Fixed annuities
Are guaranteed
Have an inflation risk - a purchasing power risk
Annuities may be purchased regardless of age or
health
Variable annuities
Have no guarantee
Accumulation unit
A measurement of the value invested in the account during the accumulation period of the contract
The more funds you contribute to your annuity account, the more accumulation units you will build
Annuity unit
An accounting measure upon which the size of periodic annuity payouts is based
When one purchases an annuity, one purchases a fixed number of annuity units, which are set to represent the value of the portfolio in which the annuity invests
When one begins
Equity Index Annuity
Have characteristics of both fixed and variable annuities
Classified as a Fixed annuity
EIAs offer a minimum guaranteed interest rate combined with an interest rate linked to a market index -usually the S&P 500
EIAs give you more risk (but more potential
Annuities
Are the opposite of life insurance-no life insurance protection
Pay only if you live, not if you die
Life insurance creates an estate for your heirs when you die
Annuities are designed to liquidate an estate through a series of systematic, guaranteed (in
Fixed Annuities
guarantee a certain fixed interest rate to you
Considered very safe since they are backed by the state Life Insurance Guaranty Fund
Life Insurance Guaranty Fund
it is against the rules to refer to the Life Insurance Guaranty Fund's safety provision in your sales presentation, unless asked
Annuity beneficiary
You may designate a beneficiary on some annuities to receive your invested capital in case you die, but this is a return of your own money, not a life insurance death benefit
Single Premium Annuities
An annuity that is purchased with one payment, but the payout period is derferred for a period of time
SPDA (Single Premium Deferred Annuity)
Is purchased with a lump sum, but payment of benefits not paid until after one year or more has lapsed
Has the benefit of tax-deferred interest accumulation during the Pay-In (accumulation) period
It is up to you when you want to start receiving your fund
Non-qualified annuity
Is an annuity where after-tax dollars are contributed by an individual investor buying a contract
Upon retirement, only the excess over the amount contributed is taxable
Qualified annuity
An annuity where the investor contributes pre-tax dollars. Upon retirement the distributions are taxed as ordinary income
A 403(b) tax-sheltered annuity (TSA) plan is a retirement plan, offered by public schools and certain tax-exempt organizations.
An in
Straight or Pure Life Annuity
income for life with no refund to survivor - will pay you as long as you live
largest monthly income because its the highest risk
interest is tax deferred until you get it out
Annuity uses
Lotteries
Sports contracts
Structured settlements
Investment purposes
Annuitant
The person who buys an annuity
Annuitant and owner aren't always the same person
Stage 1
Pay in or accumulation period
Stage 2
Pay out or annuitization period
Immediate annuity
an annuity in which the annuitant begins receiving monthly benefits immediately
Deferred annuity
An annuity designed to be paid to the insured in the future, usually in retirement
Upon withdrawal, only the accumulated interest
is taxable and all pay-out options are for life
Deferred Annuities
Could be purchased with either a single lump-sum payment or
with level premium payments over a period of time
Surrender penalties
This is a penalty your insurance carrier charges for withdrawing funds before your surrender period is over
Annuities have surrender periods anywhere from 1 year to 12 years
A typical annuity surrender schedule starts higher in the beginning years and dec
If annuitant is taking money out in pay in period (Stage 1), how is the money taxed?
Interest first LIFO
Flexible Premium Deferred Annuities (FPDAs)
The annuitant has purchased a Deferred Annuity and has the option to pay in whatever amount he chooses, or nothing at all.
Pure (Straight) Life Annuity
Provides periodic, usually monthly, income payments that continue as long as the annuitant lives and terminate at that person's death
No beneficiary
Most risky option
Life Income Annuity with Period Certain
(Annuity Certain or Period Certain
Annuity
Guarantees benefits will be paid for a fixed minimum period of time selected by the annuitant when he annuitizes
Beneficiary receives what the annuitant would have received had he/she lived until the end of the period certain
Refund Life Annuities
Provides annuity payments for the annuitant's lifetime with the guarantee that the insurance company promises to make a refund of the account balance if the auunitant dies before collecting it all
If the annuitant dies before collecting it all, the differ
Joint and Survivor Annuity
Annuity contract paid out until the second of two insured people die
Joint Life Annuity
An annuity under which payments are made to two annuitants for only as long as both live
When one dies, payments cease even if one remains living.
Fixed Annuities
Have a fixed rate of return
Insurance companies will often pay a higher "current rate" of interest, which is guaranteed for one year only and is subject to change (up or down) annually, but never below the minimum
Annuitant is assured of level monthly pay
Variable Annuities
The annuitant's monthly payments will vary during the
Annuity (Pay-Out) period, since no rate of return is guaranteed
The client's funds are invested into the market directly and the insurance company maintains a separate investment account for that purpo
Market Value Adjusted Annuities
An annuity which offers a guaranteed interest rate, but also offers a market value adjustment if you surrender the contract The market value adjustment adjusts the interest you earn in the contract according to current interest rates being offered in the
Equity Indexed Annuity
Offer a minimum guaranteed interest rate combined with an interest rate linked to a market index
Because of the guaranteed interest rate, EIAs have less market risk than variable annuities
EIAs also have the potential to earn returns better than tradition
USES OF ANNUITIES
Deferred annuities are purchased for retirement planning or a child's future educational expenses
Immediate annuities are usually purchased to supplement the annuitant's pension or Social Security
Variable annuities are usually purchased by those seeking
Lump-sum Settlements
Paying a settlement in installments over time rather than in a single lump sum
When a settlement is paid in this manner it is called a "structured settlement"
Often the structured settlement will be created through the purchase of one or more annuities, w
Tax Sheltered Annuities (TSAs)
Employees of public educational institutions (such as public schools and universities), tax exempt non-profit organizations
and church organizations may exclude from their gross income, within limits, premiums paid on a contract that will provide for an a
Tax qualified plans
contributions are excluded from the
participants income and earnings accumulate on a tax-deferred basis until distribution