Donna M. Kesot, CPCU CPCU 556 Annuities April 10, 2012
The parties to an annuity? •Insurer •Contract Owner: the party who purchases the annuity from the insurer and who makes premium payments. May be the annuitant. •Annuitant: the person insured under the annuity
Tax efficient retirement savings. Annuities can be distributive oraccumulative. Income earned is not taxable until distribution.Income that cannot be outlived: based on expected lifespan ofannuitantGuaranteed death benefit: Amount stated in the annuity contract
Contract = A promise to leave an inheritance to aspecific individual TRUE or FALSE?Real Answer:Contract = A legally enforceable agreement between two ormore parties in which each party makes some promise tothe other. The false definition above would be a truedefinition for promissory estopple.
Match the concept Annuitization Period Regulated by SECAccumulation Period Tax Deferred Qualified Annuity Distribution period Fixed Annuity Cash build up Variable Annuity Insurer Guarantees
An annuity contractBought with a single paymentWith a specified payment planThat starts right away
• The date in a deferred annuity contract when periodic payments, based on the annuity’s cash value, are scheduled to begin
Immediate or deferredSingle or installment premiumFixed or variableQualified or nonqualifiedTemporary or life
An annuity is a type of life insurance policy orcontract that makes periodic payments to therecipient for a fixed period or for life inexchange for a specified premium.
• An annuity that is used as a funding vehicle in a qualified plan, such as an individual retirement account, a tax-sheltered annuity, or a 401(k) plan.• 10% tax penalty for early withdrawal (age 70.5)
In contracts arranged by agents, both theprincipal and agent may have right of recoveryagainst 3rd parties.
A variable annuity has certain unique characteristics, like: Mortality and expense charges, and death benefits Fund expense charges, accumulation and annuity units, and surrender value Mortality and expense charges, accumulation and annuity units, and death benefits A & B onlyRight Answer: Mortality and expense charges, death benefits, fund expense charges, accumulation andannuity units,A, B surrender value and & CAccumulation unit = Share in a variable subaccount’s investment portfolio purchased by allocatingvariable annuity premiums and/or cash value to the variable subaccount.Annuity Units = the current value of the retirement variable annuity investment fund, converted into unitsof retirement income; the annuitant receives an income of a certain number of calculated “annuity units”per month.
Charges and expenses imposed by the insurer on the variablesubaccounts to which a contract owner has allocated funds designedto compensate the insurer for the risk that the death benefit payablewill be greater than the cash value on the date of death. M&E charges: 1. Stated as a percentage of variable subaccount assets 2. Typically ~1.25%
The courts—in cases involving minors or others whocannot manage their own affairsThe injured party—receives the security of a regular stream ofnontaxable income or benefits, also may offer death benefitSociety—If an injured party is guaranteed an income forperiod, that party is less likely to become a ward of the stateAttorneys—Attys who failed to recommend a structured settlementhave been sued when their clients squandered their lump-sumsettlementsMedicare/Medicaid—when the settlement includes a significantmedical component like workers comp.