Florida 2-15 Overview/ Study Guide (Fool Proof Guide): Annuities Rated A

Florida 2-15 Overview/ Study Guide (Fool Proof Guide): Annuities Rated A Annuity A savings plan within an insurance company instead of a bank. - An annuity is not considered insurance, but the life insurance industry handles them Fixed Annuity A savings plan with an insurance company with a minimum guaranteed interest rate Accumulation Period The period in an annuity where the savings is building Annuity Period The payout period of an annuity What is the purpose of an annuity? To provide income for life. The concept of an annuity is to save during the annuitants working years and payout over the annuitants retirement years. Once an annuity is annualized it pays out as long as the annuitant lives. Annuitization Point The point the annuity pays out to the annuitant. -Usually at age 65 Deferred Annuity Save for the future early and pay out at a future date. Usually at age 65 Single Premium (Annuity) You pay one time payment for the annuity What are some key features to remember about annuities? 1. Tax Deferred 2. They are protected from suit 3. They tend to earn a greater return than a savings account of a CD at a bank. What are two ways an annuity is paid out? Immediate and Deferred When does an immediate annuity payout? One payment interval from the date of purchase. Meaning if you buy an annuity today you will have to wait 30 days (one month) to receive the first monthly payment What are six different annuity payout options? 1. Straight Life Income 2. Cash Refund 3. Installment Refund 4. Life with period certain 5. Joint and full survivor 6. Period Certain Straight Life Income This option payout the established amount for the lifetime of the annuitant. -It is guaranteed for the annuitants life Cash Refund This option states that if the annuitant dies sooner than calculated, the beneficiary will receive a lump sum cash refund -Guarantees that the money paid out will be at least as much as the payout started with before the annuitant died Installment Refund This option states that if the annuitant dies sooner than calculated, the beneficiary will receive installment payments-Guarantees that the money paid out will be at least as much as the payout started with before the annuitant died -Guarantees that the money paid out will be at least as much as the payout started with before the annuitant died Life with period certain This option again pays for the whole life of the annuitant, plus guarantees that is will pay no less than the specified time. -Example: Life with period certain 10 years will payout for the lifetime of the annuitant but if the annuitant dies before the 10 year point, the annuity will continue to payout till the end of the 10year window. Joint and Full Survivor Designed for two people to receive payout. Ex: if George and Martha are receiving annuities and george dies, martha will still receive the same monthly payout Period Certain This option states that the insurance company will pay out no more or less than what was agreed. - Has nothing to do with lifetime payments This type of annuity may be used to payout a 401(k) for a certain length of time to avoid being in a certain tax bracket. Variable Products (Annuity) The cash value of this annuity is invested in mutual funds -There is no guarantee of cash value at any point during the accumulation period or the annuity period because the funds are invested in the market. - Agent is required to have a series 6 securities license to sell them Accumulation Units purchased by premiums paid into a variable annuity during the annuitant's working years Annuity Units the calculated value of the payout portion of the contract in a variable annuity What is the tax treatment on annuities? Annuities are tax-deferred until payout time Exclusion Ratio a method of determining the nontaxable amount when comparing principal to total value Dollars in divided by dollars out What is the penalty if you withdraw money out too soon from an annuity? 10% Penalty. You can't with draw money out before 59 1/2 Suitability of Annuity sales to senior customers. The agent selling annuities to seniors are required to make recommendations that are reasonable and within standard guide lines, so that the senior will not find themselves in a less desirable financial position. If an annuity is replaced or exchanged for a senior client, it may be necessary for the agent to supply a comparison of the benefits of the annuities, a comparison of the fees, charges and any other differences Equity Indexed Annuity This type of annuity hedges against inflation. The investment is connected to the standard & Poord 500 industrial average Who regulates variable annuities? SEC and the state