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Flashcards in Annuities Deck (24):


Provides income for a specified period of years or life.
Protects a person from outliving his/her money.
Vehicle for the accumulation of money and liquidation of an estate.
Payments stop upon death of annuitant.
Mortality tables reflect a longer life expectancy than life insurance.



The purchaser of the contract, not necessarily the one who receives the benefits. The owner has all the rights such as naming the beneficiary and surrendering the annuity.
Owner can be a corporation, trust, or other legal entity.



The person who receives the benefits or payments from the annuity, whose life expectancy is taken into consideration, and for whom the annuity is written.



The person who receives annuity assets either the amount paid into the annuity or the cash value, whichever is greater, if the annuitant dies during the accumulation period.


Accumulation period

Pay in periodic the time the owner makes premium payments into the annuity which earn interest on a tax deferred basis.


Annuity period

Annuitization period, liquidation period or payout period is the time during which the sum that has been accumulated is converted into a stream of income payments to the annuitant.


Why buy an annuity

Supplement retirement income
Fund college education
Structured settlements
Accumulate cash for any reason
Liquidate an estate


Lump sum settlements

An additional 10% penalty can be levied on the taxable portion if liquidated prior to the age of 59 1/2.


Group annuity

Owned by an employee or other entity



Individual retirement annuity


Immediate annuity

Lump sum payment
Income payments begin within one year
SPIA single premium annuity


Deferred annuity

Income payments begin sometime after one year of purchase date
Can be either lump sum payment or periodic payments
The longer the annuity is deferred the more flexible for premium payments it allows.


Fixed annuity

Guaranteed minimum rate of interest to be credited to the purchase payment or the payments.
Income payments do not vary from one to the next
Insurance co. guarantees the specific dollar amount for each payment and the length of the period of payments as determined by the settlement option chosen by the annuitant.


Level benefit payment amount

Purchasing power may be eroded due to inflation


Variable annuities

Serves as a hedge against inflation. Annuitant may receive different rates of return on the funds paid into the annuity.
Underlying investment: monies paid in
Interest rate: no guaranteed minimum
License requirement: agents must have a securities license to sell and be registered with FINRA in addition to life insurance license.


Indexed annuities

Are fixed annuities that invest on a relatively aggressive basis to aim for higher returns.
Guaranteed minimum interest rate usually tied to an index ie S&P 500.
Less risky than a variable rate annuity or mutual fund but earn a higher rate than a fixed annuity.


Pure life annuity

Straight life / life only
Pays the annuitant until death
Highest monthly benefits
No guarantee all the proceeds will be paid out


Life with guaranteed minimum

If annuitant dies before the principal amount has been paid out the remainder will be refunded to the beneficiary. (Refund life)
Cash refund
Installment refund


Life with period certain

Annuity payments are guaranteed for the lifetime of the annuitant and for a specified period of time for the beneficiary.
ie life plus 10 year certain


Single Vs multiple

Single - cover one life highest monthly payment
Joint life - two or more annuitants receive payment unlike the first death
Joint survivor - guarantees income that neither can outlive. Second to die usually receives a reduced payment 1/2 or 2/3


Annuity with period certain

Short term
Limit amounts paid to a fixed period of time


Fixed period installments

Annuitant selects time period
Insurer determines payment amount
Pays regardless of death


Fixed amount installments

Annuitant selects the payment amount
Insurer determined length of payment
Pays regardless of death


Accumulation units

Represent ownership interest in the separate account. Instead of buying shares the annuity purchases units.