Chapter 5: Annuities

Pure Life Payment Option

life only/straight life. payment ceases at the annuitants death. provides the highest monthly benefits. no guarantee proceeds will be fully paid out

periodic payments on annuity

over time. can either be level premium, where owner pays a fixed amount, or a flexible premium, where the amount and frequency changes

Life with period certain contingency payment

payments are guaranteed for lifetime of annuitant, and for a specified time for beneficiary.

deferred annuity

payments begin after one year from purchase date. the longer the annuity is deferred, the more flexibility for payment of premiums. surrender value should be equal to 100% of premium paid

Market Value Adjusted Annuities (MVA)

single premium deferred annuity that allows the owner to lock in a guaranteed interest rate over a specified maturity period (3-10 years)

Single payment on annuity

lump sum

Owner of annuity

purchaser of contract, not necessarily receiver of benefits. owner has all of the rights

multiple life annuity

2 or more lives, most common are joint life and joint survivor

Nonforfeiture

a deferred annuity has a guaranteed surrender value that is avail if the owner decides to surrender the annuity to annuitization

Fixed amount installments

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

fixed period installments

annuitant selects the time period for the benefits, and insurer determines how much each payment will be, based on the value of the account and future earnings. pays for a specific time only, whether or not annuitant is living

Pension Protection Act 2006

annuitants are allowed to transfer money from an annuity to pay for long term insurance care tax free.

Education funds

annuities can be used to accumulate funds for college

Cash refund annuity

beneficiary receives lump sum of principal minus benefits paid already

lump sum settlements

financially ideal to get an annuity when you come into a large amount of money

Indexed(equity indexed) annuities

fixed annuities that invest on a relatively aggressive basis to get higher returns.. also has guaranteed minimum interest rate. less risky than a variable annuity or mutual fund but are expected to earn a higher rate than a fixed annuity

Fixed Annuity investment options

guaranteed minimum rate of interest, income payments that do not vary, and the insurance company guarantees the specified dollar amount for each payment

Interest Rate Guarantees

in fixed annuities, insurer bears investment risk. interest rate must not drop below guaranteed minimum. if it does, the insurer will pay the rest

use of annuities

income for retirement, or for any accumulation of cash

Interest Rate for variable annuity

issuing insurance company does not guarantee a .minimum interest rate

qualified retirement plans

often funded by annuities, meets IRS guidelines to receive favorable tax treatment

Modified Guaranteed annuity

the owner is guaranteed a fixed interest rate for a specific period of time

Variable Annuity, Underlying Investment

the payments that the annuitant makes into the variable annuity are invested in the insurers separate account, not the general account

Surrender Charges

to help company compensate loss of investment. levied against cash value, generally reduces overtime

General Account Assets

where fixed annuity premiums are deposited, mostly made up of conservative investments like bonds.

Joint life payment

where two or more annuitants receive payments until the first death, and then payments stop

License Requirements variable annuity

considered a security and is regulated by the SEC.

Joint and survivor

guarantees benefits that neither can outlive. most often written as joint and 1/2 survivor, where second survivor receives 1/2 of what was received when they were alive

life with guaranteed minimum payment option

if annuitant dies before the principal has been paid out, the remainder will be paid to the beneficiary. also called refund life

annuitant

person who receives benefits from the annuity, whose life expectancy is taken into consideration, and for whom the annuity is written. must be a person

Immediate annuity

purchased with single lump sum, and pays out within the first year from purchase. Most commonly known as a Single Premium Immediate Annuity(SPIA)

Annuities certain

short term annuities that limit the amounts paid to a certain fixed period

Accumulation units

similar to buying shares in a mutual fund. represents ownership interest in the separate account

Annuity Benefit Payment Options

specifies how the funds are to paid out

Protection in Annuity Transaction Act

act that sets the standards for advice given by insurance producers regarding annuities

Accumulation period

also known as pay in period. when the owner makes payments on the premium into an annuity

annuity period

annuitization period, liquidation period, or pay out period. when the sum that has been accumulated during the accumulation period is converted into a stream of income payments

installment refund annuity

beneficiary will continue to receive guaranteed installments until entire principal is paid out

Annuity

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

Guaranteed Minimum Withdrawal Benefit(BMWB)

annuitant can withdraw a maximum percentage of his investment annually until the initial investment has been recovered.

Single life annuity

cover one life, contributions can be made on a periodic or a single premium basis. provides the highest monthly payment