What Happens to the Money when an Annuitant Dies?

What Happens to the Money when an Annuitant Dies?

A pure life annuity is one in which the continuation of payments by the insurer is contingent upon the continuing survival of one or more lives. The remaining consideration (premium) paid for the annuity that has not been distributed (including accrued interest) is fully earned by the insurer immediately upon the death of the annuitant. This is why annuities payable for the life or lives of one or more annuitants frequently include a minimum payment…

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Comparing Annuities to Mutual Funds

Comparing Annuities to Mutual Funds

Conceptually, variable annuities are simply mutual funds wrapped in an instrument that permits tax on all income, whether ordinary or capital gain, to be deferred until monies are distributed. If annuitized, distributions are taxed under the rules of Code Section 72, which essentially prorates the recovery of basis over the distribution period. In addition, and more importantly, the investor may enjoy any number of a myriad of contractual guarantees in a variable annuity contract (although…

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What Makes the Single-Premium Deferred Annuity (SPDA) so Popular?

What Makes the Single-Premium Deferred Annuity (SPDA) so Popular?

An SPDA is a Single-Premium Deferred Annuity. It provides, as its name implies, a promise that an annuity will begin at some time in the future in return for a single premium. For fixed annuities (variable annuities are rarely single premium contracts), a minimum stated rate of interest is guaranteed but most insurers pay competitive market rates. The actual rate paid is a function of: (1) the current investment earnings of the insurer; and (2)…

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The Flexible-Premium Deferred Annuity (FPDA) Explained

The Flexible-Premium Deferred Annuity (FPDA) Explained

An FPDA is a Flexible-Premium Deferred Annuity. As the last two words indicate, the contract provides for the accumulation of funds to be applied at some future time designated by the contract owner to provide an income based upon the life of the annuitant(s) (or for a certain term). Premium payments are flexible—they can be paid as frequently or infrequently as the owner desires. They can be paid monthly, annually, or one or more years…

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What You Should Know About the Assumed Investment Rate (AIR) of Variable Annuities

What You Should Know About the Assumed Investment Rate (AIR) of Variable Annuities

Under most variable annuity contracts there is an assumed investment rate (AIR) that the investment portfolio must earn in order for benefit payments to remain level. If the investment performance exceeds the AIR, the level of benefit payments will increase. On the other hand, if the selected investments underperform the AIR, the level of benefit payments will decrease. Example. Assume a variable annuity contract is issued with a 6 percent AIR and a beginning unit…

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Variable Annuities Explained

Variable Annuities Explained

The variable annuity was the product of a search for a tool that would provide a guaranteed lifetime income that could never be outlived and also provide a relatively stable purchasing power in times of inflation by allowing for returns that may keep pace with (or even exceed) inflation. This can be contrasted with the level payments generally payable from fixed annuities, whose purchasing power will be eroded over time by inflation. The variable annuity…

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How to Select the Right Annuity:  Our Experts Weigh In

How to Select the Right Annuity:  Our Experts Weigh In

Compare on a spreadsheet the costs and features of selected annuities. Consider all of the costs as well as how much money owners can withdraw from the contract each year without a fee. Be certain to completely read through the full details of costs/charges, guarantees, riders, and special features in the prospectus of a variable annuity. Compare the total outlay with the total annual annuity payment in the case of fixed annuities. Be certain to…

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