Annuities In Depth

General Account Assests

Is comprised mostly of conservative investments like bonds.

Level Benefit Payment Amount

During the payout phase of a fixed annuity, the amount of benefit is also guaranteed.

Fixed Annuities

Interest rate is guaranteed; Underlying investment is in general account; License needed is life insurance; Expenses is guaranteed; and Income payment is guaranteed.

Joint & Survivor

Is a modification of the life income option in that it guarantees an income for two recipients that neither can outlive. The surviving beneficiary receives 1/2 or 2/3 of what was received when both beneficiaries were alive. There is no guarantee that all the proceeds will be paid out if both beneficiaries die shortly after the installments begin.

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 immediate annuity will make the first payment as early as 1 month from the purchase date. Known as Single Premium Immediate Annuity (SPIA).

Bail-Out provision

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

Annuity income amount is based upon?

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

Nonforfeiture

A deferred annuity has a guaranteed surrender value that is available if the owner decides to surrender the annuity prior to annuitization. (e.g 100% of the premium paid, less any prior withdrawals and related surrender charges).

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.

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. Annuitant must be a natural person.

Guaranteed Minimum Interest Rate

The rate may not drop below a policy's guaranteed minimum (typically 3%). Should interest rates drop below this guaranteed rate, the insurer is obligated to pay the guaranteed rate amount. Lowest rate.

Life with period certain

Under this option, The annuity payments are guaranteed for the lifetime of the annuitant, and for a specified period of time for the beneficiary. Annuitant receives for lifetime. Beneficiary receives period of years.

Where is the money placed in a Fixed Annuities?

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

Interest Rate

Issuing insurance company does not guarantee a minimum interest rate.

The owner of the annuity has all of the rights to?

Naming the beneficiary and surrendering the annuity.

Annuities are not life insurance but are?

Rather a vehicle for the accumulation of money and the liquidation of an estate.

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.

Premium Payment Option

Single payment (lump sum), and periodic payments. In which the premiums are paid in installments over a period of time.

Annuities Certain

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

Variable Annuities

Interest rate is not guaranteed; Underlying investment is in separate account; License needed is Life insurance plus Securities; Expenses are guaranteed; and Income payment is not guaranteed.

Joint Life

Is a payout arrangement where two or more annuitants receive payments until the first death among the annuitants, and then payments stop.

Deferred annuity

Is an annuity in which the income payments begin sometime after one year from the date of purchase. Deferred can be funded with either a single lump sum (Single Premium Deferred Annuities-SPDAs). Or through periodic payments (Flexible Premium Deferred Annuities-FPDAs). Periodic payments can vary from year to year.

Surrender Charge

Is levied against the cash value, and is generally a percentage that reduces over time. At surrender, the owner gets the premium, plus interest (the value of the annuity), minus the surrender charge.

Accumulation period (Pay-In period)

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

What is the purpose of a Surrender Charge?

The purpose of the surrender charge is to help compensate the company for loss of the investment value due to an early surrender of a deferred annuity.

Pure Life ( Life-only, Straight life)

This payment ceases at the annuitant's death ( no matter how soon in the annuitization period that occurs). This option provides the highest monthly benefits for an individual annuitant. Under this option, while the annuity payments are guaranteed for the lifetime of the annuitant, there is no guarantee that all the proceeds will be fully paid out.

Multiple Life Annuities

Cover 2 or more life. The most common multiple life annuities are joint life, and joint & survivor.

During accumulation phase, the insurer must give the annuitant which interest?

A guaranteed interest rate based on a minimum rate as specified in the annuity, or the current interest rate, whichever is higher.

License Requirements

A variable annuity is considered a security and is regulated by the Securities Exchange Commission (SEC) in addition to state insurance regulations.

Waiver

Annuity contracts provide for a waiver of surrender carges if the annuitant is confined to a Long-term Care facility for at least 30 days.

Periodic payments 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.

Two types of Refund Life Annuities are?

Cash refund; and Installment refund.

Single Life Annuities

Cover one life, and annuity payments are made with reference to one life only. Contributions can be made with a single premium or on a periodic premium basis with subsequent values accumulating until the contract is annuitized.

What are the two types of Annuities Certain (types) ?

Fixed period; and fixed amount.

Level benefit payment amount

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

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.

Underlying Investment

The payments that the annuitant makes into the variable annuity are invested in the insurer's separate account.

Cash Refund

when the annuitant dies, the beneficiary receives a lump-sum refund of the principal minus benefits payments already made to the annuitant. This option does not guarantee to pay any interest.

Annuity period (Annuitization period, Liquidation period, and 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 following features of Fixed Annuities are?

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.

Life Annuity

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

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. The number of units received remains level, but the unit values will fluctuate until actually paid out to the annuitant.

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. If a beneficiary is not named, the benefit will be paid to the annuitant's estate.

Equity Indexed Annuities

Are fixed annuities that invest on a relatively aggressive basis to aim for higher returns. Has a guaranteed minimum interest rate. The current interest rate that is actually credited is often tied to a familiar index like the Standard & Poor's 500.

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 option is also called refund life. It guarantees that the entire principal amount will be paid out.

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 whom the balance of the annuity benefits is paid out.

Owner

The purchaser of the annuity contract, but not necessarily the one who receives the benefits. The owner may be a corporation, trust, or other legal entity.

3 main characteristics of Variable Annuities are?

Underlying Investment; Interest Rate; and License Requirements.

Installment refund

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

Annuity

Is a contract that provides income for a specified period of years, or for life. It protects a person against outliving his or her money.