A live annuity is an annuity, or a series of payments at a fixed interval, paid when the buyer (or annuitant) is alive. Life annuities are insurance products that are usually sold or issued by a life insurance company. Life annuities can be sold in exchange for immediate payment of a single payment (single annuity payment) or a series of regular payments (annuity payout), prior to the start of the annuity.
The payment flow from the issuer to the annuitant has an unknown duration based on the principle on the anniversary's death. At this point, the contract will expire and the remainder of the accumulated funds will be forfeited unless there is an annuitant or other recipient in the contract. Thus, lifetime annuity is a form of long-life insurance, in which the individual's lifetime uncertainty is transferred from the individual to the insurance firm, which reduces his own uncertainty by collecting many clients. Annuities can be purchased to provide income during retirement, or come from a structured settlement of a personal injury suit.
Video Life annuity
History
The evolution of the instrument has been long and continues as part of actuarial science.
Ulpian is credited with producing a table of actuarial life annuities between AD 211 and 222. The German and Dutch Medieval towns and monasteries raised money with the sale of life annuities, and it was recognized that their prices were difficult. The initial practice to sell this instrument does not take into consideration the age of the candidate, thus raising an interesting concern. This concern has received attention from several prominent mathematicians over the years, such as Huygens, Bernoulli, de Moivre and others: even Gauss and Laplace have an interest in matters relating to this instrument.
It appears that Johan de Witt was the first author to calculate the value of life annuity as the expected discounted amount of future payments, while Halley used the first mortality chart extracted from experience for that calculation. Meanwhile, Paris HÃÆ'Â'tel-Dieu offers some reasonably priced annuities that roughly correspond to Deparcieux table discounts of 5%.
Advanced practice is a daily occurrence with a well-known theory founded on strong mathematics, as witnessed by hundreds of millions worldwide who receive regular payments through pensions or the like. The modern approach to solving difficult problems associated with a larger scope for this instrument applies many advanced mathematical approaches, such as stochastic methods, game theory, and other financial mathematical tools.
Maps Life annuity
Type
Definite benefits retirement plan
A defined benefit retirement plan is a form of life annuity normally provided by an employer or government (such as Social Security in the United States). The size of a payment is usually determined by employment, age, and employee salaries.
Individual annuity
Individual annuities are insurance products that are marketed to individual consumers. With the choice of complex options available, consumers can find it difficult to decide rationally on the kind of annuity product that is right for their circumstances.
Pending annuity
There are two phases for pending annuities:
- accumulated or suspension phase where the customer deposits (or pays the premium) and raises money into the account;
- distribution or annuitization phase in which the insurer makes an income payment until the annuitant's death is mentioned in the contract
Deferred annuities grow capital by investing in the accumulated phase (or suspension phase) and making payments during the distribution phase. A single premium suspended annuity (SPDA) allows single or premium deposits on annuity issues with investment growth only during the accumulation phase. A flexible premium annuity annuity (FPDA) allows additional payments or premiums to follow an initial premium during the accumulation phase.
Annuity stages can be combined in the fusion of retirement savings and pension payment plans: annuitants make regular contributions to annuities up to a certain date and then receive regular payouts from it to death. Sometimes there is a life insurance component added so that if the annuitant dies before the annuity payment begins, the recipient gets either a one-time payment or an allowance payment.
Immediate annuity
Annuities with only the distribution phases are immediate annuities, single premium immediate allowances (SPIA), annuity payments, or annuity revenues . Such contracts are purchased with a single payment and make payments until the annuitant's death (s).
Fixed and variable annuities
Annuities that make payments in fixed amounts or in inflated amounts with a fixed percentage are called fixed annuities. Variable annuities, on the contrary, amounts of payments vary according to the investment performance of a particular set of investments, usually bonds and equity funds.
Variable annuities are used for a variety of purposes. One of the common goals is the suspension of the recognition of taxable profits. The money held in the annuity variable grows on the grounds of the withholding of the tax, so the tax on the return on investment does not mature until the withdrawal is made. Variable annuities offer a variety of funds ("subaccount") from various money managers. This gives the investor the ability to switch between sub-accounts without incurring additional costs or sales charges.
Variable annuities have been criticized for high commissions, deferred sales costs, deferred tax growth, high taxes on profits, and high annual costs. Sales violations became so common that in November 2007, the Securities and Exchange Commission approved FINRA Rule 2821 which required brokers to specify specific conformity criteria when recommending a purchase or exchange (but not delivery) of a deferred variable annuity.
Annuity guaranteed
Pure life annuities stop to make payments for the death of the annuitant. A annuity assurance or a particular life and annuity , making payments for at least several years ("certain periods"); if an annuitant outwives a certain specified period, the annuity payment then continues until an annuitant's death, and if the annuitant dies before the expiry of a certain period, the estate annuitant or heirs are entitled to collect a certain remaining payment. The tradeoff between pure life annuities and life annuities with a certain period is that instead of reducing the risk of loss, annuity payments for the latter will be smaller.
Shared annuity
Lifetime and congratulations annuities make payments until the death of one or both annuitants each. For example, an annuity can be arranged to make payments to a married couple, the payment stops at the death of the second spouse. In a joint-survivor annuity, sometimes the instrument reduces payments to the second annuitant after the first death.
Annoyed life annoyed
There is also a significant growth in the development of life annuity. This involves an increase in the requirements offered due to a medical diagnosis severe enough to reduce life expectancy. A process of medical insurance is involved and various qualification conditions have increased substantially in recent years. Conventional annuities and Shopping Purchase Annuities may qualify for the affected requirements.
Assessment
Valuation is the calculation of value or economic value. The annuity valuation is calculated as the present value of the actuarial annuity value, which depends on the probability of a live annuitant for each future payment period, as well as the future interest rate and repayment period. The life table provides the survival probabilities required for such calculations.
Annuities by region
United States
With "single premium" or "immediate" annuities, "annuitant" pays an annuity with one sum at a time. Annuities start making regular payments to annuitants in a year. The general use of single premium annuities is as a goal to save pension savings after retirement. In such a case, a pensioner withdraws all the money he has saved during the period of work, for example, an Individual Retirement Account (IRA), and uses part or all of the money to purchase an annuity whose payments will supersede pension payments for the rest of his life. The advantage of such an annuity is that the annuitant has a lifetime guaranteed income, whereas if a pensioner actually withdraws money regularly from a retirement account (income withdrawal), he may run out of money before dying, or otherwise have as much to spend as life as possible occurs with the purchase of an annuity. Another common use for income annuities is paying recurring fees, such as assisted living expenses, mortgages or insurance premiums.
The disadvantage of such an annuity is that the election can not be canceled and, because of inflation, the guaranteed income for life is not the same as guaranteeing a comfortable income for life.
United Kingdom
In the UK the conversion of retirement income into an annuity is mandatory at the age of 75 until a new law is introduced by the coalition government in April 2011. The new rules allow individuals to postpone the decision to purchase unlimited annuities.
In the UK there is a large market annuity of various types. The most common is where the source of funds needed to purchase an annuity is from the pension scheme. An example of this type of annuity, often referred to as a Compulsory Purchase Annuity, is a conventional annuity, with a profit allowance and associated unit, or a "third way" annuity. Annuities purchased from savings (ie not from a pension scheme) are referred to as Purchase and Annuity Weighted Soft Annuities. In October 2009, the International Longevity Center-UK published a report on Time to Annuitise Life. In the UK it has become commonplace for living companies to base their level of annuity on individual locations. Law & amp; General was the first company to do this in 2007.
Canada
In Canada, the most common type of annuity is a lifetime annuity, which is usually bought by people in their retirement age with tax-protected funds or with savings funds. Monthly payments of annual allowances with tax-protected funds are entirely taxable when withdrawn because either the capital or its return has been taxed in any way. In contrast, income from an annuity purchased with a savings fund is divided between the return on capital and interest earned, with only the last taxable one.
An annuity can be a single life annuity or a lifetime annuity where the payment is guaranteed until the death of the second annuitant. This is considered ideal for pensioners as it is the only income from a fully guaranteed financial product. In addition, while monthly payments for the maintenance and pleasure of the annuitants, any guaranteed payments on unregistered benefits proceed to the recipient after the second death. In this way the balance of payments is guaranteed to support family members and become income of two generations.
Internationally
Some countries are developing more value options for this type of instrument than others. However, a 2005 study reported that some of the risks associated with longevity were not properly managed "practically everywhere" because the government backed away from a pledge of definite benefits and insurance companies were reluctant to sell real life annuities because of fears that life expectancy would rise. Long life insurance is now becoming more common in the UK and US (see Future of annuites, below) while Chile, compared to the US, has had a huge life annuity market for 20 years.
The future of annuity
It is expected that aging baby boomer generations in the US will increase demand for this type of instrument and for that it is optimized for the annuitant. This growing market will drive improvements that require more instrument research and development and increase insight into the mechanisms involved in the part of the buyer community. An example of increased supervision and discussion is related to the privatization of parts of the US Trust Fund for Social Security.
At the end of 2010, discussions related to Federal tax cuts raised new concerns: what is the annuity cost for retirees if he has to replace his Social Security revenues? Assuming that the average benefit of Social Security is $ 14,000 per year, the replacement cost will be about $ 250,000 for a 66 year individual. The figures are based on individuals who receive a tailored inflation stream that will pay for life and are insured.
The ruling European Court
In March 2011, a European Court decision was made to prevent an annuity provider from assigning different premiums to men and women. The level of annuity for men is generally higher than for women because they have a shorter life expectancy. Changes mean that the level of annuity for men will drop or the level of annuity for women will increase.
In the UK any annuity taken after December 21, 2012 must comply with the verdict.
See also
- The value is now actuary
- Annuities (European financial arrangements) #Life annuities
- Certificate of life
- Retired
- Living treasure
References
External links
- Maths and spreadsheets for purchase and suspension decisions
- assorted annuities
- Annuities Interview Variables - Legal Perspective
Source of the article : Wikipedia
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