Chapter 9 : Annuities Flashcards
Who is the 403 (b) Plan for? (3)
- Certain employees of public schools
- Employees of specific tax-exempt organizations
- Certain ministers
Annuity Units
Converted accumulation units once variable annuity benefits are to be paid out to the annuitant.
Once they are calculated, the number of annuity units stays the same
Cash Refund
Upon the death of the annuitant before payments totaling the purchase price have been made, the excess of hte amount paid by the purchaser over the total annuity payments received will be paid in one sum to the designated beneficiary.
Deferred Annuity
Postponement of the payment of an annuity until after a specified period or a certain age.
Single or flexible premium.
Usually a 1 year hold
Equity Indexed Annuity
Fixed deferred annuity
Guaranteed minimum
Excess interest featured based on the equities market performance
Exclusion Ratio
A fraction used to find the amount of annual annuity income exempt from federal income tax.
Formula:
Total contribution / expected ration.
Fixed Annuity
Interest payable for any given year is declared in advance by the insurer.
Risk is on the insurer.
Immediate Annuities
Provide payment of an annuity benfit at one payment interval from the date of purchase.
Usually purchased with a single payment.
Begin paying income within one month of purchase.
Life with Period Certain Annuity
AKA Life Income with Term-Certain Option
Pay an income for life but guarantees a definite minimum period.
If annuitant dies, benefit payments continue to the beneficiary for the remainder of the period.
Market Value Adjustment
Can be attached to a deferred annuity.
The MVA interest rate is fixed if the contract is held for a period specified in the contract.
if the contract is surrendered before the period expires, then the market-value adjustment feature will apply
Period Certain Annuity
An annuity income option that guarantees a definite minimum period of payments
Periodic Payment Annuity
AKA Flexible Premium
Describes an annuity owner making multiple premium payments to accumulate principal.
Flexible payments (frequency and amount)
Single Premium Annuity
Entire premium is paid in one sum at the start
Deferred or immediate single premium annuity
Straight Life Annuity
An annuity income option that pays a guaranteed income for the annuitant’s lifetime, after which time payments stop.
Variable Annuity
shifts the investment risk from the insurer to the contract owner.
retirement payments will be made periodically over the remaining years of their lives
