Annuities

Accumulation unit

A measurement of the value invested in the account during the accumulation period of the contract The more funds you contribute to your annuity account, the more accumulation units you will build

Annuity unit

An accounting measure upon which the size of periodic annuity payouts is based When one purchases an annuity, one purchases a fixed number of annuity units, which are set to represent the value of the portfolio in which the annuity invests When one begins to receive payments from the annuity, this has the effect of selling annuity units so the annuitant may receive cash from them

Deferred annuity

An annuity designed to be paid to the insured in the future, usually in retirement Upon withdrawal, only the accumulated interest is taxable and all pay-out options are for life

Single Premium Annuities

An annuity that is purchased with one payment, but the payout period is derferred for a period of time

Joint Life Annuity

An annuity under which payments are made to two annuitants for only as long as both live When one dies, payments cease even if one remains living.

Qualified annuity

An annuity where the investor contributes pre-tax dollars. Upon retirement the distributions are taxed as ordinary income A 403(b) tax-sheltered annuity (TSA) plan is a retirement plan, offered by public schools and certain tax-exempt organizations. An individual may only obtain a 403(b) annuity under an employer's TSA plan

Market Value Adjusted Annuities

An annuity which offers a guaranteed interest rate, but also offers a market value adjustment if you surrender the contract The market value adjustment adjusts the interest you earn in the contract according to current interest rates being offered in the bond market where the annuity derives its interest from

Joint and Survivor Annuity

Annuity contract paid out until the second of two insured people die

Fixed annuities

Are guaranteed Have an inflation risk - a purchasing power risk Annuities may be purchased regardless of age or health

Annuities

Are the opposite of life insurance-no life insurance protection Pay only if you live, not if you die Life insurance creates an estate for your heirs when you die Annuities are designed to liquidate an estate through a series of systematic, guaranteed (in most cases) payments to the annuitant as long as that person lives

Deferred Annuities

Could be purchased with either a single lump-sum payment or with level premium payments over a period of time

USES OF ANNUITIES

Deferred annuities are purchased for retirement planning or a child's future educational expenses Immediate annuities are usually purchased to supplement the annuitant's pension or Social Security Variable annuities are usually purchased by those seeking to hedge against inflation by investing their Annuity funds into the stock market

Tax Sheltered Annuities (TSAs)

Employees of public educational institutions (such as public schools and universities), tax exempt non-profit organizations and church organizations may exclude from their gross income, within limits, premiums paid on a contract that will provide for an annuity upon retirement All distributions from TSAs are taxable as ordinary income and 10% IRS early withdrawal penalties may apply if a participant is under age 59 ½

Life Income Annuity with Period Certain (Annuity Certain or Period Certain Annuity

Guarantees benefits will be paid for a fixed minimum period of time selected by the annuitant when he annuitizes Beneficiary receives what the annuitant would have received had he/she lived until the end of the period certain

Fixed Annuities

Have a fixed rate of return Insurance companies will often pay a higher "current rate" of interest, which is guaranteed for one year only and is subject to change (up or down) annually, but never below the minimum Annuitant is assured of level monthly payments for life during the annuity period They are backed by the Guaranty Fund

Equity Index Annuity

Have characteristics of both fixed and variable annuities Classified as a Fixed annuity EIAs offer a minimum guaranteed interest rate combined with an interest rate linked to a market index -usually the S&P 500 EIAs give you more risk (but more potential return) than a fixed annuity but less risk (and less potential return) than a variable annuity

Variable annuities

Have no guarantee

If annuitant is taking money out in pay in period (Stage 1), how is the money taxed?

Interest first LIFO

Non-qualified annuity

Is an annuity where after-tax dollars are contributed by an individual investor buying a contract Upon retirement, only the excess over the amount contributed is taxable

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

Annuity uses

Lotteries Sports contracts Structured settlements Investment purposes

Equity Indexed Annuity

Offer a minimum guaranteed interest rate combined with an interest rate linked to a market index Because of the guaranteed interest rate, EIAs have less market risk than variable annuities EIAs also have the potential to earn returns better than traditional fixed annuities when the stock market is rising

Stage 1

Pay in or accumulation period

Stage 2

Pay out or annuitization 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

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

Pure (Straight) Life Annuity

Provides periodic, usually monthly, income payments that continue as long as the annuitant lives and terminate at that person's death No beneficiary Most risky option

Flexible Premium Deferred Annuities (FPDAs)

The annuitant has purchased a Deferred Annuity and has the option to pay in whatever amount he chooses, or nothing at all.

Variable Annuities

The annuitant's monthly payments will vary during the Annuity (Pay-Out) period, since no rate of return is guaranteed The client's funds are invested into the market directly and the insurance company maintains a separate investment account for that purpose The annuitant bears all the investment risk NOT backed by the Guaranty Fun

Annuitant

The person who buys an annuity Annuitant and owner aren't always the same person

Surrender penalties

This is a penalty your insurance carrier charges for withdrawing funds before your surrender period is over Annuities have surrender periods anywhere from 1 year to 12 years A typical annuity surrender schedule starts higher in the beginning years and decreases each year.

Annuity beneficiary

You may designate a beneficiary on some annuities to receive your invested capital in case you die, but this is a return of your own money, not a life insurance death benefit

Immediate annuity

an annuity in which the annuitant begins receiving monthly benefits immediately

Tax qualified plans

contributions are excluded from the participants income and earnings accumulate on a tax-deferred basis until distribution

Fixed Annuities

guarantee a certain fixed interest rate to you Considered very safe since they are backed by the state Life Insurance Guaranty Fund

Straight or Pure Life Annuity

income for life with no refund to survivor - will pay you as long as you live largest monthly income because its the highest risk interest is tax deferred until you get it out

Life Insurance Guaranty Fund

it is against the rules to refer to the Life Insurance Guaranty Fund's safety provision in your sales presentation, unless asked