5630 Annuities - An annuity is a contract or device which conveys a right to receive a fixed, periodic source of income for a specified period of time. The person who receives the payments is commonly known as the annuitant. The commercial entity distributing the payment is called the carrier.

There are two phases to an annuity. The first is the accumulation phase, where the annuity is building value. Annuities accumulate value through a lump sum payment or multiple payments. Once the annuity has matured, it is annuitized. This is the pay out phase where regular payments are made from the annuity.

Two settlement options are most common. An immediate annuity is generally annuitized within a year of purchase and is generally purchased with a lump sum. A deferred annuity starts payments at some future age of the annuity. These are generally funded through periodic deposits.

NOTE: All annuities must be evaluated to determine if a transfer of property penalty is applicable, as per 5720.

5631 Evaluating the Annuity -

1. Payment Terms of the Annuity - The payment terms of the annuity are driven by the contract, with the following possibilities:
• The lifetime of the individual;
• The lifetime of the individual with a minimum return of the principal to a beneficiary if the specified portion of the principal is not returned before the individual's death.
• A period certain number of months or years, with a guaranteed payment amount if the individual dies before the specified period has expired.

2. Parties to the Annuity:
a. Carrier - The writer of the annuity. This must be an organization authorized to write and issue an annuity contract, such as a life insurance company or a charitable organization.
b. Annuitant - The person whose life is used to calculate the terms and payments from the annuity; usually the person who is entitled to payments from the settlement option.
c. Owner - The annuity owner is the person who may exercise the rights provided in the annuity contract during the life of the annuitant. This person can name himself/herself or another person as the annuitant, choose the settlement option and name the beneficiary.
d. Remainder Beneficiary - The individual entitled to receive any payments following the death of the annuitant