Annuities Flashcards
Fixed Annuity
Has Fixed Interest.
Risks of Insurance Company:
1) Investment Risk 2) Mortality Risk 3) Operating Risk
Risks Of Investor
1) Purchasing Power Risk
(If an investor is concerned about this they should invest in Mutual Funds Insterad)
Variable Annuity
Security invested Annuity
Risks of Insurance Company:
1) Mortality Risk 2) Operating Risk
Risks Of Investor
1) Investment Risk
(The only reason an advisor should recommend one of these is for Income now or Income Later. Its not for tax deffered growth, big purchases, paying for college, etc…)
Equity Indexed Annuity
Patterns a specific Index
What are red flags for regulators
1) Going from one variable annuity to another via 1035 exchange (this causes even longer surrender periods and might cause fees)
2) Saling L share annuities
Single Payment Deferred Annuity
Using a lump sum to fund annuity then not taking an income for awhile
Single payment Immediate Annuity
Using a lump sum to fund annuity then taking an income within 60 days
Periodic Payment Deferred Annuity
Paying Periodic premiums into the annuity
Accumulation Units
Units gathered while the annuity is in the accumulation stage.
The number and value vary
Annuity Units
Units for the distribution/ payout stage.
The number is fixed and the value varies
Payout options: - Life only - Life with period certain - Joint with last survivor - Unit refund
What’s the process of annuitizing an annuity contract?
Accumulation Units Are Converted into Annuity Units
The Company Sets an AIR
AIR
Basically, a number that says in order to keep payments consistent we need an interest payout of ___% every year
How is money in a Variable Annuity Taxed?
It grows tax deferred
How can money be withdrawn from an annuity
They may withdraw their money in several different ways:
- Lump sum
- Annuitizing (income)
- Random
(done on a LIFO basis subject to income tax on withdrawal and penalties if under 59 1/2)
