Final - Review 5

Chapter Recap

This chapter explained key concepts related to annuities, from the parties to the contract to different annuity classifications. Let’s recap the main concepts you need to know:

ANNUITIES
Phases	Accumulation period - payments in, to insurer Annuitization period - payments out, to insured
Parties	Annuitant - insured; policy issued on annuitant's life; must be a person Beneficiary - will receive any amount contributed to annuity (plus any gain) if annuitant dies during accumulation period Owner - has all rights to policy (usually annuitant); can be corporation or trust
Types of Annuities	Fixed Annuities - guaranteed, fixed payment amount; premiums in general account Variable Annuities - payment not guaranteed; premiums are in separate account, and invested in stocks and bonds Indexed Annuities - interest rate tied to an index; earn higher rate than fixed annuities, not as risky as variable annuities or mutual funds
Premium Payments	Single - ONE lump-sum payment. The principal is created immediately (used for both immediate and deferred annuities). Periodic (Flexible) - multiple payments; annuity principal fund is created over time (used for deferred annuity only)
Income Payments	Immediate - purchased with a single premium. Income payments start within one year from the date of purchase. Deferred - purchased with either lump sum or periodic-payments premium. Benefits start sometime after one year from the date of purchase (often used to accumulate funds for retirement).
Settlement Options	Lump-sum - interest taxable. 10% penalty before59 1/2. Life Only - insured dies no remaining $. highest monthly amount. Pure or straight  Refund Life Annuity - guaranteed lifetime income. If dies, balance is "refunded" to beneficiary. Guarantee minimal Joint Life - first death, then no payments  Joint and Survivor - Often used with period certain. When one annuitant dies, the other receives either 1/2 or 2/3 Life with Period Certain - specific monthly payment for life and a specific period of time (e.g. Life plus 10-year certain). If annuitant dies before payment period is up, payment goes to beneficiary. Annuities Certain - payment guaranteed for fixed period or until certain fixed amount paid. NO LIFE option.
Interest Rate	Guaranteed - company must pay this minimum percentage. Typically around 3%. Current - exceeds guaranteed rate. Paid to annuitant when a company's own investment is better than expected.