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24 Cards in this Set
- Front
- Back
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Annuity
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- An insurance company issued contract that provides income to an insured, known as the annuitant, during their life.
- The annuitants cannot outlive the income from the annuity - DO NOT require annuitant to be in good health |
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Annuitant
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- The named insured covered by the annuity contract.
- Annuity contracts are based on the life of one annuitant or multiple annuitants. |
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Contract Owner
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- Is usually also the annuitant; however, the contract owner could be another person or entity.
- It should be noted that if the contract owner is different from the annuitant, payment of the income will go to the contract owner unless the contract owner designates otherwise. - Can elect not to take an income, but instead to liquidate the contract in a lump sum or by percentage payments. |
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Beneficiary
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Person or entity that receives the proceeds from the annuity contract upon the death of the annuitant. (Not always a named beneficiary)
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What do Annuities take into account when paying income to the annuitant?
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- Age
- Gender - Amount in the annuity account at the time of payment - However, different from life insurance, annuities DO NOT require the annuitant to be in good health. |
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Name the TWO types of annuities
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1) Fixed Annuity
2) Variable Annuity |
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Fixed Annuity
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- Considered “safe” investments
- Guarantees that a specific sum of money will be paid to the annuitant in the future - Purchased with “after-tax” dollars - Credits earnings at a GUARANTEED RATE on a TAX-DEFERRED basis for a SPECIFIED LENGTH of time. |
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Variable Annuity
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- Are “security based” --> premium deposits are invested typically in mutual funds by the contract owner from a portfolio of investment choices.
- Premium payments are used to purchase “accumulation units" -Value of variable annuity will vary over time according to performance of investment options you choose. - Designed to provide a hedge against inflation. - Guarantee no less than the return of the principle investment to a beneficiary (minus the payments already made) if the annuitant dies before the payout phase begins. - Contract owner may select to have a lump sum payment of the account OR receive an income from the contract. |
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Equity Indexed Annuities (EIA)
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- Sometimes referred to as the hybrid of the Fixed Annuities and the Variable Annuities.
- Based on the value of securities such as mutual funds. - Offer a minimum guaranteed interest rate combined with an interest rate linked to a market index. - Because of the guaranteed rate, EIA’s have less risk than Variable Annuities. |
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Accumulation Phase
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The period in which the contract owner deposits funds into the annuity account.
- Any interest earned is tax deferred until distribution of the annuity account. |
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Payout Phase
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The period in which the contract owner receive income payments from the annuity.
** When the Payout Phase begins, contract owners usually have no further control of the assets in the account. This phase can be: - Immediate - Deferred |
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Immediate (Payout Phase)
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The annuitant usually starts receiving income payments within one year of purchasing the contract
- These require a large initial deposit. |
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Deferred (Payout Phase)
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The annuitant doesn’t start income payments before at least one year (usually many) has passed.
- Allow more flexibility in premium deposits. |
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Single Premium
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An accumulation approach that requires one large deposit from the contract owner.
Classified into the following types: - Single Premium Immediate Annuity (SPIA) - Single Premium Deferred Annuity (SPDA) |
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Single Premium Immediate Annuity (SPIA)
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Begins payments WITHIN 12 months of the deposit to the account
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Single Premium Deferred Annuity (SPDA)
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Begins payments AFTER 12 months and typically years later
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Installment Premium (Flexible Premium Deposits Annuity)
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Deposits made annually, semi-annually, quarterly, or monthly.
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Single (Benefit Payment)
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The amount of the payment (income) is based on the life of one annuitant named in the contract.
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Joint (Benefit Payment)
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The amount of payment (income) is based on two lives.
- A payment is made while both are still living - After the death of one annuitant, all income ceases. |
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Joint and Last Survivor (Benefit Payment)
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The amount of income pay out is based on two or more lives.
- When one annuitant dies, the income DOES NOT cease - The survivor will continue to receive income - The payment is usually designed to be a full payment while all annuitants are alive, but reduced to a smaller amount after the death of one annuitant. |
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When can annuitants be changed?
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During the accumulation phase of the contract, but NOT during the payout.
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Straight (Pure) Life Annuity Payout
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Guarantees a life income payment to the contract owner as long as the annuitant is living.
- All payments stop if the annuitant dies (this payout would not be best for persons with heirs) |
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Annuity with Period Certain Payout
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Guarantees that a minimum number of payments will be made.
- If the annuitant dies, the annuity continues payments to the beneficiary until the minimum number has been paid. |
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Cash or Refund (Fixed) Installment Payout
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Pays an income to the annuitant for life.
- However, if the annuitant dies before receiving the total of all premium deposits, the insurer refunds the balance (in one lump sum or monthly installments) to the beneficiary |
