Master Terminal Funding

   Single Premium Immediate
   Annuity

Example: Anthony is a 73 year old widower. He is not concerned about leaving assets to his heirs and wants the highest monthly income amount available for the rest of his life. A life only annuity is the most suitable option to meet his needs.

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LIFE ANNUITY WITH PERIOD CERTAIN - This option provides income for life. It also guarantees that payments will be made for a certain number of years. The period over which payments are guaranteed varies from insurer to insurer, but the typical range is between five and thirty years. If the annuitant dies during the guaranteed period, payments will continue, as scheduled, to a beneficiary until the end of that period. If the annuitant lives beyond the guaranteed period, they will continue to receive payments until their death; once they live beyond the end of the guaranteed period, however, death benefit coverage “expires.”

Example: Maria is a 68-year-old single mother who has one daughter, a recent college graduate. Maria decides to purchase a Life Annuity with 15 Years Certain and names her daughter as beneficiary. If Maria dies eight years after she begins receiving income, payments will continue to her daughter for the remaining seven years of the guaranteed period. If Maria lives beyond 15 years from the initial payment, she will still receive income until she dies; there is simply no death benefit payable after the first 15 years.

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CASH REFUND - The cash refund is another option that pays income for life. However, the death benefit is associated with the amount of the premium used to purchase the annuity. If the annuitant dies before their premium is returned to them in income, then balance they did not receive is paid to a beneficiary in a single lump sum.

Example: John wants to purchase a life annuity for $1 million. In addition, he wishes that his Trust be named a beneficiary in the event his death occurs prior to receiving the $1 million in principal. He makes the purchase, and after he receives $600,000 in principal (through his monthly payments), he dies. His Trust will receive the remaining balance as a death benefit, or $400,000, in a lump sum payment.

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INSTALLMENT REFUND - This option is similar to the cash refund, as it guarantees income for life, and returns the balance of unpaid premium to a beneficiary. The difference lies in the way the death benefit is paid to the beneficiary. Instead of making one lump sum payment, it continues paying the same benefit amount (and payment frequency) that the annuitant received. When the balance has been paid, payments stop.

Example: Victoria plans to purchase a life annuity for $1 million. Because of the large premium amount, she wants to protect the principal she invests. She wants to name her son as beneficiary of the annuity, but is concerned because he is irresponsible with money and has little investment experience. She opts for the installment refund option, so that if she dies before recovering her principal, he will not be faced with a potentially large sum of proceeds to squander.

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PERIOD CERTAIN - Also referred to as a term certain or annuity certain, this option makes guaranteed payments for a specified term only; it does not guarantee payments for life.

Example: Patrick is ordered to make alimony payments ($500 per month) to his ex-wife for 10 years. Instead of personally making monthly payments to her, he purchases a 10-year period certain annuity to make the payments. By purchasing the annuity he eliminates his responsibility of making ongoing payments. Although he must pay a premium of $50,559 now in order to fund the annuity, he reduces his total payout since the sum of the combined payments throughout ten years is $60,000.

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JOINT & SURVIVOR LIFE - A joint and survivor option provides guaranteed payments for an annuitant’s life, and for the life of a survivor annuitant. Upon the death of the annuitant or survivor annuitant, a designated percentage (such as 100%, 75%, 66% or 50%) of the initial payment will continue to be paid for the life of the remaining annuitant.

Example: George and Laura are enjoying their retirement years. To supplement Social Security and George’s pension income, they use accumulated assets to purchase a Joint and 50% Survivor annuity. The initial monthly income amount generated from this annuity is $1,950. When the first one passes away, 50% of the initial amount ($975) will be paid to the remaining annuitant for life. They have no children, and therefore have no need for a death benefit.

Joint and Survivor annuities can be issued with the same death benefit provisions as Single Life annuities, i.e., Joint & Survivor with Period Certain, Joint & Survivor with Cash Refund, and Joint & Survivor with Installment Refund. If applicable, the death benefits are payable upon the death of the last surviving annuitant.

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Other terms associated with immediate annuities, and their definitions, are:

ANNUITY OWNER - May be an individual, corporation, estate or trust. The annuity owner has all rights to the contract and is responsible for paying taxes on the taxable portion of the income.

ANNUITANT - Must be an individual on whose life the annuity payments are based. The Annuitant may be the Payee and may have the right to receive periodic payments according to the option selected.

SURVIVOR OR CO-ANNUITANT - The individual designated by the owner to receive payments after the primary annuitant’s death, usually for the survivor’s lifetime.

PAYEE - The individual or entity designated by the Annuity Owner to receive the income for the option selected.

BENEFICIARY - The individual or entity that has the right to receive a benefit upon the Annuitant’s death.

ANNUITY COMMENCEMENT DATE - The date income payments begin.

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