section 1 - The American College Online Learning Center

(1) Deferred annuities may waive surrender charges at the death of theannuitant or if the policyowner wants to annuitize contract values into aguaranteed income stream.(2) For those who need income from the annuity soon after purchase, mostpolicies provide for withdrawals without penalty as long as the amountdoes not exceed 10% of the account's value.(3) If taking withdrawals from a deferred annuity soon after purchase isrequired it is important to consider the surrender charges. These chargeslimit the ability to access the account for an emergency of large paymentsas well.e. Even though deferred annuities allow annuitization, and may provide favorableannuity rates, most policy owners today do not annuitize—but take withdrawals asneeded. There is a tax implication for this decision, when an annuity is annuitizeda portion of each payment is a return of investment that is not taxed. With adeferred annuity, distributions are fully taxed until all earnings have been paid out.9. Fixed deferred annuitiesa. Fixed guarantees(1) Fixed-interest deferred annuities may be purchased with single or flexibleinvestments.(2) The contract holder will be entitled to a guaranteed interest rate which canbe guaranteed for a period ranging from one to 10 years.(3) After the guaranteed period is up, the guarantee will be reset, but notbelow the minimum guaranteed interest rate.(4) Deferred fixed annuities can be an alternative to CD investments in aretirement accumulation or income portfolio—allowing the potential forbetter tax treatment, and in some cases more withdrawal flexibility.b. Indexed annuities(1) Indexed annuities provide an interest rate that is not fixed—but will be tiedtypically to an equity index, such as the S&P 500.(2) There are a number of methods for crediting interest and it is important tounderstand how the product works. Most methods provide some sort ofcap on the interest that can be credited each year.(3) What makes the indexed annuity different than investment products or avariable annuity is that there will also be a minimum guaranteed interestrate. It may be 0%, but that still means that policy owner cannot have anegative return.(4) Because of the range of products it can be difficult to compare products.Conceptually, indexed annuities are a way to participate in the upside ofthe equity market while limiting the downside risk.10. Variable deferred annuitiesa. Deferred variable annuities offer the opportunity for the policy owner to choosefrom a range of investment alternatives, including investing in equities throughpooled funds.b. They do not offer the downside protection of the indexed annuity, but theyallow fuller participation in the upside. Deferred annuities today offer indirect7.17