Annuities

guaranteed minimum

insurer is obligated to pay the guaranteed rate usually 3%

What are the two classification of annuities according to the time when annuity payments begin?

Immediate and deferred

SPIA - Single Premium Immediate Annuity

purchased with single, lump sum payment and provides income payments that start within 1 year from date of purchase

assets in a separate account

1 operations and investments of any separate account are subject to periodic examinations by the department 2 variable annuity separate accounts are required to establish the reserve liability in accordance with the department requirements 3 all income, gains, losses ona separate account must be credited to or charged against the amount allocated to that account 4 insurers are required to balance the separate accounts by adjusting any deficit through tranfers from unallocated surplus reserves. the assets should be equal to its liabilities.

What type of annuity credits its interest based upon an index such as S&P 500?

Equity indexed annuity

An agent selling variable annuities must be registered with

FINRA

Know This

Income payments from a deferred annuity begin sometime after 1 year from the date of purchase

What annuity settlement option provides income payments to the annuitant for the duration of his or her life, and also guarantees payment for a specified number of years?

Pure life

Know This

Shorter life expectancy=higher benefit;longer life expectancy =lower benefit

cash refund

The type of refund is available to the beneficiary of an annuitant which will pay the refund in a lump sum? beneficiary will receive the original amount less any benefit payments already made to the annnuitant

Annuity Period also known as the

annuitization period,liquidation period or 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.

IRS

(Internal Revenue Service) Governmental agency responsible for collecting federal taxes, issuing regulations, and enforcing tax laws

What are the two types of refund life annuities?

Cash refund and installment refund

Know This

Classification of annuities: -Premium payment method: single premium vs. periodic -When income payments begin:immediate vs.deferred -How premiums are invested fixed vs.variable -Disposing of proceeds; pure life,annuity certain,or life refund annuity

Joint Life

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

How soon can income payments begin in an immediate annuity?

No later than 1 year from the time of annuity purchase

Can a business or a corporation be an annuitant?

No, an annuitant must always be a natural person

What causes a variable annuity benefit to vary?

The annuity's underlying investments

Who bears the investment risk in a fixed annuity?

The insurer

Annuitant

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

What are the two phases of an annuity?

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

In the flexible premium payment annuities,the term "flexible" refers to what?

Amount of Premium

What is the main reason for purchasing an annuity?

To provide income that the annuitant cannot outlive

What are accumulation units in annuities?

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

Suitability

a requirement to determine if an insurance product is appropriate for a customer

Fixed Annuity

guaranteed min rate of interest to be credited to the purchase pymt or pymts; income pymts that do not vary from one pymt to the next; insurance company guarantees the specified dollar amt for each pymt, and the length of the period of pymts as determined by the settlement option chosen by the annuitant

Accumulation period (pay-in period)

period of time over which the owner makes payments (premiums) into an annuity; payments earn interest on tax-deferred basis

Annuity

A contract that provides income for a specified period of years, or for life. Protects a person against outliving his or her money. Not life insurance but rather a vehicle for accumulation of money and the liquidation of an estate.

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

Immediate annuity

If an annuity provides a set amount of income for two or more persons with the income ceasing upon the first death, what type of annuity is that?

Joint Life Annuity

Accumulation Period

The pay-in period of an annuity during which the contract owner pays premiums. Synonymous with accumulation phase.

Which of the following best describes what the annuity period is?

The period of time during which accumulated money is converted into income payments

An individual has a contract that will provide him with a certain amount of income for the rest of his life. However, this is not a life insurance policy. What type of contract does this person have?

Annuity

How long is income paid under a pure annuity?

Only for the life of the annuitant

If the annuitant dies before the annuitization period starts, what will the beneficiary recieve?

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

Surrender chargers

a charge is levied against the cash value when the owner of annuity prematurely surrenders the deferred annuity. When funds are borrowed. The surrender charge is generally a percentage that reduces over time. At surrender the owner gets their premium + interest -minus surrender charge

Deferred

withheld or postponed until a specified time or event in the future

What type of license(s) is /are required in order to sell variable annuities?

A life insurance license and a securities license

Refund Life Annuities

Provides annuity payments for the annuitant's lifetime with the guarantee that the insurance company promises to make a refund of the account balance if the auunitant dies before collecting it all If the annuitant dies before collecting it all, the difference is paid to a named beneficiary either as a cash refund or in installments Safest option

Installment Refund Option

when the annuitant dies the annuitants beneficiary will continue to receive guaranteed installments until the entire premium amount has been paid out.

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

For the life of the annuitant unless he/she dies within the first 15 years of the annuitization period; then the payments will last for 15 years

FPDA Flexible premium deferred Annuity

is purchased with multiple payments that can vary from year to year( e.g. a portion of each paycheck) and the benefits begin sometime after one year from the date of purchase (e.g. payouts start at 65)

Beneficiary

one who recieves benefits from the annuity if annuitant dies during the accumulation period

Who receives income payments from an annuity?

Annuitant

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

Single life and multiple life annuities

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

What type of annuity requires an agent to have a securities license?

Variable annuity

Annuity

a contract that provides income for a specific period of years , or for life

Natural Person

a human being

Market Value Adjusted Annuity

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

An annuity purchased with multiple payments that begins income payments after one year from the moment of purchase is known as what type of annuity?

Flexible premium deferred annuity

Joint Life Annuities

Payments continue to two annuitants for only as long as both live. On the death of either one, payments stop.

Joint and Survivor Annuities

Type of annuity that is based on the lives of two or more annuitants - and Annuity income is paid until the death of the last annuitant

fixed amount installments

annuitiant selects how much each payment will be the insurer determines how long the benefits will be paid by analyzing the value of the account and future earnings

How are annuities classified?

by the method used to fund the annuity the date the annuity payments begin underlying investment configuration of the annuity

Single Life Annuities

cover one life. provides the highest monthly payment

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

current

level benefit payment amount

during the payout phase of a fixed annuity the amount of benefit is also guaranteed. int it measures of inflation the benefit payment will have less purchase power and in times of deflation the benefit payment will have more purchase power

Deferred Annuity

either purchased with a single, lump sum Single Premium DA or through periodic payments Flexible Premium DA , grow tax deferred income payments begin some time after 1 year from the date of purchase. (10 OR 20 OR 65), often used to accumulate funds for retirement, owner will receive the current interest rate or the guaranteed interest rate whichever is higher

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 that are paid into the annuity.

With a single premium deferred annuity, when will the annuity payments become available?

No sooner than 1 year after the annuity purchase

Pure Life Annuity

A Pure Life Annuity has the potential for providing the maximum income per dollar of premium if the annuitant lives beyond their life expectancy. However, if the annuitant dies before his or her life expectancy, and before the total benefit has been paid out, payments cease and there is no refund of payments to survivors. highest monthly benefits

Who possesses all the rights in an annuity?

Annuity owner

What is the difference between single premium and a flexible premium payment options in deferred annuity?

The number of payments that purchase the annuity

Life with Period Certain

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

Know This

Because annuities are based on the life expectancy of an annuitant, the annuitant must be a natural person,regardless of who owns the policy.

SPDA (Single Premium Deferred Annuity)

Is purchased with a lump sum, but payment of benefits not paid until after one year or more has lapsed Has the benefit of tax-deferred interest accumulation during the Pay-In (accumulation) period It is up to you when you want to start receiving your funds (plus interest) from the insurance company

What annuity settlement option provides income payments to the annuitant for the duration of his or her life, and also guarantees payment for a specified number of years?

life income with period certain

Nonforfeiture

Deferred annuity has a guaranteed surrender value that is available if the owner decides to surrender chargers.the annuity prior to annuitization

Life contingency

Dependent upon whether or not the insured is alive

Know This!

During the accumulation period, funds are paid INTO the annuity. During the annuity period,funds are paid OUT to the annuitant.

Joint and Survivor

arrangement is a modification of the life income option in that it guarantees an income for two recipients that neither can outlive.

If the annuitant dies during the accumulation period, who will receive the annuity benefits?

beneficiary

no transfer of assets may made by a company between any of its seperate accounts except for:

establishing a seperate account conducting the business of a seperate account in accordance with provisions of variable annuity contract making necessary adjustments for mortality experience or expenses cost transferring to the general accountancy amount in excess of the reserve liability held in separate account in special cases the dept may authorize other transfers- if such transfers would be in best interests of all involved.

Qualified Plan

A retirement plan that meets the IRS guidelines for receiving favorable tax treatment.

Whose life expectancy is taken into consideration in an annuity contract?

Annuitant

If there is no named beneficiary for the annuity benefits, to which entity will the benefits be paid?

Annuitant's estate

Regarding annuity payments, what is the difference between the annuitant and the beneficiary of an annuity?

The annuitant receives payments from the annuity during the annuitization period; the beneficiary recieves benefits annuitant's death

Annuity period

annuitization period, liquidation period, pay-out period; time over which the sum that has been accumulated during the accumulation period is converted into a stream of income pymts to the annuitant

annuity benefits

if annuitant dies during the accumulation period, the insurer is obligated to return to the beneficiary either the cash value or the premiums paid whichever is greater. If the beneficiary is not named the benefit will be paid to the estate of the annuitant.

Know This

An immediate annuity is purchased with single premium

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

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

Owner

the purchaser of annuity contract, but not necessarily the one who recieves the benefits

The annuitization date is the

time when the annuity benefit payouts begin (tigger for benefits)

In an annuity, the accumulated money is converted into a stream of income during which phase?

Annuitization Period

Annuities

do not pay a face amount upon the death of the annuitant

Waiver

of surrender charges if the annuitant is confined to a long term facility for at least 30 days

Annuity income is based on

the amt of premium or cash value accumulated, the frequency of the payment, interest rate, and annuitants age and gender.

Equity Indexed Annuities

type of fixed annuity that offer the potential for higher credited rates of return than their traditional counterparts but also guarantee the owners principal. There is a minimum guaranteed rate(3-4%) so a certain rate of growth is guaranteed. Designed to bridge the gap between fixed and variable annuities.

Know This

The main use annuities is to provide retirement income

A corporation trust or other legal entity may own an

annuity but the annuitant must be a natural person

Bail-Out Provision

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

Liquidation of an estatep

converting a person's net worth into a cash flow

Know This

In fixed annuities, the premiums are deposited in the company's general account.

Multiple Life Annuities

cover 2 or more lives. Two of the multiple life annuities are joint and survivor and joint life.

Annuities Certain

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

The owner of annuity has all of the rights

such as naming the beneficiary a surrending the annuity