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Questions and Answers
What term describes the amount based on principal, interest, and the contract's surrender charge?
What term describes the amount based on principal, interest, and the contract's surrender charge?
income period
How do interest earnings accumulate in a deferred annuity?
How do interest earnings accumulate in a deferred annuity?
Under a non-qualified annuity, when is interest taxed?
Under a non-qualified annuity, when is interest taxed?
exclusion ratio has been calculated
Who assumes the investment risk with a fixed annuity contract?
Who assumes the investment risk with a fixed annuity contract?
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Which settlement option pays a stated amount to an annuitant, but no residual value to a beneficiary?
Which settlement option pays a stated amount to an annuitant, but no residual value to a beneficiary?
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Which type of annuity stops all payments upon the death of the annuitant?
Which type of annuity stops all payments upon the death of the annuitant?
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What determines the annuity payments for the annuitant?
What determines the annuity payments for the annuitant?
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Fixed period settlement options are considered to be a form of what?
Fixed period settlement options are considered to be a form of what?
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What kind of annuity will return to a beneficiary the difference between the annuity value and the income payments already made?
What kind of annuity will return to a beneficiary the difference between the annuity value and the income payments already made?
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Which of these is NOT a purpose of an annuity?
Which of these is NOT a purpose of an annuity?
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What is considered a disadvantage of owning a fixed annuity?
What is considered a disadvantage of owning a fixed annuity?
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An annuity is primarily used to provide what?
An annuity is primarily used to provide what?
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If the annuitant dies before the annuity start date, what will be given to the beneficiary?
If the annuitant dies before the annuity start date, what will be given to the beneficiary?
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What happens to interest earned if the annuitant dies before the payout start date?
What happens to interest earned if the annuitant dies before the payout start date?
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Kathy's annuity is currently experiencing tax-deferred growth. What phase is this annuity in?
Kathy's annuity is currently experiencing tax-deferred growth. What phase is this annuity in?
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Which market index is normally associated with an indexed annuity's rate of return?
Which market index is normally associated with an indexed annuity's rate of return?
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When does the annuitant typically begin receiving benefit payments if the annuity was purchased with a single premium?
When does the annuitant typically begin receiving benefit payments if the annuity was purchased with a single premium?
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Study Notes
Annuities Overview
- Annuities are financial products primarily used to provide retirement income.
- They can be classified into fixed immediate and deferred annuities, with differing payment structures and tax implications.
Fixed Immediate Annuity
- Payments depend on principal, interest, and the contract's surrender charge.
- Income period is defined by the duration over which payments are made.
Deferred Annuity
- Interest earnings accumulate on a tax-deferred basis until distributions are taken.
- Taxes are assessed upon distribution rather than at the time of contribution.
Non-Qualified Annuities
- Interest is taxed after the exclusion ratio is calculated, which determines taxable and non-taxable portions of payments.
Investment Risk in Fixed Annuities
- The insurer assumes all investment risk, guaranteeing the annuitant a minimum return regardless of underlying asset performance.
Settlement Options
- Life Income: Pays a stated amount to the annuitant without residual value for beneficiaries.
- Life Annuity: Stops all payments upon the death of the annuitant.
- Refund annuities return the difference between total payments made and the amount invested after the annuitant's death.
Annuity Characteristics
- Annuity payments are based on the annuitant's life expectancy.
- Fixed period settlement options are classified as an annuity.
Estate Considerations
- Annuities are primarily intended for liquidation of an estate rather than creation.
Disadvantages of Fixed Annuities
- During inflation, purchasing power of fixed payments declines due to unchanged payment amounts.
Beneficiary Provisions
- If the annuitant dies before the start date, beneficiaries receive premiums paid plus interest earned, ensuring a financial benefit.
Tax Implications
- Interest earned prior to the payout start date is taxable, regardless of beneficiary designation.
Phases of Annuity
- In the accumulation period, annuities grow tax-deferred until the annuitant retires.
Indexed Annuities
- Rate of return is typically linked to market indices such as the S & P 500.
Immediate Annuity Payments
- Benefit payments from an immediate annuity purchased with a single premium typically begin within one month.
Additional Notes
- It's crucial for annuitants to understand payment structures, tax implications, and risks associated with different types of annuities to make informed decisions.
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Description
This quiz focuses on key concepts related to annuities, including fixed immediate annuities and interest accumulation in deferred annuities. It serves as a valuable resource for those studying financial products and their characteristics. Challenge your understanding and retention of annuity terms and definitions.
