Enhanced annuity

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There are many different types of annuity [1] [2] 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 shorter 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 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.[ citation needed ]

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<span class="mw-page-title-main">Life insurance</span> Type of contract

Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of an insured person. Depending on the contract, other events such as terminal illness or critical illness can also trigger payment. The policyholder typically pays a premium, either regularly or as one lump sum. The benefits may include other expenses, such as funeral expenses.

<span class="mw-page-title-main">Yield (finance)</span> Financial term

In finance, the yield on a security is a measure of the ex-ante return to a holder of the security. It is one component of return on an investment, the other component being the change in the market price of the security. It is a measure applied to fixed income securities, common stocks, preferred stocks, convertible stocks and bonds, annuities and real estate investments.

A certificate of deposit (CD) is a time deposit sold by banks, thrift institutions, and credit unions in the United States. CDs typically differ from savings accounts in that the CD has a specific, fixed term before money can be withdrawn without penalty and generally higher interest rates. The bank expects the CD to be held until maturity, at which time they can be withdrawn and interest paid.

Term life insurance or term assurance is life insurance that provides coverage at a fixed rate of payments for a limited period of time, the relevant term. After that period expires, coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments or conditions. If the life insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is typically the least expensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis over a specific period of time.

Universal life insurance is a type of cash value life insurance, sold primarily in the United States. Under the terms of the policy, the excess of premium payments above the current cost of insurance is credited to the cash value of the policy, which is credited each month with interest. The policy is debited each month by a cost of insurance (COI) charge as well as any other policy charges and fees drawn from the cash value, even if no premium payment is made that month. Interest credited to the account is determined by the insurer but has a contractual minimum rate. When an earnings rate is pegged to a financial index such as a stock, bond or other interest rate index, the policy is an "Indexed universal life" contract. Such policies offer the advantage of guaranteed level premiums throughout the insured's lifetime at a substantially lower premium cost than an equivalent whole life policy at first. The cost of insurance always increases, as is found on the cost index table. That not only allows for easy comparison of costs between carriers but also works well in irrevocable life insurance trusts (ILITs) since cash is of no consequence.

A structured settlement is a negotiated financial or insurance arrangement through which a claimant agrees to resolve a personal injury tort claim by receiving part or all of a settlement in the form of periodic payments on an agreed schedule, rather than as a lump sum. As part of the negotiations, a structured settlement may be offered by the defendant or requested by the plaintiff. Ultimately both parties must agree on the terms of settlement. A settlement may allow the parties to a lawsuit to reduce legal and other costs by avoiding trial. Structured settlements are most widely used in the United States, but are also utilized in Canada, England and Australia.

Passive income is a type of unearned income that is acquired with minimal labor to earn or maintain. It is often combined with another source of income, such as regular employment or a side job. Passive income, as an acquired income, is taxable.

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A personal pension scheme (PPS), sometimes called a personal pension plan (PPP), is a UK tax-privileged individual investment vehicle, with the primary purpose of building a capital sum to provide retirement benefits, although it will usually also provide death benefits.

In the United States, an annuity is a financial product which offers tax-deferred growth and which usually offers benefits such as an income for life. Typically these are offered as structured (insurance) products that each state approves and regulates in which case they are designed using a mortality table and mainly guaranteed by a life insurer. There are many different varieties of annuities sold by carriers. In a typical scenario, an investor will make a single cash premium to own an annuity. After the policy is issued the owner may elect to annuitize the contract for a chosen period of time. This process is called annuitization and can also provide a predictable, guaranteed stream of future income during retirement until the death of the annuitant. Alternatively, an investor can defer annuitizing their contract to get larger payments later, hedge long-term care cost increases, or maximize a lump sum death benefit for a named beneficiary.

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.

<span class="mw-page-title-main">Mortgage loan</span> Loan secured using real estate

A mortgage loan or simply mortgage, in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any purpose while putting a lien on the property being mortgaged. The loan is "secured" on the borrower's property through a process known as mortgage origination. This means that a legal mechanism is put into place which allows the lender to take possession and sell the secured property to pay off the loan in the event the borrower defaults on the loan or otherwise fails to abide by its terms. The word mortgage is derived from a Law French term used in Britain in the Middle Ages meaning "death pledge" and refers to the pledge ending (dying) when either the obligation is fulfilled or the property is taken through foreclosure. A mortgage can also be described as "a borrower giving consideration in the form of a collateral for a benefit (loan)".

A life annuity is an annuity, or series of payments at fixed intervals, paid while the purchaser is alive. The majority of life annuities are insurance products sold or issued by life insurance companies however substantial case law indicates that annuity products are not necessarily insurance products.

An indexed annuity 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 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 than fixed instruments such as certificates of deposit (CDs), money market accounts, and bonds but not as high as market returns. Equity Index Annuities are insured by each state's Guarantee Fund; coverage is not as strong as the insurance provided by the FDIC. For example, in California the fund will cover "80%, not to exceed $250,000." The guarantees in the contract are backed by the relative strength of the insurer.

Seller financing is a loan provided by the seller of a property or business to the purchaser. When used in the context of residential real estate, it is also called "bond-for-title" or "owner financing." Usually, the purchaser will make some sort of down payment to the seller, and then make installment payments over a specified time, at an agreed-upon interest rate, until the loan is fully repaid. In layman's terms, this is when the seller in a transaction offers the buyer a loan rather than the buyer obtaining one from a bank. To a seller, this is an investment in which the return is guaranteed only by the buyer's credit-worthiness or ability and motivation to pay the mortgage. For a buyer it is often beneficial, because he/she may not be able to obtain a loan from a bank. In general, the loan is secured by the property being sold. In the event that the buyer defaults, the property is repossessed or foreclosed on exactly as it would be by a bank.

Longevity insurance, describes the process of mitigating against Longevity risk. Such risk mitigation is often achieved using a longevity annuity or Tontine, qualifying longevity annuity contract (QLAC), deferred income annuity, is an annuity contract designed to provide to the policyholder payments for life starting at a pre-established future age, e.g., 85, and purchased many years before reaching that age.

The Open Market Option was introduced as part of the 1975 United Kingdom Finance Act and allows someone approaching retirement to ‘shop around’ for a number of options to convert their pension pot into an annuity, rather than simply taking the default rate offered by their pension provider.

Fixed annuities are insurance products which protect against loss and generally offer fixed rates of return. The rates are typically based on the current interest rate environment. They are offered by licensed and regulated insurance companies. State insurance/insolvency funds 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."

Income drawdown is a method withdrawing benefits from a UK Registered Pension Scheme. In theory, it is available under any money purchase pension scheme. However, it is, in practice, rarely offered by occupational pensions and is therefore generally only available to those who own, or transfer to, a personal pension.

References

  1. "Enhanced Annuity, Guaranteed Annuity, Variable Annuities, Investment Annuity". Archived from the original on 2012-04-13. Retrieved 2012-01-08.
  2. Protecting future income