Annuities

non-natural person

a corporation or trust

variable annuity

a form of annuity for which the insure makes no guarantee as to the principal or the credited interest rate. Variable annuity premiums and contract values are invested in the insurer's separate accounts instead of its general account. The contract's values move up and down in response to the investment performance of the separate accounts and their associated stock, bond and money market portfolio subaccounts

fixed annuity

an annuity contract in which the insurer guarantees both the annuity principal and a specified rate of interest to be credited to the contract, These guarantees are backed by the financial strength and claims-paying ability of the insurer issuing the contract.

joint annuitants

two or more people named as annuitants in an annuity

Ann is the beneficiary of an annuity owned by Jim. Jim intended to annuitize the contract at retirement but died shortly before retiring. What benefits will Ann receive from the annuity?

Ann will receive the annuity's accumulated value and may select a payout option.

surrender charge

a charge imposed on the early surrender of or withdrawal of funds from a universal life insurance policy. The purpose of the surrender charge is to enable the insurer to recover the costs it incurs in selling and underwriting the policy. A surrender charge is sometimes referred to as a contingent deferred sales charge

two-tiered fixed annuity

a variation on the standard fixed annuity. this annuity has a higher level of interest crediting than most traditional fixed annuities, provided the contract owner keeps the product and chooses to annuitize it. However and lower rate is applied if the contract owner surrenders the annuity and takes its values in a lump sum instead of annuitizing. If he or she does that then this lower rate of interest is retroactively applied back to the date the contract was bought.

annuity units

after the first payment under a variable annuity is made, the payment is converted into.....

bailout provision

allows surrender charge-free withdrawals if the interest rate credited to the accumulated value drops below a specified level

joint survivor life income option

an annuity payout option under which an income is paid until the second of the two annuitants dies. Upon the second death, no further payments are made to anyone.

natural person

an individual- a parent, spouse or partner in a business relationship

subaccount

investment accounts into which VLI policy values are invested. these accounts are unsecured and nonguaranteed

Mark and Mary are preparing to annuitize their deferred annuity. They want a settlement option that will continue making payments for as long as either is alive, no matter which of them dies first. Which of the following settlement options best suits their need?

joint survivor life income

M&E Charge

one of the two types of charges and fees common to variable annuities (the other is fund management fee), these are the insurance related costs for a variable annuity. They cover the cost of the contracts death benefit

annuity purchase rate

the amount of an on going income that 1,000 of the annuity contract value buys

market value adjusted (MVA) annuity

a fixed annuity that offers an interest rate adjustment feature. This feature lets the owner take advantage of interest crediting changes in response to market conditions at the time he or she withdraws funds.

variable life insurance

a form of permanent whole life insurance in which premiums are placed in investment sub accounts that the policy owner owns. The insurer garantees a minimum death benefit, usually the face amount of the policy at issue. However, the cash values and the death benefit rise and fall on the basis of the sub accounts investment performance

return of premium rider

pays to the owner of a term policy all or a portion of premiums paid if the insured is alive at the end of the policy term. The retuned premiums do not include interest

period certain options

an annuity payout option without a life contingency. Payments are made over a set number of years or in specified amounts and then end. aka term certain option

non-qualified annuities

annuities that are not used to fund a qualified plan such as an IRA of 403(b) plan

settlement option

provisions in a life insurance policy or annuity that provide the payee with various ways to receive periodic payments of benefits

deferred annuities

purchased with either a single sum of money or through periodic investments

accumulation units

the growth of a variable annuity's funds or value during its accumulation period is measured in terms of accumulation units. When the annuity owner makes premium deposits and allocates them among the contracts subaccount's, they are used to buy accumulation units. These purchases are then credited to the owner's contract

Ann is beneficiary of an annuity owned by Jim. If Jim annuitizes the contract at retirement and dies shortly afterward, what benefits will Ann receive from the annuity?

Ann's right to any funds will be based on the income payout option Jim selected.

annuity payout period

the period during which funds are paid out from the annuity in the form of periodic income payments

annuitant

the person an annuity owner chooses to receive the periodic annuity payments when the contract annuitizes

annuity owner

the person or entity who buys the contract

annuitization

the process in which the funds in an annuity are turned into a series of ongoing, periodic income payments

assumed interest rate (AIR)

the rate of interest or rate of return that an annuity contract's values are assumed to earn over the annuization period. The AIR is usually in the range of 3 to 5 percent

Equity indexed annuities (EIA's)

a type of annuity contract that allows contract owners to participate in some of the growth in the stock market while avoiding possible losses to principal. commonly linked to the S&P 500 or a Dow Jones Index

rate cap

in relation to an EIA, a ..... is the maximum interest rate that is applied to the funds in the EIA if the percent of change in the index is greater than the cap

life contingency

payments last as long as the annuitant lives

life income with period certain

a life insurance settlement option with a life contingency under which a payee receives income payments for life. However, he or she is guaranteed that the payments will be made for a specified term.

life with period certain

an annuity payout option that guarantees that income is paid for the length of the annuitant's life. However, the income is paid but for no less than a certain number of years. So if the annuitant dies before the chosen term period ends, then income payments continue to his or her beneficiary for the balance of the period.

structured settlement annuities

an annuity used to distribute funds from the settlement of lawsuits or from the winnings of state lotteries

single premium deferred annuity (SPDA)

an annuity whose money grows within the contract until the owner accesses the funds or the contract annuitizes. Once a person buys the SPDA, no additional premium payments are accepted.

owner-driven contracts

annuity contracts that pay out their values when the owner dies

If an annuity requires only that each premium deposit be above a certain minimum, this is most likely which type of annuity?

flexible premium deferred annuity

life annuity with period (or term) certain settlement option

guarantees that income is paid for the length of the annuitant's life, but for no less than a certain number of years. If the annuitant dies before the selected term period ends, then income payments continue to his or her beneficiary for the balance of the period. The certain period can be any the owner wants (and the insurer agrees to). Certain periods of 10 years, 15 years, and 20 years are the most common.

accumulation period

in an annuity, the period during which premium funds are paid into the annuity contract

Which of the following annuity settlement options will pay the annuitant an income for life no matter how long he lives, and will pay the beneficiary a death benefit equal to the difference between the total contract value at annuitization and the sum of payments made if the annuitant dies prematurely?

life income with guaranteed minimum (refund guarantee or life annuity certain)

fund management fees

one of the three types of changes and fees common to variable annuities, these charges cover the cost of managing and administering the separate subaccount investment portfolios

guaranteed minimum rates

one of two interest rate levels for a fixed annuity. This rate is usually low and extends for the life of the contract

George is receiving income payments from an annuity. His wife, Ellen, will continue receiving income payments for the rest of her life from George's annuity when he dies. Under this annuity contract, what is Ellen considered?

An annuitant

straight life income option

a life insurance settlement option with a life contingency under which the policy's proceeds are converted into payments that are made for the life of the payee. The payments stop upon his or her death.

403(b) plans

a retirement plan reserved for non profit organizations and their employees. Both employer and or employee contribute funds into the plan. The funds are directed into individual accounts set up for each participating employee. The contributions are not taxable to the employee when they are made. Rather, they grow tax deferred until they are distributed. Also called a tax sheltered annuity plan (TSA)

fixed premium deferred annuities

an annuity whose owner makes on going, fixed and level premium deposits of specific amounts. The owner makes these deposits at specified times (annually, quarterly, monthly) during the contract's accumulation period. This annuity type provides a specific amount of future income. Also called the retirement annuity.

NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS (NAIC)

an association of insurance commissioners in the various states. Actively proposes model laws that standardize policies and promote fair trade practices in the insurance industry

annuitant driven contracts

annuity contracts that pay out their values when the annuitant dies

exclusion ratio

applied to each annuity payment to determine the portion that is excluded from tax.

single premium immediate annuity (SPIA)

bought to regularly distribute income. A person who buys an immediate annuity exchanges a lump sum amount of money for a series of monthly income payments

immediate annuities

bought to regularly distribute income. A person who buys an immediate annuity exchanges a lump-sum amount of money for a series of monthly income payments

In addition to the insurance company that issues the contract, an annuity involves a(n):

owner annuitant (who may or may not be the owner) beneficiary

life income with refund guarantee settlement option

pays the annuitant an income for life no matter how long he or she lives. If the annuitant dies before total income payments equal the annuity's annuitized sum, the refund guarantee option provides that the balance is paid to the designated beneficiary.

Fixed annuities guarantee

principal protection, minimum interest rates, a fixed level of lifelong annuitized payments, and a death benefit.

annuity purchase rates

the amount of on going income that 1,000 of the annuity contract value buys

general account

the basic account in which an insurance company maintains the funds that support its fixed life insurance and annuity products. The general account's conservative investments allow the insurer to guarantee interest returns on its fixed insurance and annuity products

EIA participation rate

the percentage of the index increase that is actually credited to an annuity. typically range from 60 to 90 percent

George purchased an annuity in which his wife will receive income for as long as she lives. In this scenario, what is George most correctly called?

the owner

flexible premium deferred annuities

these contracts allow the owner to make premium deposits of any amount whenever he or she wants. However, a certain minimum amount may be required