installments

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

Annuitization date

the time when the annuity benefit payouts begin

Annuities are often used to fund qualified retirement plans which means

they meet the IRS guidelines to receive favorable tax treatment

What is true regarding variable annuities?

the annuitant assumes the risk on investment

Annuity

a contract that provides income for a specified period of years, or for life

The owner of an annuity may be

a corporation, trust, or other legal entity

Joint and survivor

a modification of the life income option in that it guarantees an income for two recipients that neither can outlive

Joint life

a payment arrangement where two or more annuities receive payments until the first death among the annuitants and then payments stop

Market value adjusted annuity (modified guaranteed annuity)

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

Life with guaranteed minimum settlement (refund life)

if the annuitant dies before the principal amount has been paid out, the remainder of the principal amount will be refunded to the beneficiary

If the owner prematurely surrenders his deferred annuity before the annuitization period begins, what will most likely occur?

the owner will receive the premium payments that have been paid into the annuity, plus any interest, minus a surrender charge

Owner

the purchaser of the annuity contract, but not necessarily the one who receives that benefits

If an annuitant dies during the accumulation period, the insurer is obligated to

return to the beneficiary either the cash value or the total premium paid

Variable annuity require a _______ license

securities

Variable annuity

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

Accumulation units

similar to buying shares in a Mutual Fund

Annuities may serve as an ideal financial vehicle for

someone who comes into a large lump sum of money (inheritance, lottery, etc)

Fixed period installments

the annuitant selects the time period for the benefits and the insurer determine how much each payment will be based on the value of the account and future earnings projections

Level premium

the annuitant/owner pays a fixed installment

Life with period certain

the annuity payments are guaranteed for the lifetime of the annuitant and for a specified period of time for the beneficiary

With fixed annuities, the annuitant knows

the exact amount of each payment received from the annuity during the annuity period (level benefit payment amount)

A deferred annuity has a guaranteed surrender value that is available if

the owner decides to surrender the annuity prior to annuitization

An annuitant can be

the same person as the annuity owner

A lucky individual won the state lottery, so the state will be sending him a check each month for the next 25 years. What type of annuity products are they likely to use to provide these benefits?

immediate annuity

Qualified retirement annuities can be ________ and _______

individual, group

If a contract provides a set amount of inside for two or more persons with the income stopping upon the first death of the insured, it is called a

joint life annuity

Equity indexed annuities are ____ risky than a variable annuity or mutual fund but are expected to earn a ______ interest rate/returns than a fixed annuity

less, higher

A prospective deferred annuity owner is concerned about what would happen if he surrenders the annuity before the annuitization period. The agent most likely explained

nonforfeiture option guarantees that the owner will receive a surrender value of the contract

Immediate annuity (single premium 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

An individual buys a flexible premium deferred life annuity with 20 year period certain. What would his beneficiary receive if he died 5 years after beginning the annuity phase?

payments for 15 years

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

Beneficiary

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

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

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

the time during which the sum that has been accumulated during the accumulation period in converted into a stream of income payments to the annuitant

When an annuity is written, whose life expectancy is taken into account?

annuitant

Single life annuity

covers one life and annuity payments are made with reference to one life only

Your client owns a Market Value Adjusted Annuity. In order to pay for a series of large unexpected medical bills, he decides to surrender his policy prematurely. Which of the following will determine the penalty that the annuity owner will have to pay?

current interest rate at the time of surrender

Bail out provision

allows the contract holder, in the event that interest rates drop a specified amount within a specified time frame, to surrender the contract without charges

Deferred annuity

an annuity in which the income payments begin sometime after one yeah from the date of purchase

In an annuity, the accumulated money is converted into a stream of income during which time period?

annuitization period

Your client plans to retire at age 50. He would like to purchase an annuity that would provide income from the time he retired to the age when social security and other pension funds become available. What settlement option should he consider?

annuity certain

What is the advantage of having a qualified annuity?

favorable tax treatment

An annuity owner is funding an annuity that will supplement her retirement. Because she doesn't know what effect inflation may have on her retirement dollars, she would like a return that will equal the performance of the Standard and Poor's 500 index. She would likely purchase an

equity indexed annuity

Pure life (life only, straight life)

this payment ceases at the annuitant's death. This option provides the highest monthly benefits for an individual annuitant

Annuities are not life insurance, but rather a

vehicle for the accumulation of money and the liquidation of an estate