query: What is an annuity?

title: Annuity (European)

text: Annuity (European) Under European Union law, an annuity is a financial contract which provides an income stream in return for an initial payment with specific parameters. It is the opposite of a settlement funding. A Swiss annuity is not considered a European annuity for tax reasons. An immediate annuity is an annuity for which the time between the contract date and the date of the first payment is not longer than the time interval between payments. A common use for an immediate annuity is to provide a pension to a retired person or persons. It is a financial contract which

title: Annuity (European)

text: it, each commencing where the previous one had left off. Annuity (European) Under European Union law, an annuity is a financial contract which provides an income stream in return for an initial payment with specific parameters. It is the opposite of a settlement funding. A Swiss annuity is not considered a European annuity for tax reasons. An immediate annuity is an annuity for which the time between the contract date and the date of the first payment is not longer than the time interval between payments. A common use for an immediate annuity is to provide a pension to a

title: Annuity

text: Annuity An annuity is a series of payments made at equal intervals. Examples of annuities are regular deposits to a savings account, monthly home mortgage payments, monthly insurance payments and pension payments. Annuities can be classified by the frequency of payment dates. The payments (deposits) may be made weekly, monthly, quarterly, yearly, or at any other regular interval of time. An annuity which provides for payments for the remainder of a person's lifetime is a life annuity. Annuities may be classified in several ways. Payments of an "annuity-immediate" are made at the end of payment periods, so that interest accrues

title: Enhanced annuity

text: Enhanced annuity There are many different types of annuity that one may purchase on approaching retirement. Many such annuities can be purchased on enhanced terms: an enhanced or impaired annuity is an annuity that provides a higher than normal level of income to the purchaser. To qualify for such an annuity, the purchaser's state of health or medical history must be such that their life expectancy is lower than that of other annuity purchasers. There are many conditions that might allow one to benefit from a higher annuity rate. These include diabetes, cancer and high blood pressure. Even lifestyle choices

title: Annuity (European)

text: makes a series of payments with certain characteristics: An annuity certain pays the annuitant for a number of years designated. This option is not suitable for retirement income, as the person may outlive the number of years the annuity will pay. A life annuity or lifetime immediate annuity is most often used to provide an income in old age (i.e., a pension). This type of annuity may be purchased from an insurance (Ireland and the UK, Life Assurance) company. This annuity can be compared to a loan which is made by the purchaser to the issuing company, who then pay

title: Enhanced annuity

text: such as being a regular smoker might qualify the purchaser for a better rate. Other qualifying conditions might include: obesity, liver conditions, history of heart attacks, high cholesterol levels and Parkinson's disease. Enhanced annuity There are many different types of annuity that one may purchase on approaching retirement. Many such annuities can be purchased on enhanced terms: an enhanced or impaired annuity is an annuity that provides a higher than normal level of income to the purchaser. To qualify for such an annuity, the purchaser's state of health or medical history must be such that their life expectancy is lower

title: Life annuity

text: all of the money to buy an annuity whose payments will replace the retiree's wage payments for the rest of his/her life. The advantage of such an annuity is that the annuitant has a guaranteed income for life, whereas if the retiree were instead to withdraw money regularly from the retirement account (income drawdown), he/she might run out of money before death, or alternatively not have as much to spend while alive as could have been possible with an annuity purchase. Another common use for an income annuity is to pay recurring expenses, such as assisted living expenses, mortgage or

title: Annuity (American)

text: See also life annuity, below. The overarching characteristic of the immediate annuity is that it is a vehicle for distributing savings with a tax-deferred growth factor. A common use for an immediate annuity might be to provide a pension income. In the U.S., the tax treatment of a non-qualified immediate annuity is that every payment is a combination of a return of principal (which part is not taxed) and income (which is taxed at ordinary income rates, not capital gain rates). Immediate annuities funded as an IRA do not have any tax advantages, but typically the distribution satisfies the IRS

title: Annuity (American)

text: annuity contracts are bought primarily for the tax benefits rather than to receive a fixed stream of income. If an annuity is used in a qualified pension plan or an IRA funding vehicle, then 100% of the annuity payment is taxable as current income upon distribution (because the taxpayer has no tax basis in any of the money in the annuity). It should be noted this is the same tax treatment of direct participation in a qualified pension plan (such as a 401K), again, due to the fact the taxpayer has no tax basis in any of the money in

title: Life annuity

text: distribution phase. A "single premium deferred annuity" (SPDA) allows a single deposit or premium at the issue of the annuity with only investment growth during the accumulation phase. A "flexible premium deferred annuity" (FPDA) allows additional payments or premiums following the initial premium during the accumulation phase. The phases of an annuity can be combined in the fusion of a retirement savings and retirement payment plan: the annuitant makes regular contributions to the annuity until a certain date and then receives regular payments from it until death. Sometimes there is a life insurance component added so that if the annuitant

title: Annuity (American)

text: person may outlive the number of years the annuity will pay. A life or lifetime immediate annuity is used to provide an income for the life of the annuitant similar to a defined benefit or pension plan. A life annuity works somewhat like a loan that is made by the purchaser (contract owner) to the issuing (insurance) company, which pays back the original capital or principal (which isn't taxed) with interest and/or gains (which is taxed as ordinary income) to the "annuitant" on whose life the annuity is based. The assumed period of the loan is based on the life

title: Life annuity

text: were the first company to do this in 2007. In Canada the most common type of annuity is the life annuity, which is normally purchased by persons at their retirement age with tax-sheltered funds or with savings funds. The monthly payments from annuities with tax-sheltered funds are fully taxable when withdrawn as neither the capital or return thereon has been taxed in any way. Conversely income from annuities purchased with savings funds is divided between the return of capital and interest earned, with only the latter being taxable. An annuity can be a single life annuity or a joint life

title: Life annuity

text: insurance premiums. The disadvantage of such an annuity is that the election is irrevocable and, because of inflation, a guaranteed income for life is not the same thing as guaranteeing a comfortable income for life. In the United Kingdom conversion of pension income into an annuity was compulsory by the age of 75 until new legislation was introduced by the coalition government in April 2011. The new rules allow individuals to delay the decision to purchase an annuity indefinitely. In the UK there are a large market of annuities of different types. The most common are those where the source

title: Life annuity

text: of the funds required to buy the annuity is from a pension scheme. Examples of these types of annuity, often referred to as a Compulsory Purchase Annuity, are conventional annuities, with profit annuities and unit linked, or "third way" annuities. Annuities purchased from savings (i.e. not from a pension scheme) are referred to as Purchase Life Annuities and Immediate Vesting Annuities. In October 2009, the International Longevity Centre-UK published a report on Purchased Life Annuities (Time to Annuitise). In the UK it has become common for life companies to base their annuity rates on an individual's location. Legal & General

title: Life annuity

text: period, as well as the interest rate and timing of future payments. Life tables provide the probabilities of survival necessary for such calculations. With a "single premium" or "immediate" annuity, the "annuitant" pays for the annuity with a single lump sum. The annuity starts making regular payments to the annuitant within a year. A common use of a single premium annuity is as a destination for roll-over retirement savings upon retirement. In such a case, a retiree withdraws all of the money he/she has saved during working life in, for example, an Individual Retirement Account (IRA), and uses some or

title: Annuity (American)

text: Annuity (American) In the United States, an annuity is a contractually executed, relatively low-risk investment fund, where the insured (usually, an individual) pays a life insurance company a lump-sum premium at the start of the contract. That money is to be paid back to the insured in fixed, incremental amounts, over some future period (predetermined by the insured). The insurer invests the premium; the resulting profit/return on investment funds the payments received by the insured and compensates the insurer. Conventional annuity contracts provide a predictable, guaranteed stream of future income (e.g., for retirement) until the death(s) of the beneficiaries(s) named

title: Fixed annuity

text: are generated from a portfolio of US treasuries or other low risk, fixed income instruments. Indexed annuities are a type of fixed annuity which are regulated and distributed in the same manner as fixed annuities (through licensed insurance agents). Indexed annuities are a conservative safe money place for retirement dollars. Indexed annuities usually provide a purchaser with various options for interest crediting. A buyer does have an option to elect a declared interest rate, which generally allows an allocation of anywhere from 0-100% of the account value, and functions the same as a traditional fixed annuity. However, the annuity is

title: Annuity (European)

text: pension fund by using "pension income withdrawal" commonly known as "income drawdown". This is an unsecured pension as opposed to an annuity which is a secured backed pension. Unsecured pensions operate under age-related income limits calculated by the Government Actuarial Department to prevent the fund being eroded too fast. Before A-day, individuals could vary withdrawals between 35% and 100% of a maximum limit, recalculated every three years at what was known as the "triennial review". Following changes introduced by HMRC as part of the A-day legislation, individuals can now draw an income between zero and 120% of the "GAD rate".

title: Life annuity

text: terminate and the remainder of the fund accumulated is forfeited unless there are other annuitants or beneficiaries in the contract. Thus a life annuity is a form of longevity insurance, where the uncertainty of an individual's lifespan is transferred from the individual to the insurer, which reduces its own uncertainty by pooling many clients. Annuities can be purchased to provide an income during retirement, or originate from a "structured settlement" of a personal injury lawsuit. The instrument's evolution has been long and continues as part of actuarial science. Ulpian is credited with generating an actuarial life annuity table between AD

title: Annuity (European)

text: used to until A day. From 2003 the tax deduction in the Netherlands is only allowed if, without additional savings, the old age income would be less than 70% of the current income. The French government currently honors a very unusual debt contract: an annuity that was issued in 1738 and currently yields €1.20 per year. In the United Kingdom contributions into pension savings are generally net of income tax (i.e. tax relief is available), up to certain limits. On retirement if an annuity is not purchased, retirement income up until the age of 75 can be drawn from the

title: Annuity (European)

text: of the proceeds must by law be applied to purchase a pension.) Actuarial formulae are used to model annuities and determine their price. In technical language an annuity is said to be payable for an assigned "status", this being a general word chosen in preference to such words as "time", "term" or "period", because it may include more readily either a term of years certain, or a life or combination of lives. The "magnitude" of the annuity is the sum to be paid (and received) in the course of each year. Thus, if £100 is to be received each year

title: Retirement annuity plan

text: Retirement annuity plan A retirement annuity plan (RAP) is a UK pension plan designed to build a lump sum for retirement. Part of the lump sum must be used to buy an annuity and part can be taken a tax free lump sum. The plans were introduced under "section 226" of the "Income and Corporation Taxes Act 1970" and are often referred to as "section 226" contracts. However they are currently legislated under "section 620" of the "Income and Corporation Taxes Act 1988" and are therefore also known as "section 620" contracts. Contributions receive basic tax relief claimed at source

title: Annuity (European)

text: are also available from some insurance companies. Since the life expectancy is reduced, the annuity rate is better (i.e. a higher annuity for the same initial payment). This can have the unfortunate appearance of one "betting against" the nominee. Life annuities are priced based on the probability of the nominee surviving to receive the payments. Longevity insurance is a form of annuity that defers commencement of the payments until very late in life. A common longevity contract would be purchased at or before retirement but would not commence payments until 20 years after retirement. If the nominee dies before payments

title: Annuity (European)

text: Therefore, Demoivre's law is devoid of practical utility. No simple formula has sufficient accuracy. The rate of mortality at each age is, therefore, in practice usually determined by a series of figures deduced from observation; and the value of an annuity at any age is found from these numbers by means of a series of arithmetical calculations. The first writer who is known to have attempted to obtain, on correct mathematical principles, the value of a life annuity, was Jan De Witt, grand pensionary of Holland and West Friesland. Our knowledge of his writings on the subject is derived from

title: Annuity (European)

text: return is based on life expectancy and will therefore increase with age. Because of cross-subsidy and the guarantees an annuity can give against running out of income and becoming dependent on state welfare in old age, annuities often have a favourable tax treatment, which may affect how attractive they are relative to other investments. Immediate annuities are a compulsory feature of certain pension saving schemes in some countries, where the government grants tax deductions, provided that savings are paid into a fund which can only (or mainly) be withdrawn as an annuity. The Netherlands has such schemes and United Kingdom

title: Life annuity

text: benefit pension plans are a form of life annuity typically provided by employers or governments (such as Social Security in the United States). The size of payouts is usually determined based on the employee's years of service, age, and salary. Individual annuities are insurance products marketed to individual consumers. With the complex selection of options available, consumers can find it difficult to decide rationally on the right type of annuity product for their circumstances. There are two phases for a deferred annuity: Deferred annuities grow capital by investment in the accumulation phase (or deferral phase) and make payments during the

title: Annuity (European)

text: On reaching 75, the individual must then secure their pension fund by the purchase of an annuity, except that up to 25% of the fund can be taken as tax-free cash, also known as the pension commencement lump sum, or enter into an alternatively secured pension (ASP). Under an ASP arrangement the rate of income must fall between 55% and 90% of the GAD rate for a 75-year-old. The GAD rates are subject to periodic review and are based on the return of a level, single life annuity paid monthly in arrears without any guarantee or value protection for an

title: Private annuity trust

text: the PAT will invest in a deferred annuity in an effort to minimize trust income taxes, but at the expense of sizable commissions, fees, and taxes. Investing PAT assets in a deferred annuity issued by a commercial insurance company should be avoided at ALL costs. Potential benefits from a private annuity trust include lifetime income, deferral of capital gains and depreciation recapture, investment flexibility and diversification, enhancement of retirement income, and tax-free inheritance of the remaining trust funds by the designated beneficiaries. These benefits in many cases enabled a PAT to provide superior results as compared to a charitable remainder

title: Annuity (American)

text: purchase a single-premium life policy that would cover the lost premium in the annuity. Impaired-life annuities for smokers or those with a particular illness are also available from some insurance companies. Since the life expectancy is reduced, the annual payment to the purchaser is raised. Life annuities are priced based on the probability of the annuitant surviving to receive the payments. Longevity insurance is a form of annuity that defers commencement of the payments until very late in life. A common longevity contract would be purchased at or before retirement but would not commence payments until 20 years after retirement.

title: Fixed annuity

text: as provided in the annuity policy. How the actual rate of interest is credited on the policy differentiates traditional fixed annuities from indexed annuities. Traditional fixed annuities pay interest on the premium contributed at a rate declared by the insurer in advance. Some traditional fixed annuities offer multiple years guaranteed at the same rate, while others will leave the insurance company with the ability to adjust the rate annually. This rate can never be less than the minimum guaranteed rate stated in the policy. Fixed annuities are a very conservative safe money place for retirement dollars. Fixed annuity interest rates

title: Annuity (American)

text: of time, such as five years, or continue until the death of the customer(s) (the "annuitant(s)") named in the contract. Annuitization over a lifetime can have a death benefit guarantee over a certain period of time, such as ten years. Annuity contracts with a deferral phase always have an annuity phase and are called deferred annuities. An annuity contract may also be structured so that it has only the annuity phase; such a contract is called an immediate annuity. Note this is not always the case. The term "annuity," as used in financial theory, is most closely related to what

title: Annuity

text: annuity which begins payments only after a period is a "deferred annuity". An annuity which begins payments without a deferral period is an "immediate annuity". Valuation of an annuity entails calculation of the present value of the future annuity payments. The valuation of an annuity entails concepts such as time value of money, interest rate, and future value. If the number of payments is known in advance, the annuity is an "annuity certain" or "guaranteed annuity". Valuation of annuities certain may be calculated using formulas depending on the timing of payments. If the payments are made at the end of

title: Equity-indexed annuity

text: average interest credit of 5.2%, very similar to what is considered the "risk free rate of return" delivered by T-bills, 5.1% over a similar period. The return may also be adjusted by other factors such as the participation rate and market value adjustments to cover bring the cost of the option into the budget available. This means the owner of the indexed annuity now has assumed more risk than a fixed annuity but less than being in the equity markets themselves. The result is that the expected yield (risk adjusted) for an indexed annuity is higher than a fixed annuity,

title: Annuity

text: nominal annual interest rate of 9% and monthly payments of $100 can be calculated by: formula_27 Note that in Excel, the PV and FV functions take on optional fifth argument which selects from annuity-immediate or annuity-due. An annuity-due with n payments is the sum of one annuity payment now and an ordinary annuity with one payment less, and also equal, with a time shift, to an ordinary annuity. Thus we have: A "perpetuity" is an annuity for which the payments continue forever. Observe that Therefore a perpetuity has a finite present value when there is a non-zero discount rate. The

title: Annuity (European)

text: an annuity, instead of being payable at the end of each year, half-year, etc., is payable in advance, it is called an "annuity-due". The holder of an annuity is called an "annuitant", and the person on whose life the annuity depends is called the "nominee". Upon immediate annuitization, a wide variety of options are available in the way the stream of payments is paid. If the annuity is paid over a fixed period independent of any contingency, it is known as an "annuity with period certain", or just "annuity certain"; if it is to continue for ever, it is called

title: Annuity

text: Therefore, An "annuity-due" is an annuity whose payments are made at the beginning of each period. Deposits in savings, rent or lease payments, and insurance premiums are examples of annuities due. Each annuity payment is allowed to compound for one extra period. Thus, the present and future values of an annuity-due can be calculated. where formula_2 is the number of terms, formula_3 is the per term interest rate, and formula_23 is the effective rate of discount given by formula_24. The future and present values for annuities due are related since: Example: The final value of a 7-year annuity-due with a

title: Annuity

text: the time periods, so that interest is accumulated before the payment, the annuity is called an "annuity-immediate", or "ordinary annuity". Mortgage payments are annuity-immediate, interest is earned before being paid. The "present value" of an annuity is the value of a stream of payments, discounted by the interest rate to account for the fact that payments are being made at various moments in the future. The present value is given in actuarial notation by: Where formula_2 is the number of terms and formula_3 is the per period interest rate. Present value is linear in the amount of payments, therefore the

title: Annuity (American)

text: are, however, broadly similar in most states. Annuity contracts are protected against insurance company insolvency up to a specific dollar limit, often $100,000, but as high as $500,000 in New York , New Jersey , and the state of Washington . California is the only state that has a limit less than 100%; the limit is 80% up to $300,000. This protection is not insurance and is not provided by a government agency. It is provided by an entity called the state guaranty association. When an insolvency occurs, the guaranty association steps in to protect annuity holders, and decides what

title: Life annuity

text: 21 December 2012 will have to comply with the ruling. Life annuity A life annuity is an annuity, or series of payments at fixed intervals, paid while the purchaser (or annuitant) is alive. A life annuity is an insurance product typically sold or issued by life insurance companies. Life annuities may be sold in exchange for the immediate payment of a lump sum (single-payment annuity) or a series of regular payments (flexible payment annuity), prior to the onset of the annuity. The payment stream from the issuer to the annuitant has an unknown duration based principally upon the date of

title: Life annuity

text: Life annuity A life annuity is an annuity, or series of payments at fixed intervals, paid while the purchaser (or annuitant) is alive. A life annuity is an insurance product typically sold or issued by life insurance companies. Life annuities may be sold in exchange for the immediate payment of a lump sum (single-payment annuity) or a series of regular payments (flexible payment annuity), prior to the onset of the annuity. The payment stream from the issuer to the annuitant has an unknown duration based principally upon the date of death of the annuitant. At this point the contract will

title: Annuity (European)

text: by a person, he is said to have "an annuity of £100". If the payments are made half-yearly, it is sometimes said that he has "a half-yearly annuity of £100"; but to avoid ambiguity, it is more commonly said he has "an annuity of £100, payable by half-yearly instalments". An annuity is considered as accruing during each instant of the status for which it is enjoyed, although it is only payable at fixed intervals. If the enjoyment of an annuity is postponed until after the lapse of a certain number of years, the annuity is said to be "deferred". If

title: Life annuity

text: dies before annuity payments begin, a beneficiary gets either a lump sum or annuity payments. An annuity with only a distribution phase is an "immediate annuity, single premium immediate annuity" (SPIA), "payout annuity", or "income annuity". Such a contract is purchased with a single payment and makes payments until the death of the annuitant(s). Annuities that make payments in fixed amounts or in amounts that increase by a fixed percentage are called fixed annuities. Variable annuities, by contrast, pay amounts that vary according to the investment performance of a specified set of investments, typically bond and equity mutual funds. Variable

title: Annuity (European)

text: a "perpetuity"; and if in the latter case it is not to commence until after a term of years, it is called a "deferred perpetuity". An annuity depending on the continuance of an assigned life or lives would commonly be called a "life annuity", but also known as a "life-contingent annuity" or simply "lifetime annuity"; but more commonly the simple term "annuity" is understood to mean a life annuity, unless the contrary is stated. The payments can also be paid over the lifetime of the nominee(s) or for a fixed period, whichever is longer. This is known as "life with

title: Annuity (American)

text: not taxed until those gains are withdrawn. This is also known as tax-deferred growth. A deferred annuity which grows by interest rate earnings alone is called a "fixed deferred annuity" (FA). A deferred annuity that permits allocations to stock or bond funds and for which the account value is not guaranteed to stay above the initial amount invested is called a "variable annuity" (VA). A new category of deferred annuity, called the "fixed indexed annuity" (FIA) emerged in 1995 (originally called an Equity-Indexed Annuity). Fixed indexed annuities may have features of both fixed and variable deferred annuities. The insurance company

title: Annuity (European)

text: commence there is no payable benefit. This drastically reduces the cost of the annuity while still providing protection against outliving one's resources. The second usage for the term "annuity" came into its own during the 1970s. This is a "deferred annuity" and is a vehicle for accumulating savings, and eventually distributing them either as an immediate annuity or as a lump-sum payment. Note that this is different from an immediate annuity. Under the heading of deferred annuities, there are contracts which may be similar to Contracts may also be linked to other investments such as property (real estate) or government

title: Annuity

text: between the issue of the annuity and the first payment. Payments of an "annuity-due" are made at the beginning of payment periods, so a payment is made immediately on issue. Annuities that provide payments that will be paid over a period known in advance are "annuities certain" or "guaranteed annuities." Annuities paid only under certain circumstances are "contingent annuities". A common example is a life annuity, which is paid over the remaining lifetime of the annuitant. "Certain and life annuities" are guaranteed to be paid for a number of years and then become contingent on the annuitant being alive. An

title: Equity-indexed annuity

text: types of annuities, equity-indexed annuities usually carry a surrender charge for early withdrawal. These "surrender periods" range between 3 and 16 years; typically, about ten. The indexed annuity is virtually identical to a fixed annuity except in the way interest is calculated. As an example, consider a $100,000 fixed annuity that credits a 4% annual effective interest rate. The owner receives an interest credit of $4,000. However, in an equity-indexed annuity, the interest credit is linked to the equity markets. For example: Assume the index is the S&P 500, a one-year point-to-point method is used, and the annuity has an

title: Swiss annuity

text: U.S. taxpayers can exchange an existing domestically issued life insurance policy or annuity contract for a Swiss annuity on a tax deferred basis as a result of the ambiguity of the wording of Section 1035(c) of the Internal Revenue Code of 1986, as amended. The U.S. Treasury Department and IRS have not issued regulations applying what was meant by Section 1035(c), which provides "To the extent provided in regulations, subsection (a) shall not apply to any exchange having the effect of transferring property to any person other than a United States person." Swiss annuities are not subject to the one

title: Annuity (European)

text: not guaranteed to stay above the initial amount invested is called a "variable annuity". By law, an annuity contract can only be issued by an insurance company. They are distributed by, and available for purchase from, duly licensed bank, stock brokerage, and insurance company representatives. Some annuities may also be purchased directly from the issuer, i.e., the insurance company writing the contract. In a typical immediate annuity contract, an individual would pay a lump sum or a series of payments (sometimes called "annuity considerations") to an insurance company, and in return pay the annuitant a series of periodic payments for

title: Equity-indexed annuity

text: Equity-indexed annuity An indexed annuity (the word "equity" previously tied to indexed annuities has been removed to help prevent the assumption of stock market investing being present in these products) in the United States is a type of tax-deferred annuity whose credited interest is linked to an equity index—typically the S&P 500 or international index. It guarantees a minimum interest rate (typically between 1% and 3%) if held to the end of the surrender term and protects against a loss of principal. An equity index annuity is a contract with an insurance or annuity company. The returns may be higher

title: Annuity (European)

text: period certain". A hybrid of these is when the payments stop at death, but also after a predetermined number of payments, if this is earlier: known as a "temporary life annuity". The difference with the period certain annuity is that the period certain annuity will keep paying after the death of the nominee until the period is completed. If not otherwise stated, it is always understood that an annuity is payable yearly, and that the annual payment (or rent, as it is sometimes called) is a single currency unit. Instances of perpetuities are the dividends upon the public stocks in

title: Annuity (American)

text: a forfeiture, can be mitigated by the addition of a period-certain feature under which the annuity issuer is required to make annuity payments for at least a certain number of years; if the annuitant outlives the specified period certain, annuity payments continue until the annuitant's death, and if the annuitant dies before the expiration of the period certain, the annuitant's estate or beneficiary is entitled to the remaining payments certain. The tradeoff between the pure life annuity and the life-with-period-certain annuity is that the annuity payment for the latter is smaller. A viable alternative to the life-with-period-certain annuity is to

title: Annuity (American)

text: to pick an annuity share class, which determines the salesperson's commission schedule. The main variables are the up-front commission and the trail commission. Fixed and Indexed Annuity commissions are paid to the agent by the insurance companies the agent represents. Commissions are not paid by the client (annuitant). "No-load" variable annuities are available on a direct-to-consumer basis from several no-load mutual fund companies. "No-load" means the products have no sales commissions or surrender charges. Annuity (American) In the United States, an annuity is a contractually executed, relatively low-risk investment fund, where the insured (usually, an individual) pays a life insurance

title: Annuity (American)

text: If the nominee dies before payments commence there is no payable benefit. This drastically reduces the cost of the annuity while still providing protection against outliving one's resources. The second usage for the term "annuity" came into being during the 1970s. Such a contract is more properly referred to as a "deferred annuity" and is chiefly a vehicle for accumulating savings with a view to eventually distributing them either in the manner of an immediate annuity or as a lump-sum payment. All varieties of deferred annuities owned by individuals have one thing in common: any increase in account values is

title: Annuity (European)

text: bonds, or any combination of the above selected by the investor or his advisors. All varieties of deferred annuities owned by individuals have one thing in common in many jurisdictions: any increase in account values is "not" taxed until those gains are withdrawn. This is also known as tax-deferred growth. To complete the definitions here, a deferred annuity where the benefits are fixed at outside, either in terms of a lump sum or an annuity, can be called a "fixed deferred annuity". A deferred annuity that permits allocations to stock or bond funds and for which the account value is

title: Annuity (European)

text: amount of capital and investment return over a lifetime without the risk of funds running out. Although this will reduce the available payments, an annuity can be arranged to continue until the death of the last survivor of two or more people. For example, many annuities continue to pay out (perhaps at a reduced rate) to the spouse of the main annuitant after his or her death, for as long as the spouse survives. The annuity paid to the spouse is called a reversionary annuity or survivorship annuity. However, if the annuitant is in good health, it may be more

title: Annuity (American)

text: is today called an "immediate annuity". This is an insurance policy which, in exchange for a sum of money, guarantees that the issuer will make a series of payments. These payments may be either level or increasing periodic payments for a fixed term of years or until the ending of a life or two lives, or even whichever is longer. It is also possible to structure the payments under an immediate annuity so that they vary with the performance of a specified set of investments, usually bond and equity mutual funds. Such a contract is called a variable immediate annuity.

title: Life annuity

text: or beneficiary is entitled to collect the remaining payments certain. The tradeoff between the pure life annuity and the life-with-period-certain annuity is that in exchange for the reduced risk of loss, the annuity payments for the latter will be smaller. "Joint-life" and "joint-survivor" annuities make payments until the death of one or both of the annuitants respectively. For example, an annuity may be structured to make payments to a married couple, such payments ceasing on the death of the second spouse. In joint-survivor annuities, sometimes the instrument reduces the payments to the second annuitant after death of the first. There

title: Swiss annuity

text: percent excise tax commonly imposed on purchases of foreign life insurance or annuity policies due to the double tax treaty signed by the U.S. and Switzerland. The Swiss Federal Office of Private Insurance oversees the Swiss insurance industry through the enforcement of rules and regulations. Swiss life insurance companies are required to cover their financial obligations and maintain an extra margin of security that is kept separate from the other assets of the company. Swiss annuity A Swiss annuity simply refers to a fixed or variable annuity marketed from Switzerland or issued by a Swiss based life insurance company but

title: Equity-indexed annuity

text: investments are. Any earnings will be tax at the beneficiary's ordinary income tax rate. Equity-indexed annuity An indexed annuity (the word "equity" previously tied to indexed annuities has been removed to help prevent the assumption of stock market investing being present in these products) in the United States is a type of tax-deferred annuity whose credited interest is linked to an equity index—typically the S&P 500 or international index. It guarantees a minimum interest rate (typically between 1% and 3%) if held to the end of the surrender term and protects against a loss of principal. An equity index annuity

title: Fixed annuity

text: the policyholder dies and funds remain in the indexed annuity account value, those funds would be paid to the beneficiary(-ies). Some of these income riders are offered with no fees, while others carry an annual fee (generally 1% or less) which is deducted directly from the indexed annuity account value. As with all traditional fixed annuities, money can be withdrawn from an indexed annuity at any time (but such withdrawal may be subject to a surrender charge if the policy is still within the surrender charge period and the penalty-free withdrawal has already been exhausted). Owners may also choose to

title: Annuity

text: present value for payments, or "rent" formula_4 is: In practice, often loans are stated per annum while interest is compounded and payments are made monthly. In this case, the interest formula_6 is stated as a nominal interest rate, and formula_7. The "future value" of an annuity is the accumulated amount, including payments and interest, of a stream of payments made to an interest-bearing account. For an annuity-immediate, it is the value immediately after the n-th payment. The future value is given by: Where formula_2 is the number of terms and formula_3 is the per period interest rate. Future value is

title: Annuity (American)

text: annuity which will continue to pay out to the spouse of the annuitant after death, for so long as the spouse survives. The annuity paid to the spouse is called a reversionary annuity or survivorship annuity. However, if the annuitant is in good health, it may be more advantageous to select the higher payout option on his or her life only and purchase a life insurance policy that would pay income to the survivor. The pure life annuity can have harsh consequences for the annuitant who dies before recovering his or her investment in the contract. Such a situation, called

title: Annuity (American)

text: RMD requirement and may satisfy the RMD requirement for other IRA accounts of the owner (see IRS Sec 1.401(a)(9)-6.) When a deferred annuity is annuitized, it works like an immediate annuity from that point on, but with a lower cost basis and thus more of the payment is taxed. This type of immediate annuity pays the annuitant for a designated number of years (i.e., a period certain) and is used to fund a need that will end when the period is up (for example, it might be used to fund the premiums for a term life insurance policy). Thus the

title: Swiss annuity

text: by non-U.S. insurance companies may permit tax deferral in the same manner as an annuity issued by a U.S. domestic insurance company presuming the diversification requirements and investor control limitations of the Code and as articulated by the IRS are respected. A Swiss annuity is considered a foreign financial account and reportable to the U.S. Department of Treasury each year by filing Form TD F 90-22.1 (the "FBAR"). Further, a Swiss annuity generally is considered a specified foreign financial asset, which must be reported annually using IRS Form 8938 assuming the value is above certain thresholds. It is unclear whether

title: Life annuity

text: per year, the replacement cost would be about $250,000 for a 66-year-old individual. The figures are based upon the individual receiving an inflation-adjusted stream that would pay for life and be insured. In March 2011 a European Court of Justice ruling was made that prevents annuity providers from setting different premiums for men and women. Annuity rates for men are generally higher than those for women because they have shorter life expectancies. The change means that either annuity rates for men will fall or annuity rates for women will rise. In the UK any annuities that are taken out after

title: Swiss annuity

text: Swiss annuity A Swiss annuity simply refers to a fixed or variable annuity marketed from Switzerland or issued by a Swiss based life insurance company but has no legal definition. Insurance brokers promoting annuity contracts issued by insurance companies domiciled in jurisdictions outside of Switzerland, such as Liechtenstein, also market such contracts as Swiss annuities. The hallmarks of a Swiss annuity generally include the ability to invest in multiple currencies, the custody of assets within Switzerland, and the flexibility of withdrawals. Often touted benefits of a Swiss annuity include the safety of Switzerland plus some degree of asset protection. Like

title: Annuity (European)

text: 86 years. Having previously calculated a table of the values of annuities certain for every number of years up to 86, the value of all the annuities on the 10,000 nominees will be found by taking 40 times the value of an annuity for 2 years, 35 times the value of an annuity for 3 years, and so on—the last term being the value of 10 annuities for 86 years—and adding them together; and the value of an annuity on one of the nominees will then be found by dividing by 10,000. Before leaving the subject of De Witt, we

title: Annuity (American)

text: they don't know the optimal speed at which to spend their savings. Life annuities with payments indexed to the Consumer Price Index might be an acceptable solution to this problem, but there is only a thin market for them in North America. For an additional expense (either by way of an increase in payments (premium) or a decrease in benefits), an annuity or benefit rider can be purchased on another life such as a spouse, family member or friend for the duration of whose life the annuity is wholly or partly guaranteed. For example, it is common to buy an

title: Fixed annuity

text: an annual basis. Participation rates, caps and spreads are known as "moving parts". Most annuities being issued today have only one moving part in determining an index calculation (i.e. only a cap or only a participation rate), however, it is possible to have multiple moving parts in determining an index calculation (i.e. a cap combined with a participation rate). An annuity with multiple moving parts is not necessarily better or worse than an annuity with only one moving part, and there is no way of determining in advance of a policy year whether a participation rate, cap and/or spread will

title: Annuity

text: debt "P" with interest, the amount owed after "n" payments is Because the scheme is equivalent with borrowing the amount formula_35 to create a perpetuity with coupon formula_4, and putting formula_37 of that borrowed amount in the bank to grow with interest formula_3. Also, this can be thought of as the present value of the remaining payments See also fixed rate mortgage. Formula for Finding the Periodic payment(R), Given A: R = A/(1+〖(1-(1+((j/m) )〗^(-(n-1))/(j/m)) Examples: Finding the Periodic Payment(R), Given S: R = S\,/((〖((1+(j/m) )〗^(n+1)-1)/(j/m)-1) Examples: Annuity An annuity is a series of payments made at equal intervals. Examples of

title: Annuity (European)

text: fourteen. He also states that the rate of interest had been successively reduced from 6-¼% to 5%, and then to 4%. The principal object of his report is to prove that, taking interest at 4%, a life annuity was worth at least sixteen years' purchase; and, in fact, that an annuitant purchasing an annuity for the life of a young and healthy nominee at sixteen years' purchase, made an excellent bargain. He argues that it is more to the advantage, both of the country and of the private investor, that the public loans should be raised by way of grant

title: Annuity (European)

text: the rest of their life. The exact terms of an annuity product are set out in the contract. In common with other types of insurance contract, both immediate and deferred annuities will typically pay commission to the sales person (or "advisor"). A wide variety of features have been developed by annuity companies in order to make their products more attractive. These include death benefit options and living benefit options. Because immediate annuities generally provide a series of guaranteed payments, the annuity company normally matches its liabilities with government bonds and other high grade bonds, and the market yield available on

title: Swiss annuity

text: its banking counterparts, there is an active Swiss insurance industry with the Swiss being one of the most heavily insured populations on the planet. The country is home to over 100 insurance companies, 10 of them reinsurers. In the 150 year history of the Swiss insurance industry, its companies have never failed to meet their obligations or closed. For U.S. taxpayers owning a fixed annuity issued by a non-U.S. insurance company, including a Swiss annuity, the interest credited within the policy is subject to U.S. income tax on an annual basis under the original issue discount rules. Variable annuities issued

title: Certificate of Annuity

text: interest earned and there is a 10% penalty on the earnings if the policyholder is less than age 59½); (ii) roll the funds over into another annuity for a limited number of years or a product of longer duration. In contrast to certificates of deposit (CDs), interest earned through this annuity accumulates on a tax-deferred basis. Certificate of Annuity Certificate of Annuity (COA) - is a financial instrument/security issued by government agencies which guarantee the initial interest rate for funds on deposit for the entire length of the maturity of the security. Typical maturity/tenor for these deposit instruments are 1,

title: Annuity (European)

text: method of terminable annuities has been the one preferred by chancellors of the exchequer and by parliament. Terminable annuities, as employed by the British government, fall under two heads: The important difference between these two classes is that an annuity under (1), once created, cannot be modified except with the holder's consent, i.e. is practically unalterable without a breach of public faith; whereas an annuity under (2) can, if necessary, be altered by interdepartmental arrangement under the authority of parliament. Thus annuities of class (1) fulfil most perfectly the object of the system as explained above; while those of class

title: Fixed annuity

text: be taken away in a subsequent year when the measuring index is a negative value. This feature of an index annuity is often referred to as an "annual reset". The "annual reset" provides a second benefit aside from safeguarding the principal and subsequent interest gains, it also prevents the policy from having to recover from any sort of loss to the outside stock index in the previous policy year. For instance, if the S&P 500 index were to drop 40% during a policy year, the annuity would be credited with no interest for that policy year. However, if the S&P

title: Annuity (American)

text: GLB riders in non-qualified contracts as most of the products in the annuity marketplace today create a 100% taxable income benefit whereas income generated from an immediate annuity in a non-qualified contract would partially be a return of principal and therefore non-taxable. Some annuities do not have any deferred surrender charges and do not pay the financial professional a commission, although the financial professional may charge a fee for his or her advice. These contracts are called "no-load" variable annuity products and are usually available from a fee-based financial planner or directly from a no-load mutual fund company. Of course

title: Life annuity

text: has also been a significant growth in the development of "impaired life" annuities. These involve improving the terms offered due to a medical diagnosis which is severe enough to reduce life expectancy. A process of medical underwriting is involved and the range of qualifying conditions has increased substantially in recent years. Both conventional annuities and Purchase Life Annuities can qualify for impaired terms. Valuation is the calculation of economic value or worth. Valuation of an annuity is calculated as the actuarial present value of the annuity, which is dependent on the probability of the annuitant living to each future payment

title: Life annuity

text: that in November 2007, the Securities and Exchange Commission approved FINRA Rule 2821 requiring brokers to determine specific suitability criteria when recommending the purchase or exchange (but not the surrender) of deferred variable annuities. A pure life annuity ceases to make payments on the death of the annuitant. A "guaranteed annuity" or "life and certain annuity", makes payments for at least a certain number of years (the "period certain"); if the annuitant outlives the specified period certain, annuity payments then continue until the annuitant's death, and if the annuitant dies before the expiration of the period certain, the annuitant's estate

title: Annuity (European)

text: author's reputation, did not contribute to advance the exact knowledge of the subject; and the author to whom the credit must be given of first showing how to calculate the value of an annuity on correct principles is Edmund Halley. He gave the first approximately correct mortality table (deduced from the records of the numbers of deaths and baptisms in the city of Breslau), and showed how it might be employed to calculate the value of an annuity on the life of a nominee of any age. Previously to Halley's time, and apparently for many years subsequently, all dealings with

title: Annuity (American)

text: Code. Variable annuities are regulated by the Securities and Exchange Commission and the sale of variable annuities is overseen by the Financial Industry Regulatory Authority (FINRA) (the largest non-governmental regulator for all securities firms doing business in the United States). There are two possible phases for an annuity, one phase in which the customer deposits and accumulates money into an account (the deferral phase), and another phase in which customers receive payments for some period of time (the annuity or income phase). During this latter phase, the insurance company makes income payments that may be set for a stated period

title: Annuity (American)

text: that his major financial assets are two annuities. Annuity contracts in the United States are defined by the Internal Revenue Code and regulated by the individual states. Variable annuities have features of both life insurance and investment products. In the U.S., annuity insurance may be issued only by life insurance companies, although private annuity contracts may be arranged between donors to non-profits to reduce taxes. Insurance companies are regulated by the states, so contracts or options that may be available in some states may not be available in others. Their federal tax treatment, however, is governed by the Internal Revenue

title: Annuity (European)

text: back the original capital with interest to the "annuitant" on whose life the annuity is based. The assumed period of the loan is based on the life expectancy of the annuitant but life annuities are payable until the death of the last surviving annuitant. In order to guarantee that the income continues for life, the investment relies on cross-subsidy. Because an "annuity population" can be expected to have a distribution of lifespans around the population's mean (average) age, those dying earlier will support those living longer (longevity insurance). Cross-subsidy remains one of the most effective ways of spreading a given

title: Fixed annuity

text: receive a payment based on the value of the policy for their lifetime (called annuitization). Some annuities also have an additional feature called a Market Value Adjustment or MVA. MVA applies when a withdrawal is made from the annuity in excess of the penalty-free amount. Generally, if interest rates are lower at time of the withdrawal than at the time the policy was purchased, the value of the annuity would increase. If interest rates are higher, the reverse is true. In the event of the owner’s (and the annuitant’s in some policies) death, the beneficiary of the contract usually receives

title: Annuity (American)

text: be put to work while the savings are accumulating, leading to higher returns. A disadvantage, however, is that when amounts held under a deferred annuity are withdrawn or inherited, the interest/gains are immediately taxed as ordinary income. A variety of features and guarantees have been developed by insurance companies in order to make annuity products more attractive. These include death and living benefit options, extra credit options, account guarantees, spousal continuation benefits, reduced contingent deferred sales charges (or surrender charges), and various combinations thereof. Each feature or benefit added to a contract will typically be accompanied by an additional expense

title: Annuity (American)

text: expectancy of the annuitant. In order to guarantee that the income continues for life, the insurance company relies on a concept called "cross-subsidy" or the "law of large numbers". Because an "annuity population" can be expected to have a distribution of lifespans around the population's mean (average) age, those dying earlier will give up income to support those living longer whose money would otherwise run out. Thus it is a form of longevity insurance (see also below). A life annuity, ideally, can reduce the "problem" faced by a person when they don't know how long they will live, and so

title: Fixed annuity

text: 500 had a calculated return of 10% the following year using an annual point-to-point calculation with a 6% cap, the annuity would earn 6% on top of where it had left off the policy year prior. An example of this benefit can be seen in this simple example that ignores dividends: A direct investment in an index with an initial investment $100,000, a 40% loss after one year takes the value to $60,000, a 10% gain the following year would increase the value to $66,000. The same investment being tracked in the index annuity with an initial investment of $100,000,

title: Equity-indexed annuity

text: index annuity is to realize greater gains than those provided by CDs, money markets or bonds, while still protecting principal. The long term ability of Equity Index Annuities to beat the returns of other fixed instruments is a matter of debate. Indexed annuities represent about 30% of all fixed annuity sales in 2006 according to the Advantage Group. Equity-indexed annuities may also be referred to as fixed indexed annuities or simple indexed annuities. The mechanics of equity-indexed annuities are often complex and the returns can vary greatly depending on the month and year the annuity is purchased. Like many other

title: Private annuity trust

text: the age of the asset owner(s), the value of the asset, and the current IRS interest rate called the Applicable Federal Rate (AFR). PAT payments can be made monthly, quarterly, or annually. Neither the transfer of the asset to the trust nor its later sale is subject to income taxes if, as is usually the case, the annuity payment is established at a level that gives the annuity a present value equal to the value of the asset sold. However, each annuity payment when received will be partially taxable on the share of capital gains, depreciation recapture and ordinary income

title: Equity-indexed annuity

text: CD, etc. However, the expected yield of being in the market is higher for several reasons. The principal (in our example the $100,000) is at risk of loss when owning the index outright. Equity Index Annuity does not participate in dividends as owning the index outright would and similar there are no ongoing transaction expenses or fees. Interest is compounded as frequently as when interest is credited and this is almost always annually but contracts are available that credit interest over a 5-year term. The taxation of the gains in an indexed annuity is identical to that of fixed annuities.

title: Grantor retained annuity trust

text: be about equal to the principal plus theoretical interest. Thus, for tax purposes, the initially calculated gift value is zero, since what will be paid back to the donor in annuity payments is anticipated to be about equal to what the donor invested, plus interest. If a GRAT is funded with highly volatile assets, it is possible that the actual interest earned on the assets will be substantially higher than the IRS theoretical interest. Thus at the end of the term, the value remaining in the GRAT may still be large, even though the initial IRS calculation suggests that it

title: Annuity, Duchess of Mecklenburgh Strelitz Act 1843

text: 1914. Annuity, Duchess of Mecklenburgh Strelitz Act 1843 The Annuity, Duchess of Mecklenburgh Strelitz Act 1843 (6 & 7 Vict c 25) is an Act of the Parliament of the United Kingdom. In recognition of royal consent having been given to marriage between Princess Augusta of Cambridge and Frederick William, Hereditary Grand Duke of Mecklenburgh Strelitz, the Act provided for the grant of an annuity of £3000 per annum, payable quarterly from the death of her father, Prince Adolphus, Duke of Cambridge, (which occurred in 1850) until the death of the Princess (which occurred in 1916). The annuity was suspended

text: Annuity, Duchess of Mecklenburgh Strelitz Act 1843 The Annuity, Duchess of Mecklenburgh Strelitz Act 1843 (6 & 7 Vict c 25) is an Act of the Parliament of the United Kingdom. In recognition of royal consent having been given to marriage between Princess Augusta of Cambridge and Frederick William, Hereditary Grand Duke of Mecklenburgh Strelitz, the Act provided for the grant of an annuity of £3000 per annum, payable quarterly from the death of her father, Prince Adolphus, Duke of Cambridge, (which occurred in 1850) until the death of the Princess (which occurred in 1916). The annuity was suspended in

title: Annuity (European)

text: of the next seven years from 73 to 80, when all will be dead. De Witt calculates the value of an annuity in the following way. Assume that annuities on 10,000 lives each ten years of age, which satisfy the Hm mortality table, have been purchased. Of these nominees 79 will die before attaining the age of 11, and no annuity payment will be made in respect of them; none will die between the ages of 11 and 12, so that annuities will be paid for one year on 9921 lives; 40 attain the age of 12 and die before

title: Grantor retained annuity trust

text: should have been zero. This remaining value is then passed on to the beneficiary without incurring a gift tax. The Wealth Transfer Group owns a patent covering different methods for managing SOGRATs. A SOGRAT is a GRAT that is at least partially funded with stock options. The patent number is , and is entitled "Establishing and managing grantor retained annuity trusts funded by nonqualified stock options". On 12 January 2011, the director of the USPTO initiated a reexamination of US patent 6,567,790. The reexamination serial number is 90/009,868. Grantor retained annuity trust A grantor-retained annuity trust (commonly referred to by

title: Fixed annuity

text: type of annuity, called a variable annuity, is not discussed here since it is not a type of fixed product.) Fixed annuities are regulated by state insurance departments and sold through insurance agents, banks, or registered representatives. Section 989J of the Act (also known as the Harkin Amendment) is targeted at removing equity indexed annuities from SEC jurisdiction. This provision will require the SEC to treat certain state-regulated annuities as exempt securities under the Securities Act of 1933, and therefore not subject to SEC registration requirements. Fixed annuities pursuant to state insurance law must provide a minimum rate of interest

title: Private annuity trust

text: Private annuity trust Prior to 2006, a private annuity trust (PAT) was an arrangement to enable the value of highly appreciated assets, such as real estate, collectables or an investment portfolio, to be realized without directly selling them and incurring substantial taxes from their sale. A PAT was used to defer United States federal capital gains tax on the sale of an asset, to provide a stream of income, and in effect to remove the asset from the owner's estate, thus reducing or eliminating estate taxes. With these advantages, a PAT provided an alternative to other methods of deferring capital

title: Annuity (American)

text: so on. The sale of any security product should involve a careful analysis of the suitability of the product for a given individual. In the U.S. Internal Revenue Code, the growth of the annuity value during the accumulation phase is tax-deferred, that is, not subject to current income tax, for annuities owned by individuals. The tax deferred status of deferred annuities has led to their common usage in the United States. Under the U.S. tax code, the benefits from annuity contracts do not always have to be taken in the form of a fixed stream of payments (annuitization), and many

title: Fixed annuity

text: Fixed annuity Fixed annuities are insurance products which protect against the risk of outliving your income. They are insured by licensed and regulated insurance companies, similar to how your home, auto or health is insured. And just like your home, auto and health insurance, they are backed by the insurance company up to stated policy limits. State insurance guarantees vary from state to state, and may not cover 100% of the Annuity Value. For example, in California the fund will cover "80% not to exceed $250,000." There are two types of fixed annuities: traditional fixed and indexed annuities. (A third