chapter 7 - annuities

joint life

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

general account assets

Fixed annuity premiums are deposited into the life insurance company's general account that is comprised of investments mostly conservative like bonds.

fixed annuity

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.

market value adjusted annuity

MVA, also known as modified guaranteed annuity. single premium deferred annuity that allows the owner to lock in a guaranteed interest rate over a specific maturity period.

lump-sum settlements

Paying a settlement in installments over time rather than in a single lump sum When a settlement is paid in this manner it is called a "structured settlement" Often the structured settlement will be created through the purchase of one or more annuities, which guarantee the future payments

individual retirement annuity

Similar in structure to an Individual Retirement Account, an annuity IRA (also known as an IRA) is a type of fixed annuity that is combined with a decreasing term death benefit. If the annuitant dies before the annuity matures (usually at retirement), the beneficiary will receive benefits from both the value of the annuity and the decreasing term death benefit. The decreasing term policy usually expires when the annuity matures and is paid out to the annuitant. Contribution levels allow up to 100% of an individual's annual income, but cannot exceed contribution limits set each year by the federal government. Any contribution that exceeds annual limits will be subject to a 6% "excise" tax. Individuals who are 50 years or older are allowed to make "catch up" contributions that exceed normal annual limits.

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.

tax sheltered annuity

a 403(b) plan is a qualified plan available to employees of a certain non profit organization under section 501(c)(3) of the internal revenue code.

nonforfeiture

a deferred annuity has a guaranteed surrender value that is available if the owner decides to surrender prior to annualization. 10% penalty for early withdrawals

license requirements

a variable annuity is considered a security and is regulated by the SEC in addition to state insurance regulations

annuity

an annuity is a contract that provides income for a specified period of years, or for life. protects people against outliving their money, stops paying after death

interest rate guarantees

annuitant will receive a guaranteed interest rate based on a minimum rate as specified in the annuity

fixed amount installments

annuitants selects how much each payment will be, and insurer determines how long it takes to pay out.

life with period certain

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

multiple life annuity

covers two or more lives,

education funds

accumulate funds for college

single life annuity

covers one life, payments are made with reference to one life only.

equity indexed annuities

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

immediate annuities

funded with a single premium and payments start immediately

deferred annuities

income payments begin sometime after one year from the date of purchase

interest rate

issuing insurance company does not guarantee a minimum interest rate

annuity period

liquidation liquid, pay out period, or annuitization period. period of time when the accumulated money is converted into a stream of income payments to the annuitant

retirement income

often used to fund qualified retirement plans

single premium

one lump sum payment made into the annuity

parties in an annuity

owner: purchaser of the contract. annuitant: person who receives benefits or payments from the annuity. can be a person, corporation, trust, or other legal entities. beneficiary: the person who receives the benefits

joint and survivor

payment to two or more annuitants and if one dies, the other still gets payments

periodic premium

payments over a period of time, can be either level premium or flexible premium

accumulation period

period of time when the owner pays premiums

life contingency options

pure life: payments stop at the annuitant's death. highest monthly benefits life with guaranteed minimum: also called refund life, guarantees that entire principal amount is paid out.

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

annuities certain

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

Guaranteed Minimum Withdrawal Benefit (GMWB)

the annuitant can withdraw a maximum percentage of his or her investment annually until the initial investment has been recovered

underlying investment

the payments that the annuitant makes into the variable annuity are invested in the insurer's separate account, not their general account