Annuities. Definitions of Annuities Fixed Account credited with a fixed interest rate Held in the...
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![Page 1: Annuities. Definitions of Annuities Fixed Account credited with a fixed interest rate Held in the insurance companies general account Need insurance license.](https://reader036.fdocuments.us/reader036/viewer/2022062314/56649dab5503460f94a9a823/html5/thumbnails/1.jpg)
Annuities
![Page 2: Annuities. Definitions of Annuities Fixed Account credited with a fixed interest rate Held in the insurance companies general account Need insurance license.](https://reader036.fdocuments.us/reader036/viewer/2022062314/56649dab5503460f94a9a823/html5/thumbnails/2.jpg)
Definitions of Annuities
Fixed • Account credited with a fixed interest rate• Held in the insurance companies
general account• Need insurance license to sell
Variable• Deposits purchase “shares” called
accumulation units (similar to a mutual fund)
• Assets are held in a separate account
• Need insurance license and security license (Series 6 or 7) to sell
• Upon annuitization, the annuitant receives a fixed amount of annuity units
AnnuityA contract with an insurance company to accumulate money on a tax deferred basis
(No tax while in the annuity)
AnnuitizeGive up access to your accumulated dollars in exchange for a stream of payments.
Categories of Annuities
Immediate OR Deferred Annuitize now Do not annuitize now (maybe later) AND
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Funding of Annuities
Immediate Deferred
YES Lump Sum YES
NO Fixed Installments YES
NO Periodic Payments (deposits) YES
JAN 15th$100
FEB 15th$100
MAR 15th$100
APR 15th$100
MAY 15th$100
JUN 15th$100
JUL 15th$100
AUG 15th$100
SEP 15th$100
OCT 15th$100
NOV 15th$100
DEC 15th$100
JAN 15th$50
FEB $ 0
MAR 30th$100
APR $ 0
MAY 25th$200
JUN $ 0
JUL $ 0
AUG 15th$100
SEP $ 0
OCT $ 0
NOV 20th$100
DEC 30th$200
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Annuity Accumulation
Fixed VariableCost: Investment charges & mortality charges • Many different accounts
to choose from for specific allocations
• Accumulation Units “shares” can change daily
(like a mutual fund)
Cost: Usually no annual fee
• Interest Rate – • Current rate guarantee w/• Minimum rate guarantee• May also receive “bonus” rate
• Two Tiered Fixed Interest with a “mirror” Account (bigger interest rate) with a designated time frame (7-10 years) If annuitized, annuitant can use the bigger account to draw payments.• Equity Indexed Assigned a “Cap” Rate (ex: 7%) (Upside potential with no risk of losing principal)
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Annuity DistributionUncle Sam Insurance Company
Taxes / Penalties Contract Charges / CDSC’s
• Beneficiary is taxed on any gain as ordinary income
• Gain comes first LIFO (Last In First Out)
• 10% - Penalty – If prior to age 59 ½ • Loans not recognized by IRS
• No 10% penalty if you annuitize over annuitants lifetime.
• Exclusion Ratio = Investment in contract Expected Return* *Expected Return = Annual Amount received x Life Expectancy
(IRS table 590)
• Generally no surrender charge
• Decreasing surrender charge or• Market Value surrender charge
– higher surrender charge if interest rates have increased -lower surrender charges if interest rate have decreased
• None
Death
Partial Withdraw
Annuitize
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Annuitizing Options Life Payout Temporary Payout
Guaranteed payments for life of the Not based on annuitants life - but on either:annuitant – they cannot out live payments • If joint annuity – payments stop at • Specific Time (ex: 5,10,15,20 years, etc.) first death. or• If joint and survivor annuity - • Specific Amounts (ex: $X,XXX per: mo, yr, etc.) payments stop at last death. (for however long it takes for balance to be paid)
Options: A) Minimum TIME guarantees (Period Certain) can be added at a cost (causing lower payments) (the longer the minimum time guarantee - the lower the payment.) B) Minimum AMOUNT guarantees (Refund Annuity) Can be added at a cost (lower payment) - balance of initial premium amount is paid to beneficiaries (either in installments or lump sum) if annuitant dies before initial premium amount is paid out.