Chapter 3 Life Insurance Policies Life Annuities Annuities

Chapter 3 Life Insurance Policies “Life Annuities”

Annuities ØLife 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 ØClassification 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 1 st 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 1 st 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 (2 nd 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 2 nd beneficiary receives a lamp sum = premiums paid – annuities received 2/3 -Installment Refund Annuity: if annuitant dies before: annuities received = premiums paid, a 2 nd 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).