Types of annuities
A mind map about types of annuities.
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Types of annuities
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 guaranteed rate
The current rate
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.
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.