Lecture on Annuities and Insurance Provisions

Study Tips

Consistent Study: Study 20-30 minutes daily is better than cramming for several hours one day.
Rewrite Notes: Rewriting notes helps in retaining information faster and more effectively.
Daily Review: Continual daily review for weeks will ensure success on tests.

Life Insurance: Purpose is to create an estate.
Annuity: Purpose is to liquidate an estate, providing an income stream from a lump sum.

Working Principle:
- Individual gives lump sum to insurance company.
- Insurance company provides a lifetime payout based on life expectancy and interest rates.
Purpose: Protects annuitant from outliving their money.
Two Danger Scenarios: Dying too soon (need life insurance) and running out of money (need annuity).

Accumulation Period: Time when money is being deposited.
Annuity (Annuitization) Period: Time when money is being withdrawn.
Tax Deferral: Growth is tax-deferred but early withdrawals (before 59.5) incur penalties.

Fixed Annuity: Provides a guaranteed interest rate.
Variable Annuity: Returns depend on stock market performance (requires securities license).
Fixed Index Annuity: Combines guaranteed interest rate with index-linked growth.

Straight Life Annuity: Largest monthly check, no beneficiary.
- "Big check, no benny."
Life with Period Certain: Payments for life and guaranteed period to beneficiary.
- E.g., 20-year certain: If annuitant dies in 15th year, beneficiary gets 5 more years.
Life with Refund: Guarantee that remaining principal (minus withdrawals) will be paid out.
- Can be cash refund or installment refund.
Certain Annuities: Payments last only a specified short period, not for life.

Liquidate the Estate: Primary purpose of an annuity.
Periods: Accumulation (tax-deferred) vs. Annuity periods.
Types: Understand the specifics of fixed, variable, and fixed index annuities.
Withdrawal Options: Know straight life, period certain, and refund options.

Definition: Prevents losing cash value in a policy upon cancellation.
Options:
- Cash Surrender: Take the money, policy can't be reinstated.
- Extended Term: Use cash value to buy term insurance for same face amount for a limited period (automatic option if policy lapses).
- Reduced Paid Up: Use cash value to purchase less coverage but permanent policy.

Insurance Dividend: Return of overcharged premium, not profit.
Options:
- Cash: Receive a check.
- Reduction of Premium: Apply dividend to the next year’s premium.
- Accumulate at Interest: Leave dividend with insurer to accumulate interest (interest is taxable).
- Paid Up Addition: Use dividend to add permanent insurance to policy.
- One Year Term: Use dividend to buy term insurance for one year.

Definition: Ways beneficiaries can receive the death benefit.
Options:
- Cash: Lump sum payment.
- Life Income: Converts payout into an annuity (straight life, period certain, refund)
- Interest Only: Receive interest, principal remains intact.
- Fixed Amount: Beneficiary chooses amount; insurer determines period.
- Fixed Period: Beneficiary chooses period; insurer determines amount.

Reading Regulations: Essential for passing insurance tests.
Discipline: Consistent daily study and regulation reading is crucial for success.

Good luck teammates! Remember, 20-30 minutes of daily study is key.