Annuities and Life Insurance Payout Options

Comprehensive practice flashcards covering types of annuities, payout options, party roles, and various life insurance policy structures including Universal, Variable, and Joint Life.

How does the "fixed-amount installments" option for annuity payments function?

The annuitant selects how much each payment will be, and the insurer determines how long benefits will be paid based on account value and future earnings until funds are exhausted.

What is the primary characteristic of "Annuities Certain"?

They are short-term annuities that limit amounts paid to a certain fixed period or until a certain fixed amount is liquidated, regardless of whether the annuitant is living.

How is the payment amount determined in "Fixed Period" installments?

The annuitant selects the time period, and the insurer determines the payment amount based on account value and future earnings projections.

What is the difference between Single Life and Multiple Life annuities?

Single life annuities cover one life only, while multiple life annuities cover 2 or more lives.

When do payments stop in a "Joint Life" payout arrangement?

Payments continue until the first death among the annuitants, and then they stop.

What does the "Joint and Survivor" arrangement guarantee?

It guarantees an income for two recipients that neither can outlive, often providing reduced payments (such as "joint and $1/2$ survivor") after the first recipient dies.

What is a "Pure Life" annuity, and what is its primary benefit?

Also known as life-only or straight life, it pays as long as the annuitant lives but ceases at death; it provides the highest monthly benefits for an individual annuitant.

How does a "Life with Guaranteed Minimum" (refund life) settlement option work?

If the annuitant dies before the principal is paid out, the remainder is refunded to the beneficiary, guaranteeing the entire principal is paid.

What is the difference between a "Cash refund" and an "Installment refund"?

Cash refund provides a lump-sum of the remaining principal to the beneficiary, while installment refund continues payments until the entire principal is paid out.

What is guaranteed under a "Life with period (term) certain" payout option?

Payments are guaranteed for the lifetime of the annuitant and for a specified period (e.g., 20 years) for the beneficiary if the annuitant dies early.

What are the three main characteristics of Variable Annuities?

1. Underlying Investment is in the insurer's separate account; 2. No guaranteed minimum interest rate; 3. Regulated as a security by the SEC and FINRA.

What determines the credited interest rate in an "Indexed Annuity"?

It is often tied to a familiar index like the Standard and Poor's 500, with a guaranteed minimum interest rate typically of $3\%$ or $4\%$.

What is the difference between an "Immediate Annuity" and a "Deferred Annuity"?

An immediate annuity begins payments within one year of purchase; a deferred annuity begins payments sometime after one year.

Who are the three parties involved in an annuity contract?

The Owner (purchaser), the Annuitant (recipient of payments/natural person), and the Beneficiary (receiver of assets if the annuitant dies).

What is "Adjustable Life" insurance?

A policy where the owner can adjust the premium, the face amount, or the period of protection, and can convert between term and permanent coverage.

What are the two death benefit options in a "Universal Life" policy?

Option A (Level Death Benefit), where the death benefit stays level and the cash value increases, and Option B (Increasing Death Benefit).

What is the "IRS Corridor" in life insurance?

A specified gap maintained between the cash value and the death benefit required for the policy to be defined as life insurance for tax purposes.

How does "Variable Whole Life" differ from traditional whole life?

It has fixed premiums but the cash value is not guaranteed and is held in a separate account, with the policyowner bearing the investment risk.

What is the primary difference between "Joint Life" and "Survivorship Life" insurance?

Joint Life pays the death benefit upon the first death; Survivorship Life (second-to-die) pays upon the last death.

What is the definition of a "Single Premium Whole Life" (SPWL) policy?

A policy designed to provide a level death benefit to age 100 for a one-time, lump-sum payment, generating immediate cash value.