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1. What is annuity? *ANNUITY - is a series of periodic payments (or receipts), usually made in equal amounts.

The payments are computed by the compound interest method and are made at equal intervals of time, such as annually, semi-annually, quarterly or monthly. -the word annuity originally referred only to annual payments, but it now applies to payment intervals of any length of time. 2 .Types of annuity *ANNUITY CERTAIN -is an annuity payable for a definite duration not dependent on some outside contingency. It means that this annuity begins and ends on a definite or fixed date. *ANNUITY UNCERTAIN/CONTINGENT ANNUITY - is an annuity payable for an indefinite duration in which the beginning or termination is dependent on some certain event. It means that this annuities first or last payment, or both, depends upon some events. a)IMMEDIATE *fixed immediate-the amount of income you receive each month will be a fixed amount; it will stay the same throughout the term of your annuity contract. To determine the approximate amount of income you would receive from an immediate annuity, depending on how much you invest *inflation-indexed immediate annuity- is a form of a fixed annuity. An inflationindexed annuity will provide a lower initial amount of monthly income than a non-indexed immediate annuity, but over time, as inflation continues, the monthly income will gradually increase, surpassing the amount you would be receiving from an equivalent non-indexed annuity. *variable immediate annuity- the insurance company does not provide a guaranteed stream of income; instead the amount of income you receive will depend on the performance of a portfolio of underlying investments, usually stock and bond mutual funds. b) DEFERRED *fixed deferred annuity- A fixed deferred annuity earns a fixed rate of interest, a lot like a bond. As the interest amount is fixed, the amount you can earn is also fixed. While this payment structure reduces the level of risk, it also limits the lifetime return. *variable deferred annuity-A variable annuity invests in the stock market, which makes the return variable; however, there's more risk involved, so the return is usually higher to compensate. The money can be withdrawn in the same way as a fixed deferred annuity--as a lifetime income source. *equity indexed annuity(EIA)- An equity index deferred annuity (EIA) earns interest based on the stock market by tracking one of the major stock indexes like the S&P

500, Dow or Nasdaq. An EIA guarantees principal protection (initial investment) and will not go down in value; however, if the stock market goes up in value, you will enjoy additional gains. Again, if the index goes down, your investment does not go down with it. This is similar to an equity linked CD.

3. IMMEDIATE ANNUITY- annuities provide a guaranteed stream of income to you. You purchase this stream of income by giving the insurance company a lump sum of money; in return they calculate how much monthly income they can provide to you based on the type of annuity (fixed, variable or inflation-indexed) and based on the term of the annuity that you choose (life-only, joint life, term certain). 4. DEFERRED ANNUITY- is an investment contract that delays income payments to a later date. Deferred annuities have two main phases: the savings phase and the income phase. The most common types of deferred annuities are fixed, variable and equity index. All three have attributes that vary based on risk tolerance and return potential. 5. Basic types of deferred annuity *Fixed Deferred Annuity -A fixed deferred annuity earns a fixed rate of interest, a lot like a bond. As the interest amount is fixed, the amount you can earn is also fixed. While this payment structure reduces the level of risk, it also limits the lifetime return. *Variable Deferred Annuity -A variable annuity invests in the stock market, which makes the return variable; however, there's more risk involved, so the return is usually higher to compensate. The money can be withdrawn in the same way as a fixed deferred annuity--as a lifetime income source. *Equity Index Deferred Annuity (EIA) -An equity index deferred annuity (EIA) earns interest based on the stock market by tracking one of the major stock indexes like the S&P 500, Dow or Nasdaq. An EIA guarantees principal protection (initial investment) and will not go down in value; however, if the stock market goes up in value, you will enjoy additional gains. Again, if the index goes down, your investment does not go down with it. This is similar to an equity linked CD.

6. Classification of simple annuities A. By terms *Annuity certain-the term off annuity certain begins and end an definite dates, such as 5 years term from January 1,1998 to January 1,2003. *Perpetuity- the term of perpetuity begins on a definite date but never ends, such as principal that remains forever untouched, drawing interest. The length of the term is infinite. *Contingent Annuity- the term of the contingent annuity begins on a definite date but the ending date is not fixed in advance. Instead, the ending date depends on same condition happening in the future.

B. By dates of payments *Ordinary Annuity-periodic payments are made at the end of each payment interval. *Annuity Due- periodic payments are made at the beginning of each payment interval. *Deferred Annuity-periodic payments are made at the end of each payment interval.