Annuities

IRS

(Internal Revenue Service) Governmental agency responsible for collecting taxes and enforcement of Internal Revenue Code

income payments

- Immediate - purchased with a single premium; income payments start within 12 months from the date of purchase - Deferred - purchased with either lump sum or periodic payments; benefits start sometime after 1 year from the date of purchase

Indexed Annuities

- Interest rate tied to an index. - Earn higher rate than fixed annuities - not as risky as variable annuities or mutual funds

Pure Life Annuity

- Provides periodic benefit payments as long as the annuitant lives, with the payments ceasing at death.

Pure Life Annuity

- also known as life only or straight life - payment is going to cease at the annuitant's death; - provides the highest monthly benefit due to the omitting of beneficiaries

Premium payments (periodic)

- multiple payments - level or flexible - annuity principal created over time (used only for deferred annuities )

annuity

- payment received every year for a specific number of years - not life insurance - vehicle for accumulation of money and liquidation of an estate - payment often made until death of annuitant

settlement options

1. lump sum 2. life only 3. refund life annuity 4. joint life 5. joint and survivor 6. life with period certain 7. annuities certain

when are annuity contracts uncontestable?

2 years after purchase

Qualified Plan

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

Guaranteed surrender value

According to the nonforfeiture law, if the owner decides to surrender a deferred annuity prior to annuitization, the owner is entitled to which of the following?

Types of Refund Life Annuities

Cash refund (lump sum refund minus benefit payments already made - does not guarantee interest installment refund (beneficiary receives payments until the principle amount is paid out) life w/ period (term) certain option - payments are guaranteed for the lifetime of the annuitant and for a specified period of time (ex. 20 yr period certain option insures payment is continued for 20 years)

Life contingency

Dependent upon whether or not the insured is alive

current interest rate

Exceeds guaranteed rate. Paid to annuitant when a company's own investment is better than expected.

agent selling variable annuities must be registered with

FINRA

variable annuity providers must be registered with the

FINRA

Annuitant

Insured, policy issued on annuitant's life, must be a natural person

Premium Payments (single)

ONE lump-sum payment; the principal is created immediately (used for both immediate and deferred annuities)

Variable Annuities

Payment not guaranteed. Premiums are in separate account, and invested in stocks and bonds.

Market Value Adjusted Annuity

a deferred annuity that allows owner to lock in a fixed interest rate over a specified period of time.

suitability

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

annuity phases

accumulation period (payments to insurer) Annuitization period (payout to the insured)

when are unpaid annuity benefits taxable?

after the death of annuitant

Bail-Out Provision

allows the annuity owner to surrender the annuity without surrender charges if interest rates drop a specific amount within a specific time period

what must be a real human

annuitant

what happens if the annuitant dies during accumulation period?

beneficiary receives benefits - either the amount paid into plan or the cash value accumulated

Liquidation of an estate

converting a person's net worth into a cash flow

if applicant is online

disclosure document and buyer's guide availible on the insurers website satisfy the requirement.

Fixed Annuity

guaranteed, fixed payment amount; premiums in general account

natural person

human being

how is surrender charge determined if deferred annuity is surrendered prematurely?

its a percentage of the cash value and it decreases over time

annuity certain

limits amount paid to a certain fixed period of time or until a certain fixed amount is liquidated

guaranteed interest rate

minimum percentage a company must pay (usually 3%)

If no beneficiary...

money goes to annuitant's estate

owner

owns all rights to the policy (usually annuitant) can be corporation or trust

Accumulation Period

payments put into annuity that earn interest and grow tax deferred

deferred

postponed or delayed

beneficiary

receives annuity (+ any gain) if annuitant dies during accumulation period

Waiver of surrender charges

surrender charges may be waived if the annuitant is confined to a long-term care facility for at least 30 days!

if the surrendering of a market value adjusted annuity happens prematurely...

the current interest rate determines the penalty

who bears all of the investment risk in a fixed annuity?

the insurance company

annuity period

time in which accumulated money is converted into an income stream