Annuity products

Question 1

What is an annuity?

Answer 1

An annuity provides an individual with a regular income, usually periodic and constant over a fixed period of time. The biggest advantage of an annuity is the ease of management. The main disadvantage is that once the payments have started, you cannot reverse the decision.

Question 2

What are the two main types of annuities?

Answer 2

1. Immediate annuities.
2. Deferred annuities

Question 3

What is the main advantage of an annuity product?

Answer 3

Ease of management

Question 4

What is the main disadvantage of an annuity product?

Answer 4

Once the payments have started, you cannot reverse the decision

Question 5

What is an immediate annuity?

Answer 5

Immediate annuities are paid immediately following the first period after the annuity contract is taken

An immediate annuity is set up in consideration for a lump sum of an amount, as the full amount must be paid before the benefits can begin.

Example
67-year-old Francis takes out an immediate annuity on June 12, 2012, to receive $1000 per month for the rest of his life. He pays $125,000 now to take out this annuity. The first annuity payment will be on July 12, 2012. (1 month later)

Question 6

When is the first annuity in an immediate annuities product?

Answer 6

Usually a lump sum of an amount must be paid before the benefits can begin. Sometimes the benefits start during the payment phase (if the deposit is made on July 1, July 31 would yield interest from capital invested )

In all cases, the variables and the manner in which the annuity amount is calculated, must be specified in the annuity contract

Question 7

What are the two categories of immediate annuities?

Answer 7

1. Annuity certain
2. Life annuities

Question 8

What are the two categories of immediate annuities and how do they differ?

Answer 8

1. Annuity certain.
   An annuity certain is an annuity of which the periodic payments are guaranteed for a certain number of years. The lifetime (life expectancy) has no impact on the periodic payments received. ( similar to term)
2. Life annuities
   Life annuities are immediate annuities, providing periodic payments until the death of the annuitant . Life means during the lifetime of the annuitant.
   (Similar to perm, but you’re receiving payments, not paying them)

Question 9

What is annuity certain?

Answer 9

1. Annuity certain.
   An annuity certain is an annuity of which the periodic payments are guaranteed for a certain number of years. The lifetime (life expectancy) has no impact on the periodic payments received.

Question 10

What is life annuities?

Answer 10

Life annuities are immediate annuities, providing periodic payments until the death of the annuitant . Life means during the lifetime of the annuitant.

(Similar to perm, but you’re receiving payments, not paying them)

Question 11

Do annuity products have a guaranteed period?

Answer 11

Only if you get an annuity certain or life annuity with a guaranteed period.

Question 12

How does a guaranteed period for life annuities work?

Answer 12

A life annuity with guaranteed period
The payments see upon the death of the annuitant, when the death occurs after the end of the guaranteed period.

Or

At the end of the guaranteed., When the death of the annuitant occurs before the end of the guaranteed period.

Question 13

How are immediate annuities guaranteed if at all?

Answer 13

Annuity certain is an annuity of which the periodic payments are guaranteed for a certain number of years

Life annuities can have a guaranteed period but it must be specified in the contract.

In this case, if the annuitant dies before the end of the guarantee period, the period payments only end at the end of that guaranteed period (not before).

Otherwise, the payment of benefits just ends when the annuitant dies

Question 14

Which kind of annuity has a guaranteed period option? What’s it mean to have one or not have one

Answer 14

Life annuity

Life annuity with guaranteed period:

If the annuity dies before the end of the guaranteed period then payments will continue until the end of the guarantee Period.

Life annuity without guaranteed period:
The payment of benefits under a life annuity, without this ceases upon the death of the annuitant.

Question 15

What are other options that can be added to a life annuity?

Answer 15

Joint life and survivor annuity:

Upon the death of the annuitant, the surviving spouse continues to receive payments. This is what a joint and survivor annuity provides. At the death of the surviving spouse (second death), payments will cease.

Indexed :

The purpose of an indexed life annuity is to protect the annuity against the ever-increasing cost-of-living

Question 16

What is the second type of annuity product?

Answer 16

Deferred annuities

Question 17

What are deferred annuities?

Answer 17

As the name indicates, a deferred annuity allows for benefits to be made at a future date, and not immediately after the contract has been taken out

A deferred annuity is created either by paying a lump sum or by accumulating capital overtime.

The amount of money must be paid in full before the annuity benefits can start

It can also be said that the annuity is in the capitalization phase. The capitalization phase, the insurer grows the capital invested by the owner. The invested capital may be paid in a single amount or by periodic payments.

To constitute an annuity contract, there must be alienation of capital by the owner. This alienation entitles the owner to oblige the insurer to make periodic payments to the annuitant.

Question 18

What are the parties of an annuity contract?

Answer 18

1. Owner/holder.: the owner is the contract holder. The contract belongs to him.
2. Annuitant: The person for whose lifetime the annuitant is specified
3. Payee: the person who receives the benefits
4. Beneficiary: the person who inherits the balance of the annuity upon the death of the annuitant
5. Granter of annuity/debtor: the financial organization, who is making the payments to the payee

Question 19

How are beneficiaries and or annuitants designated?

Answer 19

They may be done in a written document, will, or annuity contract.

Question 20

Are beneficiaries and annuitants, revocable, or irrevocable or both? Can designations be revoked?

Answer 20

Beneficiaries and annuitants may be designated in a written document, will, or annuity contract. They may be designated as revocable or irrevocable.

Designation made in a will may always be revoked

Designating an annuity contract beneficiary means that the death benefit goes directly to the beneficiary without passing through the estate

(sidenote: if the beneficiary is preferred, or irrevocable, and named in good faith, the benefits are then exempt of probate taxes)

Question 21

In an annuity contract, who is the debtor?

Answer 21

It is the granter of annuity, the financial organization, who is making the payments to the payee

Question 22

Are annuities only paid after death?

Answer 22

No, the whole point of annuities is that your guaranteed payments while you are still alive.

It is true that you can designate a beneficiary, for any death benefit