Unit 9: Annuities

liquidate an estate

A principal function of annuities is to

create an estate

A principal function of life insurance is to

An individual retirement account (IRA)

A tax favored retirement savings plan that people can set up themselves through a bank, securities firm, or insurance company

life with refund annuity

Albert has purchased an annuity that will pay him a monthly income for the rest of his life. If Albert dies before the annuity has paid back as much as he put into it, the insurance company has agreed to pay the difference to Albert's daughter. Albert has purchased a

the accumulation or pay in phase

An annuity has 2 phases: the annuitization phase and

a fixed annuity

An annuity that guarantees a minimum rate of return is

has its interest tied to a stock market-related index

An equity-indexed annuity

- method of payment, - numbers of lives covered, - disposition of proceeds, - various other methods

Annuities are classified by:

both accumulate a sum of money and distribute a lifetime income

Annuities exist to

are guaranteed never to be less than the rate specified in the contract

Annuity buyers who want their product to be supported by the insurers' general accounts would most likely be looking for interest returns that

variable life insurance and annuities

Contracts that provide payments based on the investment return of a segregated asset account are called

a straight-life annuity

Devon purchases an annuity that will pay a monthly income for the remainder of his life and then stop making payments. Devon has purchased

the investment results

During the accumulation period of a deferred variable annuity, the value of the individual account rises or falls based on

- annuitants age, - annuitants gender, - length of payment guarantee - assumed interest rate

Factors to determine payment amount

1 (a single premium annuity is funded with 1 payment. When the funding is provided with a single lump sum, the principal is created immediately)

Fred, age 60, has three years until he retires. He decides to surrender his whole life insurance policy and use the cash value to fund a single premium annuity. How many payments will he make to fund the annuity?

a lump-sum cash payment equal to the starting annuity fund, less the amount of income already paid to the deceased

If an annuitant has a refund annuity and dies after the annuity income begins, her beneficiary will receive

The older person

If both an older and younger person had annuity funds of the same amount and simultaneously began to receive monthly life payments, which individual would receive the larger payments?

accumulation units

Premiums paid into a variable annuity, after deduction for expenses, are applied regularly to purchase

The insured

The annuitant of an annuity can be compared to which of the following with respect to a life insurance policy?

joint life

The life annuity payout option that stops paying out when the first of the 2 annuities die and not continue on to the survivor

the annuitization period

The period during which annuity benefits are received is called

the accumulation period

The time during which funds are being paid into an annuity is called

Lucy would continue receiving monthly benefits of $500 for the remainder of her life

To supplement their income in their senior years, Harold purchased a fixed immediate annuity at age 65, naming his spouse, Lucy, as the joint annuitant under a joint and 50% survivor annuity payout option that pays the couple $1,000 per month. If Harold would die today, what would happen with this annuity?

Accumulation period

Tracey is paying money into an annuity she hopes will support her in her retirement years. Her contract currently is in which period?

both insurance products and securities

Variable annuities are regulated as

life with period certain

What annuity payout option provides for lifetime payments to the annuitant but guarantees a certain minimum term of payments (typically 5, 10, or 20 years), whether or not the annuitant is living?

installment refund annuity

What annuity settlement arrangement guarantees to pay at least a minimum amount equal to the original investment?

Variable Annuities

What type of annuities are regulated as securities?

Fixed Annuity

What type of annuity is guaranteed against loss and not tied directly to the stock market?

life-also known as: - straight life, pure life, or life-no refund

What type of annuity settlement arrangement stops making payments when the annuitant dies?

- age - sex - expenses - premium contributions - payment cost - interest rate - type of annuity

What type of factors determine the annuity benefit?

The owner

When a variable annuity is purchased, who is responsible for the investment risk?

Annuitization period

the period during which a person receives the annuity benefits is called the

$12,040

James died after receiving $180 per month for 6 years from a $25,000 life with refund annuity. His spouse, Lucy, as his beneficiary, will now receive the same monthly income until her payments total ______

5%

Jesse owns a deferred fixed annuity in which the contractually guaranteed rate is 3%. The contract also has a standard current rate interest provision. If current rates are 5%, what rate of interest will be credited to Jesse's annuity?

Chris

Larry owns a deferred annuity for which his spouse, Karen, is the designated annuitant and his son, Chris, is the beneficiary. If Larry were to die before the contract is annuitized, to whom would the contract's death benefit be payable.

living too long

Life insurance protects people from dying too soon, while annuities protect people from

single premium annuity

Liz purchases an immediate annuity. The annuity contract must be a

an equity-indexed annuity

Michelle purchases an annuity that offers a guaranteed minimum interest rate and a guarantee against loss of principal if the contract is held to term. However, if the S&P 500 moves upward, Michelle's annuity might end up accruing more than the guaranteed minimum interest rate. Michelle has purchased

The joint life annuity option

Norma and Luis are considering the purchase of an annuity for retirement. What payout option would be the least suitable for them?

Cash refund option

What type of annuity payment option provides a guaranteed income to the annuitant for life and, if the annuitant dies before the annuity is depleted, a large lump-sum cash payment to the annuitant's beneficiary?

Deferred Annuity

Which type of annuity is most likely to provide death benefits if the insured dies during the accumulation period?

The Securities and Exchange Commission (SEC)

Who, besides the state, regulates the sale of variable life insurance and variable annuities?