CARD T150
Annuity
An insurance contract that can build funds and provide income now or later.
Immediate Annuity: An annuity with income generally starting within one year of purchase.
Deferred Annuity: An annuity that builds funds for income payments starting later.
Fixed Annuity: An annuity guaranteeing a minimum interest rate during accumulation.
Variable Annuity: An annuity tied to investments; the owner bears investment risk.
Fixed Indexed Annuity: An annuity crediting index-linked interest, subject to limits and guarantees.
How it works
An annuity is a contract with an insurer that can turn a lump sum or a series of payments into future income. Some first hold and grow money; others begin paying income soon after purchase. Lifetime payout options address the risk of living longer than savings last. Describe three features separately: when income begins, how money is paid in, and how the contract earns or determines benefits. Immediate income generally begins within a year; deferred income begins later. Fixed contracts use insurer guarantees, variable contracts use investments that can gain or lose value, and fixed indexed contracts calculate interest using an index formula. Fees, withdrawal limits, and the insurer’s ability to pay still matter. [1] [2]
A single payment can buy a deferred fixed annuity. “Single premium,” “deferred,” and “fixed” describe different features of the same contract.
Immediate versus deferred describes timing; fixed versus variable describes financial mechanics.
CARD T151
Annuitant
The person whose lifespan is used to calculate annuity payments that depend on someone being alive. For example, if payments continue for as long as Lee lives, Lee is the annuitant.
How it works
The annuitant is the life used to calculate benefits tied to survival—called life-contingent benefits. This is separate from the owner, who controls the contract, and the beneficiary, who receives any death or guaranteed remaining payments. One person can be both owner and annuitant, but those roles need not belong to the same person. Naming an annuitant does not by itself transfer ownership. Some contracts restrict changing the annuitant. [1] [2]
Dana owns a contract with payments measured by Lee’s lifetime. Dana is owner; Lee is annuitant.
Identify the measured life separately from who controls the contract.
CARD T152
Accumulation Phase
The period when annuity funds accumulate before the income-payment phase. For example, leaving money in a deferred annuity before starting income payments.
How it works
During accumulation, premiums and credited earnings or investment results determine value, less charges and withdrawals. A deferred annuity may accept one premium or multiple premiums. Variable values can fall; accumulation does not guarantee steady growth. Ordinary nonqualified annuity earnings generally grow tax-deferred while retained in the contract. Access before payout can involve surrender charges and taxes. [1] [2]
An owner funds a deferred annuity for retirement in fifteen years, leaving value to accumulate in the meantime.
Accumulation is a phase, not a guaranteed return or a requirement to make annual deposits.
CARD T153
Annuitization
Converting annuity value into a scheduled stream of payments under a chosen payout option. For example, choosing monthly payments for life instead of keeping the value available for withdrawals.
How it works
Annuitization converts value into scheduled payments under a payout option. Life-only, period-certain, and survivor features change how long payments last and what happens at death. The election is commonly difficult or impossible to reverse. Systematic withdrawals and a guaranteed lifetime withdrawal rider are not automatically annuitization: they can operate while an account remains, under different terms. [1] [2]
An owner exchanges an accumulated value for a contractual monthly lifetime payment instead of continuing ordinary withdrawals.
Regular withdrawals do not necessarily mean the contract has been annuitized.
APPLY THE TERMS
Practice questions
Select an answer, then check it to see why each option is right or wrong.
T150 · Annuity
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T151 · Annuitant
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T152 · Accumulation Phase
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T153 · Annuitization
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Sources & further reading
Original explanations and practice scenarios informed by the following regulatory, legal, and product resources. State examples are not presented as nationwide deadlines or requirements.