Chapter 3 Life Insurance Policies “Life Annuities”
Annuities • Life Annuities: pays equal payments to the annuitant as long as he still alive or up to a specific age. • Each annuity payment consists of: principal, interest & survivorship element.
Annuities • Classification of Life Annuities: 5 types: a) Number of Annuitants (lives Covered): 1- A single-life annuity: covers one life. 2- A joint-life annuity: covers 2 lives & end at the death of 1st death( either annuitant). 3- A joint & last survivor annuity:provides payment to 2 annuitants as long as either annuitant is alive & stop if both died.
Annuities b)Method of Premiums Payment: 1) Single premium. 2) Annual premium (2 types: fixed & flexible) but premium payment ends before annuity starts.
Annuities c)Beginning of Benefits: 1)Immediate Annuity:benefits begin in the 1st period at the beginning of each period (due) or at the end of each period (ordinary). 2)Deferred annuity:benefits begin (liquidation period) after more than 1 period (accumulation period) at the beginning (due) or at the end (ordinary).
Annuities d) Disposition of Proceeds (Promises Purchased): 1)Pure Annuity:paid only as long as the annuitant alive or up to a specific age. 2)Guaranteed Annuity: 2/1- Period-Certain Annuities: paid for minimum yrs or until the annuitant dies, which ever occurs last (2nd beneficiary receives payments for the rest of the certain period).
Annuities 2/2-Cash Refund Annuity: if annuitant dies before: annuities received = premiums paid, a 2nd beneficiary receives a lamp sum = premiums paid – annuities received 2/3-Installment Refund Annuity: if annuitant dies before: annuities received = premiums paid, a 2nd beneficiary receives the annuities until: premiums paid = annuities received.
Annuities e) Denomination of Values (How Benefits are Measured): 1-Fixed Currency Annuity:linked to a national or foreign currency. 2-Units Annuity (Variable):benefits linked to an investment fund.
Annuities Types of Annuities Contracts:5 types: 1- Flexible Premium (with minimum) Deferred Annuity. 2- Single Premium Deferred Annuity.
Annuities 3- Single Premium Immediate Annuity: 3/1 - Structured Settlement Annuity (between plaintiff & defendant) to pay for the injured. 3/2-Reverse Annuity Mortgage (between the homeowner & a bank or Insurance Company), insured gets an annuity (or a loan) & insurer get the house when he dies.
Annuities 4- Variable Annuity (like life insurance) depends on investment. 5- Equity Indexed Annuity (tied to an index number).