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 ID: 164621
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AnnuitiesSlide2
Definitions of Annuities
Fixed
Account credited with
a fixed interest rate
Held in the insurance companies
general accountNeed insurance license to sell
VariableDeposits purchase “shares” called accumulation units (similar to a mutual fund)Assets are held in a separate accountNeed insurance license and security license (Series 6 or 7) to sellUpon 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) ANDSlide3
Funding of Annuities
Immediate
Deferred
YES Lump Sum YES NO Fixed Installments YES NO Periodic Payments (deposits) YES
JAN 15th$100FEB 15th
$100MAR 15th$100
APR 15th
$100
MAY 15th
$100
JUN 15th
$100
JUL 15th
$100
AUG 15th
$100
SEP 15th$100OCT 15th$100NOV 15th$100DEC 15th$100
JAN 15th$50FEB $ 0MAR 30th$100APR $ 0MAY 25th$200JUN $ 0JUL $ 0AUG 15th$100SEP $ 0OCT $ 0NOV 20th$100DEC 30th$200Slide4
Annuity
Accumulation
Fixed
Variable
Cost:
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 feeInterest Rate – Current rate guarantee w/Minimum rate guarantee
May also receive “bonus” rateTwo 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)Slide5
Annuity Distribution
Uncle Sam Insurance Company
Taxes / Penalties
Contract Charges / CDSC’s
Beneficiary is taxed on any gain
as ordinary incomeGain 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 chargeDecreasing 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.