IMch18 - CHAPTER 18 Retirement Planning and Annuities...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 18 Retirement Planning and Annuities STRUCTURE OF ANNUITIES ANNUITY CHARACTERISTICS How Are Annuity Premiums Paid? When Do Benefits Begin? How Long Are Benefits Payable? Annuity Certain Straight Life Annuity Joint and Survivor Annuity Period-Certain Guarantees Refund Guarantees Temporary Life Annuity Is the Contract Fixed or Variable? ANNUITY TAXATION Taxation of Annuity Benefits Tax Issues before Benefits Begin KEY TERMS AND CONCEPTS Accumulation units Annual-premium annuity Annuitant Annuity Annuity certain Annuity units Cash refund guarantee Deferred annuity Exclusion ratio Fixed annuity Flexible-premium annuity Immediate annuity Installment refund guarantee Joint and survivor annuity Joint and X percent survivor annuity Market value–adjusted (MVA) annuity Modified guaranteed annuity Single-premium annuity Straight life annuity Survivorship benefit Temporary life annuity Ten-year period-certain life annuity Variable annuity ANSWERS TO QUESTIONS FOR REVIEW AND DISCUSSION 1. An annuity is a contract that provides for the liquidation of a sum of money through a series of payments over a specified period of time. Three situations in which an annuity might represent an appropriate personal risk management tool are: (1) a retiring couple may want to ensure a certain level of income throughout the retirement years, (2) a single parent might die leaving a substantial life insurance settlement to support very young children until they are able to take care of themselves, or (3) a newly widowed individual may need to periodically withdraw an amount of savings to maintain the standard of living previously enjoyed. 2. The three elements that may make up a payment to an annuitant are interest earnings, partial liquidation of principal, and, sometimes, a survivorship benefit. 3. The risk of living beyond one’s financial resources involves the risk that individuals may live to advanced ages and use up their financial assets while the need for them still exists. 4. The survivorship benefit is the portion of an annuity payment that is attributable to the release of funds from the other annuitants who have already died. 5. a. A single-premium annuity is paid for all at once. b. A flexible-premium annuity allows considerable latitude regarding the timing and amount of premiums. 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
c. An annuity certain is payable for a specified period of time, without regard to the life or death of the annuitant. d. A straight life annuity pays benefits only during the life of the annuitant. e. A joint and survivor annuity is an annuity issued on more than one life that pays as long as either annuitant is alive. f. A market value–adjusted annuity is a fixed deferred annuity with an option to provide a higher minimum interest rate guarantee during the first few years after the contract is issued but before benefits begin. g.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/04/2010 for the course FIN 319 taught by Professor Briar during the Spring '10 term at Citadel.

Page1 / 4

IMch18 - CHAPTER 18 Retirement Planning and Annuities...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online