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25 Cards in this Set
- Front
- Back
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Annuity |
An agreement by an insurer to make periodic payments that will continue during the lifetime of the annuitant or for a specified time. Annuities are the opposite of life insurance. They pay while you are alive. Life insurance creates an estate, annuities liquidate estates. |
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Accumulation Period |
aka The pay-in period It is the period of time prior to the annuitant entering the annuity or payout period. Always has a beneficiary |
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Distribution Phase |
aka Annuity period An annuitant can annuitize the contract and begin receiving monthly payments. However they never have to do if they do not want too. |
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Annuitant |
The party receiving the benefits of an annuity |
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Owner |
The annuitant is usually the owner but does not have to be. |
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Beneficiary |
During the accumulation period there is always a beneficiary. Beneficiary would receive the amount in the annuity account if the annuitant died. If during the annuity phase, the annuity might now have a beneficiary Benefits paid by a annuity are taxable unlike a life insurance policy. |
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Business an Personal Use of Annuities |
Business: may be used to fund a structured settlement, which is a method of making guaranteed payments to a person who won a lawsuit Personal: Purchased by clients who are seeking a tax deferred alternative to bank CD's or who want to supplement their retirement income. |
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Fixed Annuity |
Fixed rate of return, usually a minimum around 4%. many insurance companies will offer rates above the minimum and they bear the investment risk. |
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General Account |
Fixed annuities are funded by the insurance companies general account and are invested very conservatively. Insurer bears the risk. If they guarantee 4% and only earn 3% they mus make up the difference. |
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Variable Annuities |
The annuitants monthly payments will vary during the annuity (pay out) period, since no rate of return is guaranteed Clients funds are invested directly into the stock market Clients for this type of product are looking for a better return and therefore bear the complete risk Considered a securities product Purchased to hedge against inflation. |
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Separate Account |
Variable annuities are funded by the insurance companies separate account. Invested directly into the stock market. No Guaranteed rate of return. |
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Equity Indexed Annuity |
A fixed annuity where both the principal and the interest are guaranteed. Excess interest earnings above the minimum rate may occur |
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Single Premium Immediate Annuity |
Purchased with a lump sum from the annuitant No pay-in or accumulation period Single large pay in and annuitizes the contract right away. |
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Deferred Annuities |
Can be purchased with either a lump sum or with level premium payments over a period of time. Interest gained in the account is interest free during the accumulation period. Only taxed on the earnings once they are withdrawn. |
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Single Premium Deferred Annuity |
Purchased with a lump sum by the annuitant, but the insurance company invests your money until you reach a certain age. Tax free interest accumulation. |
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Flexible Premium Deferred Annuities |
Paying either fixed or flexible monthly installments until a certain age. By that time they would have accumulated a certain amount of money and could elect o stop paying into the annuity and annuitize (Either in a lump sum or installments) |
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Qualified vs Non-Qualified Annuities |
Qualified: tax qualified by the IRA and is funded with pre-tax dollars Upon annuitization, it is taxable as ordinary income. Non-Qualified: is not tax qualified and is funded with after tax dollars. Upon annuitization, only the interest gained is taxable. Most annuities are non-qualified |
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Group vs Individual Annuities |
Group Basis is usually offered by an employer for the benefit of the employees. Most annuities are purchased individually. |
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Market Value Adjusted Annuities |
Type of variable annuity where a policy-owner commits a sum of money for a certain period of time. (Usually 1, 2 or 3 years) Longer the commitment the higher the interest rate. If withdrawn early the client may bear some of the risk. |
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Tax Sheltered Annuities |
Tax qualified plans in that contributions are excluded from the participants income and earnings accumulate on a tax deferred basis until distribution For employees of public institutions, public schools/universities, churches, tax exempt businesses |
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Life-Only Payment |
Aka Life Income Option Will pay the annuitant for as along as they live. (Potential to recover substantially more than they paid in) Usually has higher monthly payments to the client No beneficiary |
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Life with a certain period Payment |
Aka Period Certain Option The insurer will guarantee that monthly payments will be made to a beneficiary if the annuitant dies with the period certain The longer the period certain the smaller the monthly payment |
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Refund Life Payment |
If the annuitant dies before they recover the value of their account, the insurer will refund the difference to a beneficiary. Less risky for the annuitant Monthly payments would be lower because there is less risk to the annuitant |
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Joint-life and Joint-and-survivor-ship Annuities |
Joint Life Payout: may be selected when there is more than one annuitant Payments are made to both parties while they are alive, but payments stop entirely when the first annuitant dies. Joint and Survivor Payout: Will pay while both parties are alive but payments continue on to the survivor at a reduced rate when the first annuitant dies. (Smaller payouts b/c its less risky) |
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Rules regarding Conduct with Seniors 65 and older |
All insurers, brokers, agents and others engaged in the transaction of insurance owe a prospective insured who is 65 years of age and older, a duty of honesty, good faith and fair dealing. |
