Life Assurance Annuities

Question 1

What is an annuity?

Answer 1

A lump sum investment which provides regular payments for a specified period of time

Question 2

What can these be for annuities?

1) Duration
2) Payments

Answer 2

1) Term or Whole Life
2) Regular - Fixed or Variable

Question 3

What 3 things does an annuity return consist of?

Answer 3

1) Share of original purchase price
2) Investment performance (usually linked to Gilt)
3) Share of mortality profit

Question 4

What is mortality profit

annuities

Answer 4

Early death means the life office have to make fewer payments than expected

This creates a surplus which is in part shared with other policy holders

Question 5

What is an enhanced annuity rate?

Why do they work this way?

Answer 5

Higher payments are made to individuals with health conditions or those that are overwieght / smokers for instance

Shorter life expectancy compared to standard annuity

Question 6

What is an impaired life annuity?

Answer 6

Similar to an enhanced annuity but designed for those with a seriously impaired life expectancy e.g. <5yrs to live

will be fully underwritten

Question 7

Give 3 advantages to choosing an annuity?

Answer 7

1) Certainty of payment
2) Low investment risk
3) wide variety of optoins to accomodate needs (e.g. impaired or enhanced)

Question 8

Give 2 disadvantages of choosing an annuity

Answer 8

1) Inflexible
2) Illiquid