What is an annuity contract?
In a nutshell, an annuity is a contract which provides a series of payments over a period of time. The period of time involved usually is the recipient’s lifetime. Annuities are paid for by making a premium payment, or a series of premium payments, to the insurance company.
The Parties to an Annuity
Normally, the parties to an annuity include the following persons or entities:
- Owner: The owner is the person who purchases the annuity.
- Annuitant: The annuitant is the person under the annuity who will receive the series of payments under the annuity. The owner and the annuitant can be the same person.
- Beneficiary: The beneficiary of the annuity contract is the person who will receive the death benefit when the owner/annuitant dies. The payment of the death benefit is governed by the terms of the annuity contract itself.
- Insurance company: The insurance company is the entity which issues the annuity contact. The insurance company will be responsible for, in many cases, investing the owner’s premium payments in a responsible manner. Also, the insurance company will credit interest to the funds placed in the annuity.
Types of Annuities
Single Premium Annuities: A single premium annuity is a contract where only a single premium is paid to the insurance company. Usually, the single premium amount is a large figure.
Flexible Premium Annuities: This type of annuity allows premium payments to be made at varying intervals and in varying amounts.
Fixed Annuities: A fixed annuity is one where the insurance company pays the annuitant income payments at a fixed rate of interest. Fixed annuities give security in the sense that the fixed rate of return is certain. Also, the periodic annuity payments received from the insurance company will be the same.
Equity-Indexed Annuity: An Equity-Indexed Annuity (EIA) earns interest that is linked to an external equity index, such as the S&P 500 or another stock index. An EIA allows the holder of the annuity to participate in market index increases without completely giving up the guarantee of minimum interest rate that is set forth in the annuity contract. The annuitant will be guaranteed a minimum interest rate no matter how low the index-linked interest rate moves.
Variable Annuities: In a variable annuity the annuity holder will receive varying rates of interest depending on the annuitant’s investment portfolios. The value of the annuity will increase or decrease with the investment performance of the underlying security. A variable annuity is considered a “security” under federal law. The holder of the annuity will be entitled to receive a prospectus before making the investment.
Settlement & Payment Options
Settlement options refer to how the annuity makes payment of the income benefits of the annuity. The settlement option will depend on the type of annuity.
Life Annuity: In a life annuity the annuitant will receive payments from the annuity until his or her death no matter what. Payments will stop when the annuitant dies.
Period Certain & Life Annuity. In this type of annuity payments of the annuity are made during a predetermined time frame, which is called the period certain. For example, the period certain under the annuity could be 5 years. If the annuitant dies before the period expires, the annuitant’s beneficiary receives the annuity payments until the end of the period. If the annuitant lives beyond the guarantee period, payments will continue until the annuitant dies.
Fixed Period Annuity. This annuity option allows the annuitant to receive the accumulation value in the annuity over a set number of years. This fixed period is sometimes called the “years certain” and typically could last 10 or 20 years. Payments cease after the period expires. However, if the annuitant dies before expiration of the guarantee period benefit payments under the contract would continue to be made to the annuitant’s beneficiary until the period expires.
Fixed Amount Annuity. Under this annuity plan the annuitant will receive a fixed payment under the annuity contract until the funds are exhausted. For example, if the annuity’s total accumulation value is $200,000, the annuitant could elect to receive a monthly benefit payment of $3,000 until the funds run out. If the annuitant dies before the funds in the annuity are exhausted the insurance company will pay the remainder of the proceeds to the beneficiary of the annuity.
Annuities in Florida: Protect Yourself from Harm
If you plan on making a purchase of an annuity in Florida be mindful of the following:
- Confirm you are working with a properly licensed and appointed Florida insurance agent. You can contact the Florida Department of Financial Services to verify the agent’s license.
- If the Florida agent makes any specific representations concerning the annuity–such as with regard to interest rates, bonuses, premium payments, or other material aspects of the annuity contract–ask the agent to put those representations in writing. Don’t just rely on verbal statements from the agent.
- You have the legal right under Florida law to receive a policy summary and Buyer’s Guide from the agent. The right to a policy summary and Buyer’s Guide is codified under Florida Statute 626.99(4). The right to receive a Buyer’s Guide, however, does not apply to variable annuity contracts.
- Once your annuity contract is received you have the right to a 21-day “free look”. This means that you are entitled to an unconditional refund within 21 days if you change your mind and don’t want to proceed with the annuity.
- When the insurance company sends you a policy illustration make sure that you receive all of the pages of the illustration and read the illustration carefully. The policy illustration, which is furnished by the insurance company, usually provides a computer-generated customized projection of your annuity (using actual figures) over the relevant period of time.
- With respect to variable annuity contracts you have the right to receive a prospectus.
Annuity Legal Help
If you have a potential claim with respect to your annuity in Florida, or if you’re seeking to recover your premium from the insurance company, please contact our firm for assistance.
