Lesson 7 Review
A life insurance policy is based on creating an estate, whereas an annuity is based on liquidating an estate.
Before the payout period begins, the annuity is in the accumulation phase. Once the accumulation period ends, the payout period begins through a quarterly, semi-annual or annual payment schedule.
Depending upon the contract, annuity payments can begin immediately (immediate annuities), or they can be deferred to a future date (deferred annuities). The investment configuration can be a fixed (guaranteed) rate of return or a variable (not guaranteed) rate of return.
The Straight Life Income annuity option guarantees income for the annuitant's lifetime.
The Cash Refund option provides guaranteed income for the annuitant's lifetime; or if the annuitant dies before funds are depleted, the policy beneficiary receives a lump sum cash payment.
The Installment Refund option provides guaranteed income for the annuitant's lifetime; or if the annuitant dies before funds are depleted, the policy pays the beneficiary in periodic installments.
The Life with Period Certain option provides guaranteed income for the annuitant's lifetime; and if the annuitant dies before the period certain has expired, the policy pays the beneficiary in periodic installments until the end of the designated period.
The Period Certain option guarantees payments for a certain period of time. If the annuitant dies before the period has expired, the policy pays the beneficiary through the remainder of the period.
The Joint and Full Survivor option provides for payments to be split among two annuitants. If one dies, the survivor receives the rest of the principal. However, when the survivor dies, no further payments are made to anyone.
- The Joint and Two-Thirds Survivor option allows for the survivor's income to be reduced to two-thirds of the original joint income.
- The Joint and One-Half Survivorship option allows for the survivor's income to be reduced to one-half of the original joint income.
Fixed annuities provide a guaranteed rate of return - Variable annuities, on the other hand, provide conservative to aggressive investments whose rates of return are NOT guaranteed.
Equity indexed annuities are a form of fixed rate annuity. An equity indexed annuity is different from other fixed annuities because of the way it credits interest to the annuity's value. Most fixed annuities credit interest calculated at a rate set in the contract. Equity indexed annuities credit interest using a formula based on changes in the index to which the annuity is linked. The formula decides how the additional interest, if any, is calculated and credited. Two features that have the greatest effect on the amount of additional interest that may be credited to an equity indexed annuity are:
-
The Indexing Method - The approach used to measure the amount of change, if any, in the index. - The Participation Rate - Decides how much of the increase in the index will be used to calculate index-linked interest.
The information contained in Unit 11 of the Florida study manual has been presented in Lesson 7 of the online course. Please read Unit 28,
