Annuities Flashcards for Chapter 7 Study

What type of annuity did N purchase?

What type of annuity is best suited for S's situation?

W's acceptable annuity choices EXCEPT

What type of annuity has a cash value that is based upon the performance of its underlying investment funds?

What type of annuity guarantees income for life and also pays remaining payments if the annuitant dies before 20 years?

Which of these is an element of a Single Premium annuity?

The annuity that represents the largest possible monthly payment to an individual annuitant is a(n)

How does an indexed annuity differ from a fixed annuity?

The type of annuity that can be purchased with one monetary deposit is called a(n)

P is a forty-year-old woman and would like to purchase an annuity that will provide a lifetime income stream beginning at age sixty. Which of the following did she NOT buy?

An individual who purchases a Life annuity is given protection against

Which type of contract liquidates an estate through recurrent payments?

P, age 50, purchased an annuity that P will fund with $500/month for 15 years. The annuity will then pay P retirement payments after the 15 years. Which type of annuity did P purchase?

Types of Annuities

Fixed Deferred Annuity: Provides income beginning at a future date; suitable for individuals planning for retirement income later in life.
Single Premium Immediate Annuity: Purchased with a lump-sum payment that begins income payments shortly after purchase, usually within 30 days.
Variable Annuity: Cash value and income are tied to the performance of underlying investment funds, allowing for potential growth alongside risks.
Life Annuity with Period Certain: Guarantees lifetime income and ensures payments are made to a beneficiary if the annuitant dies before the specified period ends.
Straight Life Annuity: Offers the largest possible monthly payment to the annuitant; payments cease upon death.

Annuity Characteristics

Immediate Annuity: Starts paying out income shortly after purchase; appropriate for those needing income right away.
Deferred Annuity: Payments begin at a specified future date; ideal for building long-term savings.
Indexed Annuity: Combines features of fixed and variable annuities, where credited interest is linked to a stock market index.

Payment Structures

Lump-Sum Payment: Single payment made upfront; characteristic of Single Premium annuities.
Flexible Premium Annuity: Allows for multiple premium payments; not suitable for instant income needs.
Retirement Payments: Different types of annuities can initiate retirement payments based on the timing agreed upon at the contract’s inception.

Consumer Considerations

Risk Protection: Life annuities protect against the risk of outliving one's savings, ensuring continuous income.
Estate Liquidation: Annuities can be used to liquidate an estate through regular payments, providing financial security.
Retirement Planning: Individuals can select specific annuity types based on their age, retirement timing, and income needs to optimize long-term financial health.

Examples of Annuity Scenarios

A 50-year-old individual purchasing a deferred annuity for future income.
A 39-year-old woman choosing an acceptable deferred or flexible premium annuity over immediate options.
An annuity that guarantees income for a set period to a beneficiary after the annuitant's death.

Test your knowledge of annuities with these flashcards from Chapter 7. You'll explore different types of annuities and their features, such as fixed and variable payments. Perfect for anyone studying finance or preparing for exams in this topic.