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 Friday, July 30, 2010
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PREMIER SERIES Annuity FAQ
An annuity is a long-term contract between you and an insurance company, in which you give ASL a sum of money (called a premium). This premium accumulates over time on a tax-deferred basis until you withdraw it from the annuity or begin taking a guaranteed income from the contract. This contract is a flexible premium annuity, so you can make more than one premium payment. Additional premiums, however, may be made only in the first 12 months, subject to restrictions. Owners (and Annuitants, if the Owner is not a Natural Person) must be 18 to 80 years of age. Within 30 days after this contract is first received, it may be cancelled for any reason by delivering or mailing it to the agent through whom it was purchased or to the home office of ASL Upon timely cancellation, ASL will return any premium paid and this contract will be void from the contract date. Your initial premium may be any amount not less than $5,000 and not more than $350,000. During the first 12 months of the contract you may make additional premium payments as long as: (1) each premium payment is at least $5,000; (2) the total additional premiums do not exceed the amount of the initial premium; and (3) total premiums do not exceed $350,000." During the surrender charge period, if the renewal interest rate is less than the base rate, surrender charges are waived for partial and full surrenders requested within 30 days after the contract anniversary in which the renewal interest rate falls below the base rate. This is the interest rate at issue. It applies only to the initial premium payment and additional premium payments received during the first contract year. This initial interest rate is guaranteed for the first contract year. This is the same interest rate as the Initial Interest Rate. This rate applies to additional premium for the remainder of the first contract year. The minimum guaranteed interest rate on your contract is set at the time you purchase your contract and is guaranteed never to change for the life of the contract. Depending on your state, the minimum guaranteed interest rate may be the same for all years you own your contract or it may be one rate for the first ten years of your contract and another rate for all subsequent years. It could also be subject to the minimum non-forfeiture rate. Regardless, the rate will not change once it is declared, and it will not be less than 3.00%. All premiums received during the first contract year (initial premium plus additional premiums) will earn interest daily. Interest is credited at the end of each contract year (compounded annually). Prior to each contract anniversary, a renewal interest rate will be declared and will be applied to the account value and guaranteed for the contract year that follows that anniversary. Select one of the following options in any one contract year: - After the first year, withdrawals of up to 10% of account value as of the first day of the current contract year are available.
- Monthly interest income available immediately.
Alternatively, full or partial withdrawals during the 30-day bailout period are also penalty free. See the Bailout section of the Disclosure Statement for details.
Early withdrawals or surrender may be subject to tax and/or tax penalties. Early withdrawal charges may not apply to certain features. Please refer to your contract for full details. The surrender value is the account value, less any applicable surrender charges and taxes, if applicable. The surrender value will never be less than the amount of the premiums, less any premium taxes, less any prior withdrawals, plus interest credited at the effective minimum guaranteed interest rate, reduced by any applicable surrender charges. The account value equals the initial premium plus any additional premiums plus interest earned minus any prior partial surrenders that may include surrender charges; minus any taxes, if applicable.
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General Annuity FAQ
The word “annuity” means “an amount payable annually”. An annuity refers to a contract offered by insurance companies that allows an annuity buyer to save funds for retirement on a tax-favored basis and then choosingly receive a guaranteed income payable for life or for a certain period such as five or ten years. Annuities are offered by insurance companies; the insurance companies that are licensed to underwrite life insurance and annuities by the state in which an annuity buyer resides. Each such insurance company is a qualified legal reserve life insurance company subject to financial requirements specifying the minimum reserves the company must maintain on its policies. Annuities are sold by the agents that are licensed by the states to sell life insurance. The licensed life insurance agents, most financial planners and stock brokers in a state can sell annuities. In order to safeguard the funds of annuity contract holders or policy owners, State Laws demand the insurance companies to meet strict financial requirements. According to these legal financial requirements, the insurance companies are legally bound to set up a reserve, which at all times must be equal to the withdrawal or surrender value of their total block of annuity policies or contracts i.e. the annuity providing insurance companies must set aside funds equal to the surrender value of every annuity contract in force. Additionally the state laws also require certain levels of capital and surplus to further protect the annuity holders or policy owners. Broadly there are two classes of annuities; immediate annuities and deferred annuities and these two classes have various sub classes including fixed deferred, variable, and equity-indexed annuities. The annuity in which the benefit payments begin very quickly, normally within one year of the time it is purchased is termed as an immediate annuity. An immediate annuity is commonly purchased with a single premium. The annuity in which a policy holder pays a premium to the annuity providing insurance company that issues a contract promising to pay interest or gains made on the deposit while deferring the income and the taxes until you actually withdraw the money or begin receiving an income. Three major types of deferred annuities are Fixed Deferred annuities, Equity-Indexed annuities, and Variable Annuities. The death benefit on most fixed deferred annuities is equal to the full contract value, i.e. premium plus accrued interest compounded annually and credited daily minus any prior withdrawals, calculated as of the date of death. Qualified annuities are sold as part of a tax-qualified plan such as an IRA, Keogh, SEP, or company pension plan, and Nonqualified annuities are not used to fund a tax qualified plan such as an IRA, Keogh, SEP, SEP IRA, or TSA Their tax deferred status, the avoidance of probate, and the promise of guaranteed income for life make annuities different from other types of investments. The tax deferred status of annuities means that an annuity holder defers the income and the taxes until he/she actually withdraws the money or begins receiving an income. Probate is a judicial process to establish the validity of a will. The process of Probate can delay the passing on of assets to heirs. Assets in an estate are subject to probate and can’t be passed on to heirs unless the probate court certify the validity of the will and authorize the executor to execute the will. People avoid “probate” because the judicial process can take anywhere between six and twelve months to conclude, and the legal expenses can be significant. Annuities and life insurance policies are not subject to probate and may be passed to a designated beneficiary directly without going through probate.
| ANNUITY GLOSSARY
Annuity is a financial topic that should be comprehensively comprehended by an annuity buyer before getting into an annuity contract. The subject will seem to you a confusing and a complicated at first glance, but if you learn the definitions to key terms related to annuities, it’ll become easier for you to grasp the thing properly. Here are some important definitions that will help you understand annuities properly.
1035 Exchange: It is the transfer of an investment from one Annuity Company to another. This transfer is not taxed.
Account Value: It’s the total value of the annuity i.e. the principal plus interest less any withdrawals made.
Annuitant: An Annuitant is the person who receives or is entitled to receive annuity payments. Annuitant, often the annuity policyholder, is also, the “measuring life” of the annuity contract.
Annuitization: The process of converting an annuity from a single sum to take a guaranteed monthly or annual income from the annuity.
Annuity Certain: Annuity Certain is the contract that offers the annuitant or the beneficiary (if the annuitant dies) an income for a specified number of years, regardless of the policyholder’s life or death.
Beneficiary: The person or organization named in the annuity policy as the recipient of annuity insurance proceeds in the event of the demise of the annuity holder.
Bond Strategy Annuity: It’s a type of fixed-deferred annuity that provides a guaranteed minimum interest and allows a client to select from various investment strategies that are designed to follow a particular bond-index.
Bonus Annuity: A type of fixed-deferred annuity providing an additional bonus, in the form of additional interest or additional principal (typically from 1% to 5%), in the first year of the contract.
CD or Certificate of Deposit: A savings instrument offered by banks and savings and loans that guarantees a fixed interest rate for a specific period of time (e.g., 90 days, 6 months, 1 year, 3 years, 5 years).
Death Benefit: The “death benefit” is term used for the annuity benefits offered after the death of a policy holder. All annuities have a death benefit; typically, IRS premature distribution tax is waived under the death benefit.
Equity-Indexed Annuity: A type of deferred annuity that credits interest based upon growth of an equity index such as the S&P 500 Index, the Dow Jones Industrial Average, or the NASDAQ 100 Index, yet still guarantees principal.
Exclusion Ratio: It is the proportion of an annuitized payment, which is a return of capital and thus it’s not taxed.
Fixed Deferred Annuity: It is a type of deferred annuity, which offers a fixed rate of interest guaranteed for a specific period of time. These annuities are also tax deferred.
Flexible Premium Deferred Annuity: It’s an annuity contract, which permits varying premium payments from year to year and is often used for individual retirement accounts. Flexible premiums are extremely common with variable annuities but rare with fixed-rate annuities.
Forced Annuitization: It’s the term used for the condition when an annuity contract requires liquidation once the annuitant reaches a certain age (typically 80 or 85).
Free Withdrawal: It’s a provision in most deferred annuities that allows a policyholder to withdraw a certain amount (typically up to 10% of their account value) without incurring a surrender or withdrawal charge. Normally, the withdrawals are taxable and may be subject to a tax penalty if taken beFor age 59½.
Guaranteed Death Benefit: Under the “Guaranteed Death Benefit,” the beneficiary gets the greater of the principal or the value of the account as of the date of the annuitant’s death.
Guaranteed Income: It is the monthly or annual income payment made by an insurance company after annuitizing an annuity
Immediate Annuity: The annuity in which money is paid to annuitant either right away or within a month, quarter, or year. The size of each payment depends on the premium, the accrued interest, and the period of time over which payments are made. The annuity is designed for the people who need income on a regular basis.
Issue Age: The annuitant’s age on the date of issuance of the annuity policy.
Joint Annuitants: Two persons, typically a husband and wife, taking an annuity policy. The payments in the joint annuitants’ case continue until the death of the last annuitant.
Legal Reserve: The minimum amount of funds, as calculated under the state insurance code, which an insurance company must keep to meet future claims and obligations. The amount of the legal reserve varies from state to state.
Legal Reserve Life Insurance Company: A life insurance company operating under state insurance laws specifying the minimum basis for the reserves the company must maintain on its policies.
Life Annuity: An annuity that provides an income for life.
Lifetime Minimum Interest Rate Guarantee: The underlying minimum interest rate (typically 3%) guaranteed on an annuity for the length of the annuity contract.
Multi-Year Interest Rate Guarantee Annuity: It’s a type of deferred annuity that offers an interest rate that is guaranteed for multiple years, e.g. five, seven, or ten years.
No-Load: An investment that does not charge the investor a commission fee. Annuities are “no load” investments.
Nonqualified: The annuity that is not used to fund a tax qualified plan such as an IRA, Keogh, SEP, SEP IRA, or TSA.
Probate: The legal process used to validate a will. Annuities are not subject to probate.
Qualified: The annuity that is sold as part of a tax-qualified plan such as an IRA, Keogh, SEP, or company pension plan.
Reserve: The amount required to be carried as a liability in the financial statement of an insurance company to provide for future commitments under policies outstanding.
Settlement Options: One of several ways, other than immediate payment in a lump sum, in which the insured or beneficiary may choose to have policy proceeds paid.
State Insurance Department: An administrative agency that implements state insurance laws and supervises, within the scope of those laws, the activities of insurers operating within the state.
IMPORTANT DISCLOSURES
Insurance and annuity products
• are not deposits
• are not guaranteed by a bank
• are not insured by the FDIC or any other federal government agency, and
• may decrease in value
This website should be considered an advertisement and is not a contract. Our insurance products are underwritten by American Savings Life Insurance Company, a Mesa, Arizona based life insurance company. Products and services mentioned in this website are only available for residents of the states in which American Savings Life Ins Co is licensed, which currently are Arizona and Utah. The information in this website is provided to support the sale of insurance and annuity products offered by American Savings Life Ins Co. Based on your particular circumstances, you should seek advice from an independent tax adviser. You cannot rely upon or use the information on this website for the purpose of avoiding any tax or tax penalty that may be imposed by the Internal Revenue Service. | Note: Our policies & insurance products are currently available to AZ and UT residents only. |
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