Content blocks render in order below. Each block type keeps the same fixed styling everywhere in the platform — edit the text, the layout stays consistent.
This chapter explained the key concepts behind annuities, from the parties to the contract to the different ways annuities are classified. Let's recap the major points you need to know.
| Topic | Key Points |
|---|---|
| Phases | Accumulation period — payments in, to the insurer. Annuity (annuitization) period — payments out, to the annuitant. |
| Parties | Annuitant — insured; policy issued on the annuitant's life; must be a natural person. Beneficiary — receives any amount contributed (plus gain) if the annuitant dies during accumulation. Owner — holds all rights to the policy (usually the annuitant); can be a corporation or trust. |
| Types of Annuities | Fixed — guaranteed, level payment amount; premiums in the general account. Variable — payment not guaranteed; premiums are in the separate account, invested in stocks and bonds. Indexed — interest rate tied to a market index; earns a higher rate than fixed annuities, but is not as risky as variable annuities or mutual funds. |
| Premium Payments | Single — one lump-sum payment; the principal is created immediately (used for both immediate and deferred annuities). Periodic (level or flexible) — multiple payments; the annuity principal fund is created over time (used for deferred annuities only). |
| Income Payments | Immediate — purchased with a single premium; income payments start within one year of purchase. Deferred — purchased with either a lump sum or periodic payments; benefits start sometime after one year from purchase (often used to accumulate funds for retirement). |
| Settlement Options | Lump-sum — at annuitization, all accumulated interest is taxable; an additional 10% penalty can apply before the annuitant reaches age 59½. Life only — the insured cannot outlive the income; any money not paid out is retained by the company at the insured's death; pays the highest monthly amount. Refund life annuity — guaranteed lifetime income; if the annuitant dies, the balance is refunded (as a lump sum, under the cash-refund option, or in installments, under the installment-refund option). Joint life — 2 or more annuitants receive payments until the first death, then payments cease. Joint and survivor — income for 2 or more that cannot be outlived; often paired with a period certain; when one annuitant dies, the other receives either ½ or ⅔ of the original payment amount. Life with period certain — a specific monthly payment for life, plus a specific period of time; if the annuitant dies before the period ends, the payment goes to a beneficiary. Annuities certain — payments guaranteed for a fixed period or until a certain fixed amount is paid out; there is no life-contingency option. |
| Interest Rate | Guaranteed — the minimum percentage the company must pay (usually 3%). Current — exceeds the guaranteed rate; paid to the annuitant when the company's own investments perform better than expected. |