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Annuities


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Annuity
a contract that provides income for a specified period of years, or for life; protects a person against outliving his or her money; do not pay face amount upon death, they do just the opposite, payments stop upon death
Owner
the purchaser of the annuity contract, but not necessarily the one who receives the benefits; has all the rights, such as naming the beneficiary and surrendering the annuity
Annuitant
the person who receives benefits or payments from the annuity, whose life expectancy is taken into consideration, and for whom the annuity is written
Beneficiary
the person who receives annuity assets if the annuitant dies during the accumulation period, or to whom the balance of annuity benefits is paid out
Accumulation Period
the period of time over which the annuitant makes payments into an annuity; payments earn interest on a tax-deferred basis; payments in, to insurer
Annuity Period
the time during which the sum that has been accumulated during the accumulation period is converted into a stream of income payments to the annuitant; can last for the whole lifetime of the annuitan…
Single Premium Immediate Annuities
an annuity that is purchased with a single, lump sum payment and provides income payments that start within 1 year from the date of purchase; typically this type of annuity will make the first pay…
Deferred Annuities
an annuity that either is purchased with a single lump sum or is purchased through periodic payments; unique in that they grow tax deferred; often used to accumulate funds for retirement
Single Premium Deferred Annuities
the annuity purchased with a single payment, but the benefit is not paid until after one year or more has elapsed
Flexible Premium Deferred Annuity
the annuity is purchased with multiple payments that can vary from year to year, and the benefit payment begin sometime after one years from the date of purchase
Nonforfeiture
a deferred annuity has a guaranteed surrender value that is available if the owner decides to surrender the annuity prior to annuitization
Surrender Charges
the purpose is to help compensate the company for loss of the investment value due to an early surrender of a deferred annuity; levied against the cash value, and is generally a percentage that red…
Death Benefits
if an annuitant dies during the accumulation period, the insurer is obligated to return to the beneficiary either the cash value or the total premiums paid, whichever is greater
Pure Life
pay a specific amount for the remainder of the annuitant's life; this payment ceases at the annuitants death; provides the highest monthly benefits
Guaranteed Minimum
if the annuitant dies before the principal amount has been paid out, the remainder of the principal amount will be refunded to the beneficiary; guarantees that the entire principal amount will be paid out
Life with Period Certain
the annuity payments are guaranteed for the lifetime of the annuitant, and for a specified period of time for the beneficiary
Installment Refund Life Annuity
when the annuitant dies, the annuitant's beneficiary will continue to receive guaranteed installments until the entire principal amount has bee paid out
Cash Refund Life Annuity
when the annuitant dies, the annuitant's beneficiary receives a refund of the principal, or the original amount paid into the annuity minus benefit payments already made to the annuitant; guarantees the return of amoun…
Single Life Annuities
annuities that cover one life ; contributions can be made on a period or on a single premium basis with subsequent values accumulating until the contract is annualized; highest monthly premium
Multiple Life Annuities
annuities that cover 2 or more lives
The Joint and Survivor Arrangement
a modification of the life income option in that it guarantees an income for two recipients that neither can outlive; although it is possible for the surviving recipient to receive payments in the same am…
Joint Life Arrangement
a payout where two or more annuitants receive payments until the first death among the annuitants, and then payments stop
Short-Term Annuities
limit the amounts paid to a certain fixed period or until a certain fixed amount is liquidated
Fixed-Period Installments
the annuitant selects the time period for the benefits, and the insurer determines how much each payment will be, base on the value of the account and future earning projections
Fixed-Amount Installments
the annuitant selects how much each payment will be, and the insurer determines how long the benefits will be paid by analyzing the value of the account and future earnings
provides:
Fixed Annuity
General Account
fixed annuity premiums are deposited into the life insurance account of the company; comprised mostly of conservative investments life bonds
Level Benefit Payment Amount
during the payout phase of a fixed annuity, the amount of benefit is also guaranteed; with the fixed payment in times of inflation, the benefit payment will have less purchasing power and in tim…
Equity Indexed Annuities
fixed annuities that invest on a relatively aggressive basis to aim for higher returns; has a guaranteed minimum interest rate
Market Value Adjusted
a single-premium deferred annuity that allows the owner to lock in a guaranteed interest rate over a specified maturity period, anywhere between 3-10 years
Variable Annuity
serves as a hedge against inflation, and is variable from the standpoint that the annuitant may receive different rates of return on the funds that are paid into the annuity
Underlying Investment
the payments that the annuitant invests into the variable annuity are invested in the insurer's separate account, not their general account
License Requirements
a variable annuity is considered a security and is regulated by the the SEC in addition to state insurance regulations
Uses of Annuities
principal use is to provide income for retirement; however it can be used for cash accumulation or liquidation of estate
Lump Sum Settlements
annuities may serve as an ideal financial vehicle for someone who comes into a large lump sum of money, such as inheritance, lottery, award of damages from a lawsuit, proceeds from a sale …
Qualified Retirement Plans
annuities are a popular means to provide retirement income, so they are often used to fund this type of plan; meet IRS guidelines to receive favorable tax treatment
Personal Uses of Annuities
commonly used as retirement planning vehicles to assure that income will be provided to the annuitant; provides guaranteed income by liquidation of the principal sum in accordance with its terms and provisions
Individual Retirement Annuities
an annuity may be used to accumulate retirement funds on a tax-deferred basis
Tax-Deferred Growth
values that accumulate within an annuity contract are not subject to current income taxation; value's in excess of the owner's basis are taxable as ordinary income
Retirement Income
deferred annuities are a popular means of income because they can provide income that cannot be outlived
Education Funds
an annuity can provide savings on a tax-deferred basis for the education expenses of the annuitant; accumulates funds for college education
Interest Only Income
a type of fixed annuity that allows the annuitant to receive interest income from the annuity, in much the same manner as with a bank CD; the principal is left intact for future delivery
Exclusion Ratio
used to determine the annuity amount to be excluded from taxes
Cost Basis
the amount of premium contributed on which taxes have already been paid out
Immediate Income Payments
purchased with a single premium; start within one year from the date of purchase
Deferred Income Payment
purchased with either lump sum or period-payments premium; benefits start sometime after one year from the date of purchase
Life Only Settlement Option
insured cannot outlive income; any monies not paid out are retained by company at insured's death; pays highest monthly amount
Refund Life Annuity Settlement Option
guaranteed lifetime income; if annuitant dies, balance is "refunded" to beneficiary; gives beneficiary gives beneficiary payments until purchase amount is paid out
Guaranteed Interest Rate
company must pay this minimum percentage; typically 3%
Current Interest Rate
exceeds guaranteed rate; paid to annuitant when a company's own investment is better than expected to be, "bonus"