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Chapter 8 review
Review
| 403(B) plan | A retirement plan for certain employees of public schools, tax-exempt organizations, and ministers. |
| 1035 contract exchange | A provision allowing tax-free exchanges of annuities, life insurance policies, or endowment contracts |
| accumlation period | The phase during which premiums are credited as accumulation units before payout begins |
| ammunition units | Units used to make payments to the annuitant once accumulation units are converted |
| deferred annuity | An annuity that postpones payments until after a specified period or age |
| equity indexed annuity | A fixed deferred annuity with interest linked to an equity market index |
| fixed annuity | An annuity providing a guaranteed rate of return with investment risk assumed by the insurer |
| Immediate annuity | An annuity purchased with a single payment that begins paying income within one month |
| Joint Life and Survivor Option | An annuity payout option providing payments to two people, continuing to the survivor for life. |
| Life with period certain option | A payout option providing income for life with a guaranteed minimum period of payment |
| Market value adjustment | An adjustment in deferred annuities affecting crediting rates based on market conditions |
| Variable annuity | An annuity where investment risk is shifted to the contract owner, with payments fluctuating based on securities value |
| Annuity | Is a financial product designed to provide a steady income stream and is offered exclusively by life insurance companies |
| what is the purpose of an annuity? | Protect individuals from the risk of outliving their assets by guaranteeing regular payments over time |
| what is the difference between life insurance and annuities? | life insurance creates estate while annuities liquidate an estate by gradually distributing the duns that have been accumulated. |
| What happens once a contract has been annuitized? | You exchange the accumulation fund for a guaranteed income stream. |
| What does the insurer do when you annuitized a contract? | The insurer takes the possession of the accumulation account and promises to pay a series of periodic payments |
| If the contract owner dies during the accumulation pay in phase what happens? | the insurer must return all the annuity’s value (amount of any contributions minus withdrawals plus interest. |
| Contract owner | holds the rights during accumulation |
| tax-deferred growth | interest earned is not taxed until withdrawal |
| designation of beneficiary | ensures funds are passed on if the owner dies |
| Accumulation period (pay in phase) | when the individual contributes to the annuity |
| Annuitization period(pay out) begins | starts when income payments commence |
| first periodic payment | marks the transition to the annuitant role |
| Annuitant receives income | regular payments begin |
| income= principal + interest | payments include both components |
| peace of mind | provides financial security for a stated time or life |
| What are the four parties involved in an annuity contract? | insurer, contract owner, annuitant, and beneficiary |
| who is the legal entity that underwrites and issues the annuity | the insurance company, only a life insurer can guarantee income for the life of an annuitant |
| Who is typically the person who buys the annuity | the contract owner |
| who is the annuitant | the person named in the annuity who receives the income benefit when it is annuitized |
| Beneficiary | the recipient of the annuity assets is the annuitant’s estate if the annuitant dies during the accumulation period |
| Risk sharing contract | premature death benefits insurer; longevity benefits annuitant |
| Single premium annuities | funded with one lump sum payment, principal created immediately, no additional deposits permitted |
| periodic premium ammuites | level and flexible premiums |
| level premium | constant payment amounts(fixed schedule) |
| flexible premium | variable payment amounts determine by the owner |
| Immediate annuities | must be funded with a single premium only, no acclamation period |
| Deferred annuities | Must begin paying benefits more than one year in the future |
| Fixed annuities | Guarantee a predetermined income amount, insurance company investment risk, funds held in insurer’s general account |
| Variable annuities | Payments fluctuate based on investment performance |
| Equity indexed annuities | fixed annuities with interest linked to a market index, principal guaranteed with minimum return |
| Straight life annuity(pure life) | payments for the annuitant’s lifetime only, no refund or survivorship benefits highest monthly payment amount but payments cease upon death |
| Annuity (period) certain | Payments for the specified period only, payments continue to a beneficiary if the annuitant dies period ends |
| Life annuity with period certain | Guaranteed payments for life or a specified period, whichever is longer the return of principal |
| What happens if a beneficiary outlives period certain (life annuity with period certain)? | no payments |
| Life with refund option | guarantees the return of principal and there are two types: installment refund and cash refund |
| Installment refund | Continues the same monthly payments to the beneficiary |
| Cash refund | Pays the remaining principal in a lump sum |
| Insurer | Company that issues the annuity |
| Annuity contract owner | Person who purchases the annuity and control right |
| Annuitant | Person whose life expectancy determines benefit payments |
| Who’s age is considered for payment calculations? | only the annuitant’s age |
| Surrender charges | assessed when the contract owner cancels the annuity or withdraws excess funds |
| Surrender charges can be waived for what? | death, disability, or extended medical care |
| Non-forfeiture values | Represents fund value minus surrender charges, before annuitization equals premiums paid plus interest minus withdrawals charges |
| Qualified annuities | Premiums may be tax deductible |
| Non qualified annuities | Premiums not tax deductible |
| All annuities in tax treatment | Interest accumulates tax deferred regardless of qualification |
| What does the exclusion ratio determine? | the tax free portion of payments |
| What is the exclusion ration? | investment in contract/expected return |
| What are some exception to early withdrawal penalty | disability, death, age 59 or older, immediate annuity |
| 1035 exchange | Tax free exchange for an annuity for another annuity |
| Life insurance can be exchanged for an annuity tax free but | An annuity cannot be exchanged for life insurance tax free |
| Individual uses | Retirement income planning, education funding, lottery wining distribution, funding Ira’s and qualified plans |
| Business uses | Executive compensation, business succession planning, employee retention, furniture obligations |
| Suitability factors | Age of applicant and spouse, annual household income, financial situation and needs, intended use of annuity |
| Special considerations | Senior consumers 65+, producers must have reasonable grounds for recommendations |
| Variable annuities require what to sell? | securities license |
| What annuity has the highest payment? | straight life annuity but has no survivor benefit |
| Corporate owned annuities must have? | a natural person as annuitant |
| What is the most popular annuity? | flexible premium deferred annuity |
Created by:
Lupe12