Annuities

The owner of an annuity is the

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

An annuity is

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

Like a fixed annuity, the indexed annuity has a

guaranteed minimum interest rate. The current interest rate that is actually credited is often tied to a familiar index like the Standard and Poor's 500

The annuitant and the contract owner do

not need to be the same person, but most often are.

An annuity protects a person against

outliving his or her money

Annuities are also used to provide what is known as structured settlements

a SS would take on the form of a court settlement arising from a civil law suit or it may take on the form of the income that is provided to the winner of a state lottery

Equity indexed annuities are less risky than

a variable annuity or mutual fund but are expected to earn a higher interest rate than a fixed annuity

Annuities are not life insurance, but rather a vehicle for the

accumulation of money and the liquidation of an estate

Variable premiums purchase

accumulation units in the fund, which is similar to buying shares in a mutual fund

annuity income amount is based upon the following

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

Indexed (or equity indexed) annuities are

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

Annuities may be classified as

fixed or variable based on how the premium payments are invested

With fixed annuities, the annuitant knows the exact amount of each payment received from the annuity during the annuity period. This is called

level benefit payment amount. A disadvantage of fixed annuities is that the purchasing power that they afford may be eroded over time due to inflation.

periodic payment annuities can be either

level premium, in which the annuitant/owner pays a fixed installment, or flexible premium, in which the amount and frequency of each installment varies

Annuities use

mortality tables

Annuities can also be classified according to when the income payments from the annuity begin.

when the income payments from the annuity begin

A corporation, trust or other legal entity may own an annuity, but the

annuitant must be a natural person

Accumulation units represent ownership interest in the separate account. Upon annuitization, the accumulation units are converted to

annuity units. The income is then paid to the annuitant based on the value of the annuity units.

If an 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

A 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.

The accumulation period, also known as

the pay-in period, is the period of time over which the owner makes payments (premiums) into an annuity. Futhermore, it is the period of time during which the payments earn interest on a tax-deferred basis

The annuity period, also known as the

annuitization period, liquidation period, or pay-out period, is the time during which the sum that has been accumulated during the accumulation period is converted into a stream of income payments to the annuitant

The owner of an annuity may be a

corporation, trust, or other legal entity

With fixed-amount installments, the 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. This option pays a specific amount until funds are exhausted, whether or not the annuitant is living

Basic function of an annuity is that of

liquidating a principal sum, regardless of how it was accumulated

The beneficiary is the person who

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

Annuities are purchased, for the most part, to provide or supplement

retirement income and/or college education

Annuities certain are

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

The first way to classify annuities can be based on how they can be funded (paid for). There are 2 options:

single payment (lump sum) or through periodic payments in which the premiums are paid in installments over a period of time

An immediate annuity is 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 annuitant whose life expectancy is longer will have

smaller income installments

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

Annuities have nonforfeiture values (the accumulation value)

which may be withdrawn prior to the annuitization date

A fixed annuity provides the following features

Guaranteed minimum rate of interest to be credited to the purchase payment(s) Income (annuity) 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

The 3 main characteristics of variable annuities are

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 Interest rate: issuing insurance company does not guarantee a minimum interest rate License requirements: a variable annuity is considered a security and is regulated by the Securities Exchange Commission (SEC) in addition to state insurance regulations. An 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.

The owner of the annuity has all

of the rights, such as naming the beneficiary and surrendering the annuity.

Annuity payment options specify how annuity funds are to be

paid out. They are very similar to the settlement options used in life insurance that determine how the policy proceeds are distributed to the beneficiaries

A deferred annuity is an annuity which the income payments begin

sometime after one year from the date of purchase

In most annuity cases, the payments

stop upon the death of the anuitant (do not pay face amount upon the death of the annuitant)

The parties in an annuity consist of

the owner, annuitant, and beneficiary

The anuitant is the person

who receives benefits or payments from the annuity, whose life expectancy is taken into consideration, and for whom the annuity is written