Q1
Annuities account for a great part of the protection one affords self against death. They do not follow the application of the law of large numbers as the law is traditionally utilized in life insurance. It has, therefore, been referred to as “upside-down life insurance.” When an annuitant passes away during the period of accumulation, their beneficiaries are paid a death benefit. The common treatment of annuities is to account for gross premium returns excluding interest or to account for the cash value, whichever is greater. The principle is for the principal sum to be liquidated over the annuitant’s lifetime regardless of the means of accumulation.
Q2
Annuities can fall under various classes. Traditionally, the following classifications have been used to differentiate annuities:
i. Individual vs. group annuity
ii. Fixed-dollar vs. variable annuity
iii. Deferred annuity vs. immediate annuity
iv. Installment annuity vs. single-premium annuity
v. Single life vs. joint life annuity
vi. Annuity certain vs. pure life annuity
In the case of specialized annuities, the contract options available include:
i. Single-premium deferred annuity (SPDA)
ii. Two-Tier Annuity
iii. Market-Value-Adjusted Annuities
iv. The Variable Annuity
v. Index Annuities
vi. The Contingent Deferred Annuity
vii. Survivorship or Reversionary Annuity
Q3
Investors have to account for inflation when projecting the future value of their investments. The Variable Annuity helps investors cope with the effects of inflation on investment portfolios. The underlying theory is that while the value of a dollar will change over time, a diversified...
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