FIXED IMMEDIATE ANNUITY : -pays periodic income payments that are guaranteed and fixed in amount; the first payment is due one payment interval from the date of purchase. -Immediate annuities are typically purchased in a lump sum by people nearing retirement.
Single premium immediate annuity : important example of an immediate
annuity. The annuity is purchased with a lump
sum, and the first payment starts one payment interval
from the date of purchase.
The accumulation period:to retirement,
premiums are credited with interest. There are typically two interest rates:
The liquidation period: (also called the payout period or annuitization period) follows the accumulation period and refers to the period in which the funds are being paid to the annuitant.
FIXED DEFERRED ANNUITY : - Provides periodic income payments at some future date. - If the annuitant dies during the accumulation period prior to retirement, a death benefit is typically paid equal to the sum of the gross premiums paid or the cash value if higher. -The annuitant can receive the funds in a lump sum or have them paid out under one of the payout options. - Can be purchased with a lump sum,or the contract may permit flexible premium payments.
Single-premium deferred annuity.
Flexible-premium annuity.
Longevity annuity (longevity insurance).
JOINT LIFE ANNUITY : -Is an annuity written on the lives of
two or more people, such as husband and wife, or
brother and sister. Under a joint life annuity, the
income payments terminate when the death of the
first covered person dies. -The annuity payments continue until the last annuitant dies. -Some contracts pay the full amount of the original income payments until the last survivor dies. Other plans pay a reduced amount.
L0NGEVITY ANNUITY : - is a single-premium deferred annuity that begins paying benefits only at an advanced age. -The longevity annuities are lowcost annuities because there are no cash values or death benefits in the policy.
EQUITY-INDEXED ANNUITY: is a fixed deferred annuity that allows the annuity owner toparticipate in the growth of the stock market and
also provides downside protection against the loss
of principal and prior interest earnings if the annuity is held to term.
The key elements for evaluating an equity-indexed annuity are : 1-the participation rate 2- the maximumcap rate 3- the indexing method used 4- the guaranteed minimum value
VARIABLE ANNUITY : pays a lifetime income, but the income payments vary depending on the investment experience
The fundamental purpose :
of a variable annuity is to provide an inflation
hedge by maintaining the real purchasing power of
the periodic payments during retirement. It is based
on the assumption of a positive correlation between
the cost of living and common stock prices
Characteristics: 1-Premiumsare invested in a portfolio of common stocks or other
investments that presumably will increase in value
during a period of inflation. The premiums are used
to purchase accumulation units during the period
prior to retirement, and the value of each accumulation
unit varies depending on common stock prices. 2- At retirement, the accumulation units are converted
into annuity units. The number of annuity
units remains constant during the liquidation period,
but the value of each unit will change each month or
year depending on the level of common stock prices.
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