Annuities Chapter 5

Annuity Benefit Payment Options

-life income, pure or straight -life income period certain -life income with refund -life income joint/survivor -joint life

When comparing life insurance to an annuity, an annuity:

A Protects against the annuitant living too long B Guarantees a death benefit upon the insured's death C Creates a lump sum benefit to be paid upon the annuitant's death D Provides tax-free payments for the lifetime of a beneficiary-A

Single Premium

A lump sum payment is made into an annuity

Periodic Premium

Continuous premiums paid into the contract. The most common example of a periodic premium is a flexible premium.

Life Income Period Certain

Payments are guaranteed for the lifetime of the recipient or a specified period of time, whichever is longer.

Joint Life Annuity

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

Annuities

Provide a stream of income by making a series of payments over a certain period of time typically upon retirement

Life Insurance

Provides a benefit upon death of the insured Creates an estate Pays a death benefit Protects against premature death owner, insured, beneficiary Policy

Annuity

Provides steady income until death to annuitant liquidates an estate pays a living benefit owner, annuitant, beneficiary contract

Premium Payment Options

Single Premium Periodic Premium Flexible Premium

Flexible Premium Deferred Annuity

The annuity purchased with multiple payments at any time whose benefit is paid more than one year after the purchase, set min/max

Variable Annuity

money is put into separate accounts and the growth will fluctuate. The payouts are also variable regulated by the SEC and State insurance depart no guaranteed return. insurance license and a securities license (FINRA) are required

Indexed Annuity

product with interest rates that are linked to the positive performance of a related index, such as the Standard & Poor's 500 Index offers safety of principal with guaranteed minimum returns minimum guarantee can be as low as 0%, reflecting that the policy will not be adversely affected by negative stock market index performance. does not require an additional securities license to sell it.

Qualified Annuities

funded with pre-tax dollars paid dollars. entire distribution from a qualified annuity (contributions and earnings) is subject to ordinary income taxes.

Life Income

installment payments are paid only while the beneficiary is alive and cease on the beneficiary's death

Single Premium Immediate Annuity

is one that is purchased with a single, lump sum payment and provides income payments that start within 1 year from the date of purchase. retirement roll over savings accts, cd's, mutual fund, deferred annuity values, death proceeds may be used to purchase

lump sum payout

one cash payment subject to tax consequences and penalties

Annuity Period

period begins once the policyowner elects to convert a deferred annuity into an income benefit payment can provide a temporary or lifetime payment. If a lifetime benefit is selected, it is an irrevocable election. The cash values go towards paying for the income benefit.

A contract that is designed to accumulate value over time with the intent to provide a stream of income over the lifetime of an individual is called _________.

A An annuity B Whole life insurance C Term insurance D Variable life insurance-A

Control of the Contract

Owner-person in control, makes payments, has rights in policy Annuitant- person contract is based upon, $ paid to annuitant based on age, gender, settlement option picked and dollar amt used to fund income benefit payments Beneficiary- person named to receive benefits if owner or annuitant die prior to annuitization or if settlement option is selected

Immediate Annuity

an annuity in which the annuitant begins receiving monthly benefits immediately

Tax-Deferred Growth

annuity is an insurance contract, accumulation value grows tax deferred. Deferred annuities allow for naming of a beneficiary to receive any policy values if the annuitant dies prior to annuitizing. Withdrawals prior to age 59 ½ are subject to income tax and generally a 10% tax penalty as well. Systematic withdrawals are allowed as a way to access the policies values without having to elect a settlement option.

Deferred Annuity Characteristics

normally purchased to defer taxes on any contract earnings. ideal for accumulating a retirement fund. During accumulation period, only the contract owner can sign the request for surrender of a deferred annuity. During the early part of the accumulation period, the insurer normally assesses a surrender charge.

annuitization payout

payments from the annuity for life, or for a specified period depending on the settlement option selected

Fixed Annuity

pays periodic income payments that are guaranteed and fixed in amount purchasing power decreases as the cost of living increases life-only insurance license is required in order to sell fixed annuities in most states Some offer a base interest rate plus a bonus interest rate which becomes the current rate credited into the annuity. current rate is set by the insurance company at the time the contract is issued and is guaranteed for a specific time period

Deferred Annuity

provides income payments at some future date, 1 yr min wait

single premium deferred annuity

purchased with a lump sum, but payment of benefits is delayed until a later date selected by the annuitant, after at least 1 yr

Life Income Joint and Survivor

Annuity is payable to 2 annuitants (in one check) while both are living. Upon the death of the first annuitant, survivor benefits continue, either paying the full amount or reduced to 2/3 or 1/2 for the survivor's income until the survivor dies. Depending on which option is selected, these options may be referred to as Joint and Full Survivor, Joint and 2/3 Survivor, or Joint and ½ Survivor,

Nonqualified Annuity

funded with after-tax dollars, meaning taxes on the money were paid before it goes into the annuity. Upon distribution, only the earnings are taxable as ordinary income.

Accumulation Period

The time over which the annuitant makes payments or investments in an annuity, and when those payments earn interest tax deferred.

Which of these annuity distribution options promises the largest possible payment to a single annuitant? A Life income with period certain B Lump sum refund C Installment refund D Life income only

d

A characteristic of a fixed annuity is that the: A Monthly income benefits are fixed and level B Annuitant cannot be changed C Separate account has investment options D Interest rate credited in the account varies based on the performance of the separate account

a

Annuity Payments

a payment that lasts until the recipient's death

A flexible premium deferred annuity permits all of the following EXCEPT: A Scheduled and unscheduled premiums may be payable at any time prior to annuitization B A lump sum payment can be used to purchase the annuity C Annuitization is allowed at any time after 1 year D Accumulated values in the account are not taxable until they are withdrawn

b

All of the following are characteristics of a variable annuity, except: A Each month the payment will increase, decrease, or remain the same as the previous month's payment based on the actual return as compared to the assumed interest rate (AIR) B The separate account provides for a guaranteed minimum return C Designed to protect against inflation D Premiums made into the annuity purchase accumulation units

b

Life Income with Refund

benefit for life or a period whichever is longer if annuitant dies prior to certain period beneficiary recieves balance due

All of the following factors are used to determine the monthly benefit payment of an annuity, except: A Age of annuitant B Accumulated account value C Annuitant's medical history D Annuity payment option selected

c

All of the following statements are correct regarding an annuity, EXCEPT: A Annuity premiums can be made in single or periodic payments B An annuity can be characterized by immediate or deferred income C An immediate annuity must start providing income within 3 years of the first premium payment D The accumulation value grows tax-deferred

c

Flexible Premium

contribution can be made often/in whatever amount owner desires, usually a set min/max the insurer will accept