Annuities

Free look periods are as follows

- 10 days after contract is delivered - 30 days if the contract holder is 65 or older on the application date - 15 days if buyer's guide and disclosure document are not delivered at or before time of application

Pure Life Annuity

- Provides periodic benefit payments as long as the annuitant lives, with the payments ceasing at death. - Provides the highest monthly benefit - Annuity payments are guaranteed for life - No guarantee that entire principal will be paid out

Life with Period Certain

-to guarantee that a minimum number of payments are made even if the annuitant dies -contract will specifically allow the choice of a period of 10 or 20 years -guaranteed monthly income for life with this option, but if death occurs within the period certain -a named beneficiary receives payments for the remainder of the period

An annuity or pure endowment contract may be reinstated within __________ from the default in premium payments, unless the cash surrender value has been paid.

1 year

The owner may be:

1. A corporation 2. A trust 3. A legal entity

The annuity income amount is based upon the following:

1. Amount of premium paid or cash value accumulated 2. Frequency of payments 3. Interest rate 4. Annuitant's age and gender

3 uses of annuities

1. Lump sum settlements 2. Retirement income 3. Education funds

What rights does an annuity owner have?

1. Naming the beneficiary 2. Surrendering the annuity

Classification of annuities:

1. Premium payment method: single premium versus periodic 2. When income payments begin: immediate versus deferred 3. How premiums are invested: fixed versus variable 4. Disposing of proceeds: pure life, annuity certain, or life refund annuity

What is the principal use of an annuity?

1. Provide income for retirement 2. Cash accumulation 3. Liquidation of estate

3 main characteristics of variable annuities

1. Underlying Investment: payments go into insurer's separate account, not their general account. 2. Interest Rate: Does not guarantee a minimum rate. 3. License Requirements: An agent selling variable annuities must hold a securities license in addition to a life insurance license.

Life with Guaranteed Minimum

1. it is a life contingency option 2. The beneficiary receives the remainder of the principal amount upon the annuitant's death 3. Payments can be made in installments and as a single cash refund

What kind of penalty will be applied for early withdrawals from an annuity?

10% prior to the age of 59 1/2.

Within how many days must an applicant for an annuity contract receive the disclosure document and buyer's guide if the application was not taken in a face to face meeting?

5 business days

Fixed annuity premiums are kept in:

A company's general account

Fixed annuities provide all of the following EXCEPT

A hedge against inflation

What are two phases of an annuity

Accumulation and annuitization (or pay-in and pay-out)

Period of time in which the owner makes payments into an annuity.

Accumulation period (pay in period)

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

Annuitant

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

Annuities Certain

A contract that provides income for a specified period of years, or life. They protect individuals from outliving their money.

Annuity

The time during which the sum that has been accumulated during the accumulation period is converted into a stream of income payments

Annuity period (pay out period)

Any unpaid annuity benefits following the death of the annuitant:

Are taxable when paid to the beneficiary

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.

Bail-out provision

Two types of refund life annuities:

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

If the current interest rate on an annuity is higher than the guaranteed rate, which rate will the annuity owner receive as part of the annuity payment?

Current

An annuity in which the income payments begin sometime after one year from the date of purchase. Can be funded with a lump sum or through periodic payments.

Deferred annuity

What does the beneficiary receive if the annuitant dies during the accumulation period?

Either the amount paid into the annuity or the cash value, whichever is greater.

Fixed annuities that invest on a relatively aggressive basis to aim for higher return and has minimum guaranteed interest rate.

Equity indexed annuity

Pays a fixed death benefit in specified installment amounts until the principal and interest are exhausted whether or not the annuitant is living.

Fixed Amount Installment Option

Annuites are classified as:

Fixed or Variable

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

Fixed period installments

How long will a life annuity with a 15-year period certain pay?

For the life of the annuitant unless they die within the first 15 years of the annuitization period; then the payments will last for 15 years

When do annuity contracts offer a waiver of surrender charges?

If annuitant is confined to a long term care facility for at least 30 days.

What type of annuity can be purchased with a single premium?

Immediate annuity

Purchased with a single lump-sum payment and provides income payments that begin within one year from the date of purchase.

Immediate annuity (SPIA)

What is a disadvantage to owning a fixed annuity, as opposed to a variable?

In times of inflation, the benefit of a fixed annuity will have decreased purchasing power.

How is a surrender charge determined?

It is a percentage of the cash value and decreases over time

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

Joint Life

The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called

Joint and Survivor

Periodic payment annuities can be

Level premium, in which owner pays a fixed installment or flexible premium in which the amount and frequency vary

A single premium deferred annuity that allows the owner to lock in a guaranteed interest rate over a specified maturity period, anywhere between 3-10 years.

Market Value Adjusted Annuity

Indicate the number of individuals within a specified group starting at a certain age, who are expected to be alive at a succeeding age

Mortality table

A deferred annuity must have a guaranteed surrender value that is available if the owner decides to surrender the annuity prior to annuitization.

Nonforfeiture law

Who can surrender a deferred annuity contract?

Only the annuity owner

The purchaser of an annuity contract but not necessarily the one who receives the benefits.

Owner

What are accumulation units in annuities?

Ownership interest in the separate account (instead of buying shares, annuity holder purchases accumulation units)

How are annuities classified depending on how many lives they cover?

Single life and multiple life annuities

Will convert a lump sum into a system of periodic payments, creating a stream of income for the annuitant.

Single premium immediate annuity

What type of annuity is suitable for someone who wants to select the benefit option that will pay the largest amount only for as long as the annuitant lives?

Straight life

Who bears the investment risk in a fixed annuity?

The insurer

What does the owner get at surrender?

The premium, plus interest minus the surrender charge.

What is the purpose of a surrender charge?

To help compensate the company for loss of the investment value due to early surrender of a deferred annuity.

True or False: Annuitant and owner do not need to be the same person

True

True or False: Annuitant must be a natural person

True

Annuities do not pay the face amount at death, true or false

True: they do the opposite. They stop at death.

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

Variable annuity

shorter life expectancy=

higher benefit

Equity indexed annuities are _______ risky than a variable annuity or mutual fund but expected to earn _________ interest rate than a fixed annuity.

less / a higher

Payments in an annuity earn interest

tax deferred

What causes a variable annuity to vary?

the annuity's underlying investments

The longer an annuity is deferred:

the more flexibility for payment of premiums it allows