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Retirement Planning

Make understanding annuities easier for clients with this list of basic terms and types

Understanding the different types of annuities and terms associated with them can be confusing. Use this list to help explain the terms and types to your clients.

If your client has never owned an annuity contract and is looking to buy one, you can help to minimize potential confusion by helping them learn the terms that are associated with this product. 

Here is a list of basic terms that annuity buyers should know:

Insurer

The life insurance carrier that issues the contract and collects premium payments, then pays them out to the payee as specified in the contract.

Owner

The investor who purchases the contract and typically pays the premiums into it. (There can be joint owners, and the contract can also be owned by a trust.)

Annuitant

The person whose life expectancy is used to calculate the payout from the contract at annuitization. (There can be joint annuitants.)

Payee

The person who receives the annuity payments at annuitization. (There can be joint payees, and the owner, annuitant and payee are often the same person or persons.)

Accumulation period

The period of time where the annuity is intended to grow. Additional premium payments may be made during this time, depending on the terms (or provisions) of the contract.

Annuity payout period

The period of time where the payee receives a payout from the contract at annuitization.

Annuitization

A one-time, irrevocable event at the end of the accumulation period where the accumulation units are converted into annuity units. This event will permanently convert the annuity contract into a guaranteed stream of income payments that typically cannot be changed.

Straight life payout

A form of annuity payout that ends when the annuitant dies. If the payee has not been paid an amount that equals the original principal that was invested, then the insurance carrier retains the balance. Annuitization is required to receive this kind of payout.

Joint life payout

A payout that is calculated on the life expectancies of a couple. Some payouts end with the death of the first person and others end with the death of the second. Annuitization is required to receive this kind of payout.

Period certain

A payout of at least a certain number of payments that will be made to either the primary or contingent payee. For example, if the payee opts to receive a 20-year period certain payout and then dies ten years later, the contingent payee would receive the remaining ten years of payments. Period certain payouts are often combined with straight or joint life payouts to ensure that at least a certain number of payments will be made.

Systematic withdrawal

A form of payout from the annuity contract where the owner simply receives a set amount each month from the contract. There is no guaranteed lifetime income protection with this option; if the beneficiary exhausts all of the principal and growth from the contract, then payments will stop.

Immediate annuity

This type of annuity is funded with a single lump-sum and begins paying a stream of income immediately.

Deferred annuity

A type of annuity where a period of time elapses between the time it is funded, and the time that it begins to make annuity payments to the payee.

Fixed annuity

A type of deferred annuity that pays a fixed rate of interest. Both the interest and principal are backed by the financial strength of the insurance carrier.

Variable annuity

A type of deferred annuity that invests its purchase payments in a selection of subaccounts that invest in the equity and bond markets. Variable annuities do not offer a guarantee of contract value and are subject to market risk.

Income benefit rider

A rider that can be purchased inside an annuity contract that will guarantee a minimum annual withdrawal amount. Annuitization is not required in order to exercise this benefit.

Death benefit

A benefit included within an annuity that will pay out a specific amount, according to the contract, to the beneficiary upon the death of the annuitant prior to annuitization.

There are several parties involved in an annuity, as well as several payout options that clients will need to understand in order to intelligently shop for one of these vehicles. Use this list to help address basic questions your client may have about annuities. 

Learn more about how to talk to your clients about annuities.

 

Annuities issued by Protective Life Insurance Company (PLICO) Nashville, TN, in all states except New York and in New York by Protective Life & Annuity Insurance Company (PLAIC), Birmingham, AL. Securities offered by Investment Distributors, Inc. (IDI). IDI is the principal underwriter for registered insurance products issued by PLICO and PLAICO, its affiliates.

Product guarantees are backed by the financial strength and claims-paying ability of the issuing company.

Annuities are not a deposit, not insured by any federal government agency, carry no bank or credit union guarantee, are not FDIC/NCUA insured and may lose value.

 

SM.2703520.05.21

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