Annuities (ExamFx)

Guaranteed Minimum

A minimum interest rate that the annuity is guaranteed to not drop below. Therefore the insurer is obligated to pay interest at that rate. The rate is typically 3%

Beneficiary

(In this case) The person who receives the annuity assets (either they pay the mountain to the annuity or cash value, whichever is greater) if the annuitant dies during the accumulation period,

Cash Refund

(Life Annuity Refunds) When the annuitant dies, the beneficiary receives a lump-sum refund of the principal minus benefit payments already made to the annuitant. Cash refund options does not guarantee to pay any interest.

Interest Rate

(Variable Annuity Characteristic) issuing insurance company does not guarantee a minimum interest rate

Annuity Certain

A short term annuity that limits the amount paid to a certain fixed period or a certain fixed amount is liquidated.

Multiple Life

An annuity that covers two or more lives. Some common policies are Joint life and Joint and survivor

Guaranteed Withdrawal Benefit (GWB)

An option where an annuitant can withdrawal a maximum percentage of his or her investment annually until the initial investment has been recovered. It protects a person against possible losses

Waiver

Annuity contracts provide for a waiver of surrender charges if the annuitant's is confined to a long-term care facility for at least 30 days.

Life with certain Period

Another life contingency payout option, this option, the annuity payments are guaranteed for the

Annuity Income Amount

Based on: The amount of Premium paid or cash value accumulated The frequency of the payment The interest rate The annuitant's age and gender

Liquidation of an estate

Converting a persons net worth into a cash flow

Single Life

Covers one life and payments are made with reference to one life only can be made with a single premium or on a periodic premium basis.

Equity Indexed (or equal indexed) Annuities

Fixed annuities that invest on relatively aggressive basis to aim for higher returns. Has a guaranteed interest rate that goes hand in hand with a particular index (S&P 500).

Variable Annuity

Serves as to hedge against inflation, variable in that the annuitant may receive different rates of return on these funds paid into the annuity due to market rates

Annuity Premium Payment Options

Single Premium- One-time lump-sum payment Periodic Payments- Premiums are paid in installments over a period of time.

Annuitant

The "natural" person who receives benefits or payments from the annuity. Whose life expectancy is taken into consideration, and for whom the annuity is written. Annuitant and the contract owner are usually the same person but don't have to be.

Owner- Parties to an Annuity

The purchaser of the annuity contract, but not necessarily the one who receives the benefits. The owner of the annuity has all the rights such as naming the beneficiary and surrendering the annuity. Could be a corporation, trust, or other legal entity.

Annuity Period (Pay-out period, or Annuitization, Liquidation period)

The time that the sum accumulated during the accumulation period is converted into a stream of income payments to the annuitant. It could last a life time or a specified period of time

Accumulation Units

Variable premiums purchase these in the fund, which is similar to buying shares in a mutual fund. Upon annuitization these units are converted into annuity units.

Level Benefit Payment Amount

With fixed annuities, the annuitant knows the exact amount of each payment received from the annuity during the annuity period. A disadvantage to fixed annuities is that the purchasing power that they afford may be eroded over time due to inflation.

Immediate Annuity

An annuity that is purchased with a single, lump-sum payment which provides income income payments that start within the one year from the date of purchase. Commonly known as Single Premium Annuity (SPIA)

Right to Examine Provision

Any individual fixed-dollar annuity contract delivery in Pennsylvania must include a notice on the first page that clearly states that the annuity owner may return the contract within 10 days of delivery. Any premiums will be refunded .

General Account Assets

Fixed annuity premiums are deposited into the life insurance company's account Comprised of mostly conservative investments like bonds & are secure enough for the company to guarantee specific rate of interest. Also the future income payments the annuity will provide

Bail-Out Provision

Found in some annuity contracts allows the contract holder, in the event that interest rates drop a specific amount, within a specified time frame, to surrender the contract without charge.

Fixed Annuity

Guaranteed minimum rate of interest to be credited to the purchase payment(s) Income (annuity) payments that do not vary from one payment to the next; • The insurance company guarantees the specified dollar amount for each payment and the length of the period of payments as determined by the settlement option chosen by the annuitant.

Pure Life

Known as life-only or straight life, this payment ceases at the annuitant's death (no matter how soon in the annuitization period that occurs). This option provides the highest monthly benefits for an individual annuitant. Annuity payments are guaranteed for the lifetime of the annuitant, there is no guarantee that all the proceeds will be fully paid out.

Periodic Annuity Payments

Level Premium payments- in which the annuitant/owner pays a fixed installment Flexible Premium payments- in which the amount and frequency of each installment varies

Fixed-amount Installments

The annuitant selects a specified dollar amount to be evenly paid out until annuity has been fully paid out.

Fixed-Period Installments

The annuitant selects the period of time for the benefits, and the insurer determines how much each payment will be. Installments are paid out periodically for a specified time

Annuity Units

The income that is paid to the annuitant based on the value of these units, the number of these units received remain level, but the unit values will fluctuate until its paid out to the annuitant

Surrender Charges

The purpose is to help compensate the company for loss of investment value due to an early surrender of a deferred annuity. Levied against the cash value and is generally a percentage that reduces over time. A common surrender charge might be 7% of first year, 6% of the second year, and 5%, 4%, 3%, 2%, 1%, and 0% respectively thereafter. At surrender the owner gets the premium, plus the interest (the value of the annuity), minus the surrender charge

Annuitization date

The time when the annuity benefit payouts begin (trigger for benefits)

Nonforfeiture

A deferred annuity has a guaranteed surrender value that is available if the owner decides to surrender the annuity prior to annuitization (e.g. 100% of the premium paid, minus any prior withdrawals and related surrender charges.) A 10% penalty will be applied for early withdrawals (prior to age 59 ½)

Qualified Retirement Plans

A popular means to provide income (through annuities) and they meet favorable IRS guidelines for special tax treatment. These plans can be individual or group

Joint & Survivor

A settlement option upon annuitization of a contract. Its a modification of the life income option in that it guarantees an income for two recipients that neither can out live. If one dies though the payment gets reduced by 1/3 or 1/2. So the alive person receives 2/3s or 1/2 the original annuity amount.

Mortality Table

The number of individuals within a specified group (e.g. males, females, smokers, nonsmokers) starting with a certain age, who are expected to be alive at a succeeding age.

Installment Refund

When the annuitant dies, the beneficiary will continue to receive guaranteed installments until the entire principal amount has been paid out.

Licensing Requirements

(Variable Annuity Characteristic) A variable annuity is considered a security and is regulated by the SEC in addition to state insurance regulations. An agent selling variable annuities must hold a security license in addition to a life insurance license as well as being registered with FINRA.

Underlying Investment

(Variable Annuity Characteristic) The payments that the annuity makes into the variable annuity are invested in the insurer's separate account, not the general account. This account is not part of the insurance company's own Investment Portfolio

Annuity

Is a contract that provides income for a specified period of years, or for life. Protects a person from outliving their money, a vehicle for accumulation of money and Liquidation of an estate. Payments stop upon death of the annuitant. Annuities use certain mortality tables that reflect a longer life expectancy than life insurance tables.

Joint Life

Is a payout agreement where 2 or more annuitants receive payments until the FIRST death among the annuitants and then payments stop

Deferred Annuity

Is an annuity in which payments begin sometime after one year from the date of purchase. Can be either single lump sum (Single Premium Deferred Annuities- SPDAs) or Periodic payments (Flexible Premium Deferred Annuities- FPDAs)

Accumulation Period (Pay-in Period)

Is the period of time over which the owner makes payments (premiums) into annuity. (payments earn interest on a tax-deferred basis) If the annuitant dies the insurer is obligated to return to the beneficiary either the cash value or the total premiums paid whichever is greater Goes to the estate if no beneficiary is named