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An ______ is a contract between the annuity owner and an insurance company. An annuity contract is different from a life insurance contract in that the annuity provides an income to an individual (a.k.a. the annuitant) while he is alive whereas a life insurance contract pays a death benefit to a beneficiary when the individual dies.
The accumulation phase (known as a deferred annuity)
The liquidation or payout phase (known as an immediate annuity). This is when the annuity begins to generate regular income payments to the annuitant (also known as the annuitization phase).
Two time periods tied to an annuity
In the State of Washington, a person may not sell unless they have Life Insurance License & successfully completed the annuity suitability training education course.
The producers must complete a one-time, four-hour annuity training course approved by the Commissioner and provided by an education provider approved in this state.
Suitability in Annuity Transactions
An annuity where income payouts are to begin soon after the contract is purchased. Immediate annuity contracts arepaid for (purchased) with a lump sum.
First Annuity Phase - Immediate Annuity (a.k.a. The Payout or Liquidation Phase)
An annuity where payments to the annuitant are delayed or deferred from the date of the contract until some future date (usually retirement). The payments made to the deferred annuity are called premiums.
The interest is earned tax-deferred until withdrawn. However, there is a 10% earlywithdrawal penalty on the earned interest if the money is withdrawn before age 59½.If money is withdrawn from an annuity, interest accumulation is withdrawn first. The owner is fully vested and she controls her money.
Premium payments made into a deferred annuity may be as:
a single payment
Second Annuity Phase - Deferred Annuity (a.k.a. The Accumulation Phase).
______ has a minimum guaranteed rate of return. However, some may paymore than the stated guaranteed amount (called excess). The guarantee combined with the excess is called the current rate of interest.
Fixed vs. Variable Annuities - A Fixed Annuity
______ is a hybrid product that offers a minimum guaranteed return (such as2%) and the opportunity to participate in the upside potential of the equity markets by using indices such as the Standard & Poor’s 500. An Index Annuity can use two or moreindices for funding the Annuity. They first came to the market in 1995 and have been sold as insurance, without SEC or FINRA supervision.
Fixed vs. Variable Annuities - An Index Annuity
_____ is a securities product (Stock Market). The investment return depends on the performance of that separate account (Stock Market), a securities license is required to sell them, the annuitant assumes the investment risk, and there is no guarantee on the interest earned on the premiums. However, companies do guaranteethe return of at least the premiums paid in the event of the death of the owner of a variabledeferred annuity (a.k.a. Annuity Death Benefit).
Fixed vs. Variable Annuities - A Variable Annuity
_____ refers to a variable deferred annuity:a) During the deferral period, variable annuity premiums are kept in a "separate account."b) Separate account funds are used to purchase securities such as stocks, bonds, or money market instruments.c) The annuity contract-owner actually buys "accumulation units" representing the owner's interest in the separate account.
____ _____ refers to a variable immediate annuity:
a) The accumulation units are converted into annuity units which serve to determine the amount of each payment to the annuitant during the payout period.
b) The resulting number of annuity units remains fixed throughout the payout period. The annuity payment will vary according to the value of an annuity unit.
_____ _____ _____ - the payout amount is determined by the annuitant's age, gender and option chosen. Life annuities are ideal for retirement because their primary purpose is toprovide an income you cannot outlive. Once the annuity payouts start, the insurance company guarantees that the payments will continue no matter how long the annuitant lives,thus giving a true lifetime guarantee of income
Life Annuity Options
1. Life (Straight/Pure) w/No Refund
2. Life w/Refund
3. Life w/Period Certain
4. Joint Life Annuity
5. Joint Life w/Survivorship
Life Payout (Settlement) Options
______ is one where the annuitant receives a specified amount for as long as he lives. The insurance company's obligation endsupon death. There is NO beneficiary.
Life (Straight/Pure) w/No Refund
_______ provides income to the annuitant for life and payment to the beneficiary if the annuitant dies prior to receiving an amount equal to the full amount paid for the annuity (a.k.a. Principal).
______ provides a life income for the annuitant. If the annuitantdies within a specified period (such as 5, 10, or 20 years), the same annuitypayments will continue to the named beneficiary until the end of the stated period.
Life w/Period Certain
_____ pays an income to two or more annuitants (with one check)and terminates at the first death among the lives covered. There is NO beneficiary.
Joint Life Annuity
_____ pays an income to two or more annuitants (with one check), but will continue to pay the second annuitant when the first annuitant dies.The annuitant chooses the amount of the continued payout, such as 1/2, 2/3, etc., of the original payout, at the time the annuity contract is purchased. However, whenthe survivor(s) (joint annuitant) dies, all payouts stop. The survivor is not a beneficiary.
Joint Life w/Survivorship
________ payout options are guaranteed by the insurance company. If the annuitant dies before a fixed period of time or the entire principal has been paid to the annuitant, a beneficiary will receive payments for the balance of time or until the entire principal has been paid out.
The negative aspect of the fixed options is that the annuitant could outlive the annuity.The fixed options guarantee payout of all of the principal & interest and allow the annuity owner to cash-out the contract.
Annuity Certain (definition)
_____ payout option guarantees all of the principal plus interest to the annuitant over a period of time. The annuitant could, however, outlive the annuity payout.
This option will pay equal installments of an amount that will exhaust the principal and interest during the fixed period (i.e., 20 years). If the annuitant dies before the 20 years is over, the beneficiary will receive the same installments for the balance of the 20 years.
The Fixed Time Annuity
Under this settlement option, the annuitant receives benefit payments of a set amount for as long as the annuity's accumulation value plus interest lasts. If Mrs. B has an accumulation value of $200,000, under this settlement option shecould elect to receive a monthly benefit payment of $3000 (or any other amount she prefers). The insurance company would send her a check each month for as long as the accumulation value and interest would support the benefit.
After the funds in the annuity are exhausted, Mrs. B would not receive any furtherbenefits from the annuity contract. In the event of Mrs. B's death before the funds inthe annuity have been used up, the remainder is generally paid to her beneficiary.
Annuity Certain - Fixed Amount Annuity
______ is a policy provision found in life insurance policies and work the same as the Annuity Payout Options. While about 98% of death benefits are made in a lump sum, a portion of death proceeds are disbursed in other ways.
Settlement Options (definition)
1. Interest Only
2. Fixed Period
3. Fixed Amount
4. Life Income
Settlement Options 4 types
The insurance company holds the proceeds and pays the interest earned to the beneficiary. The interest is taxable.
Settlement Options (Policy Provision) - Interest Only Option
The beneficiary receives equal payments of both principal and interest over a designated period.
Settlement Options (Policy Provision) - Fixed Period (a.k.a. Certain) Option
The beneficiary receives payment of a predetermined amount consisting of both principal and interest.
Fixed Amount Option - Settlement Options (Policy Provision)
Guarantees an income stream for life to an individual. The keypoint is, what happens to the rest of the money when that individual dies?These are the same as the Life Annuity options:
Straight or Pure Life w/No Refund (money stops when the annuitant dies)
Life w/Refund (the balance of the principal is paid to the beneficiary if it is not all paid out by the time the annuitant dies)
Life w/Period Certain (guarantees a minimum period of payout, such as 10 years, or as long as the insured lives, whichever is longer)
Life w/Joint Survivor pays one check to two people and the survivor continues to receive a payment until she dies. At that point, the moneystops.
Life Income Option - Settlement Options (Policy Provision)
________ Options of a policy rests with the policy owner. The policy owner may choose any option under which the proceeds will be distributedto the beneficiary, regardless of the beneficiary's wishes. If the owner does not choose an option, the beneficiary has the right to decide how to receive the proceeds.
The Right to Elect or Change Settlement Options