Annuities and Related Terms ch 9 flash cards

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403(b) Plan

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A retirement plan for certain employees of public schools, employees of specific tax-exempt organizations, and certain ministers, as defined in Section 403(b) of the IRS tax code.

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1035 Contract Exchange

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A provision that allows an annuity to be exchanged for another annuity without realizing a gain for tax purposes. It also applies to exchanges of life insurance policies or endowment contracts for annuities, but not vice versa.

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Accumulation Period

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The period during which premiums paid into an annuity are credited as accumulation units, continuing until the payout begins.

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Accumulation Units

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Units representing the value of contributions made by the annuitant, less expenses, varying with the value of the underlying stock investment.

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Annuitant

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The person to whom an annuity is payable or upon whose life future payments depend.

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Annuity Units

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Units used to make payments to the annuitant, received once accumulation units are converted at the start of the payout period.

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Cash Refund Option

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An option that provides a lump-sum payment to beneficiaries if the annuitant dies before payments equal the purchase price.

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Deferred Annuity

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An annuity that postpones payments until after a specified period or age, purchasable with single or flexible premiums.

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Equity Indexed Annuity (EIA)

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A fixed deferred annuity offering a guaranteed minimum interest rate and an excess interest feature based on an external equities market index.

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Exclusion Ratio

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A fraction used to determine the amount of annuity income exempt from federal income tax, calculated by dividing total contributions by the expected ratio.