Life annuities
Life annuities are
called short payments or payments in the context of speech, although it is
better to use life payments or periodic life payments in the title of the
article or subject title to distinguish them from other types of payments such
as loan repayment payments
* Life payments may be called
in a lenient language or beyond pensions or pensions, although they are not
really pensions, but they are similar to pension
* In contrast to life
insurance, life payments are often linked to payment by the survival of the
payment alive alive. If the insurance company stops paying these payments, and
with some exceptions, let us assume that a man of retirement age has a sum of money
(Interest) of this amount to cover the cost of living is forced to be paid out
of capital, capital decreases year after year and thus decreases the return of
it until it loses its capital in one day, and for peace of mind, this man can
go To the insurance company, giving it its capital, which in turn guarantees
him fixed income living range And this income is called the periodic payment
for life because the insurance company will continue to pay periodic payment,
as long as this man is still alive, if he died, the heirs do not get anything,
and the periodic income that gets this man is in. The truth is part of his
capital plus interest, but the insurance company will continue to pay until he
dies no matter when he dies
* The lower the health level
of the owner of the payment for the insurance payments does not harm the
interest of the insurance company, but on the contrary benefit, if the insured
died, the insurance company will stop paying payments,
Life insurance
creates an immediate wealth for beneficiaries. If the insured dies before he
can accumulate wealth, he provides protection from the risk of death of the
insured. In contrast, the payment provides protection from life and longevity
if the owner of the payment lives for It is a long period of time and has lost
its income and saved its savings while it is alive. Therefore, the main purpose
of life is to provide periodic income guaranteed for the life of its owner. It
offers protection against the risk of excessive longevity. Die, while some die
before they run out of savings, we find that others are still living The
insurance company collects the risks of longevity in a huge group of
individuals, and can calculate the contributions of each individual in this
group. The insurance company often earns interest from these installments that
it collected before paying the payments. To some payment owners, some payment
owners die early, so these parts of their unclaimed principal can be used to
make payments to the surviving payment holders after their expected life and so
The periodic life payments paid by the insurance company to a Payment holders
have three sources:
(A) premiums paid to the
insurance company;
(B) interest on premiums
(C) The contributions of the
holders of the unpaid payments of the outstanding payments after their death
means the installments they paid less the payments they received
By pooling the risk
of excessive longevity, the insurance company can, by aggregating the risk of
longevity in a group of people,
Tax-deferred
products means the income from an investment premium installment accumulates
without taxing until the payment is paid to the payment holder, and in the
deferred tax investment the investor pays the income tax on the profits And the
accrued interest throughout the investment period when it takes money from
investment instead of taxing at the time these profits and interest are
realized, so any profits on its investment during the investment period (the
accumulation period) will be deferred tax.
1 - Definition of life payment
(installment) life annuity (annuity)
* A life payment is a periodic
income (a fixed amount) paid by the insurance company to the payment holder for
the whole lifetime or for a limited period in consideration for a premium or
premiums paid before the payment payment date begins, and the annuitant
(annuity owner) is the person whose life depends on the payment If you die
during the installment payment stage, the payment contract ends with no value
and the payment ends, so it is the person to whom the payment is made. Most
payments are made periodically against a premium called installment premium or
purchase price of the annuity / consideration for the annuity), and this
premium may be a single installment as in the case of immediate payment and
down payment, , Or a regular periodic installment as in the case of deferred
payments.
* The payment is made by a
person called the owner of the payment using a capital amount in the purchase
of a periodic income from the insurance company, this capital amount may be
pension fund (the proceeds of what he took on retirement) or pension from his
personal savings, where the insurer pays income Periodic payment to the
installment holder for a lifetime or for a fixed term in return for the installment
(or installments) that I have taken, and this periodic income is in fact part
of its capital plus interest
2 - Contract payment annuity
contract
A life payment
contract is the document that evidences the agreement to pay a periodic
payment, and contains the details of this agreement such as payment type,
payment terms, payment amount, number of payment times, payment start date,
premium paid against payment, payee name, payee name
* A payment contract is a
contract under which a fixed amount is paid each year called periodic payment,
and this periodic installment continues during the survival of the installment
holder alive or for a specified period during his life, and the installment
owner is the person who depends on his life contract if he died during the
payment period ends contract Without payment, the payment is expressed in the
form of an amount paid annually. Therefore, the periodic period of the subsidy
or the periodic period of the benefit is usually in each year, although in practice
it does not matter that the payment is monthly or quarter Annually or
semi-annually.
3. The annuity rate
Is the amount of
the periodic payment (annual) attributed to the total amount you paid for the
purchase of the payment, for example if the total amount you paid to buy a
lifetime payment is 100 thousand pounds, and the annual payment was 10 thousand
pounds, the installment rate is 10 %, And when we say that the rate of payment
is 10%, it means that you will receive the amount of 10 thousand pounds every
year if you buy a payment of one hundred thousand pounds.
* The rate of the installment
is something different from the rate of return on investment, such as the
interest rate you get from the bank if you deposit the capital of the bank,
which is 100 thousand pounds in this example, when the rate of payment is equal
to 10% 10 thousand pounds, but this installment consists of two parts are part
of the capital and is considered a return of capital and the second part
represents interest on the capital, but the insurance company guarantees
payment of this payment as long as the owner is alive even if exhausted
capital, The payment holder dies during the installment payment phase If you
deposit the capital of the bank at LE 100,000 and the annual interest rate is
10%, you will pay annual interest of LE 10,000 and the capital will remain
fully in the bank without diminishing.
The age of the
installment holder when you buy a single whole life annuity leads to a high
rate of payment, because the insurance company expects to die soon so the
number of payments paid is lower, so the payment rate is determined based on
the life expectancy of the installment owner and the type of installment and
interest rate you expect Insurance company when investing premiums and
administrative expenses of the insurance company
4. Batch classification (by
date of payment)
The periodic
payment can be classified in terms of the timing of the payment of the first
payment after the date of purchase to the immediate payment, the down payment
and deferred payment
* Immediate payment
single premium
immediate annuity / SPIA
Under the immediate
payment, the first installment will be payable after a period of one period
from the date of purchase. This means the first periodic installment payable
after one month from the date of purchase if the payment is paid monthly, or
after one year From the date of purchase if the payment is paid annually,
The immediate
payment is made against a single premium (lump sum) by those persons who have
been referred to the pension or are about to be referred to the pension to
receive a periodic payment that begins to be paid to them after a period of one
periodic period from the date of purchase. The immediate payment may be for a
lifetime The owner of the payment, so it is suitable for those people who want
a periodic income for their lives regardless of whether they will die after a
long time or will die after a short time
The back payment
(immediate) may be a down payment or a down payment with proportion annuity or
without proportion annuity. If the payee dies, there will be a break of the
year between the date of the last payment received and the date of his death.
Suppose that the back payment is paid annually, And that the owner of the
payment has died in the middle of the year, so he is entitled to income of half
a year, but if the owner dies after nine months from the date of the last
payment received, so it is worth three years income, if the back payment is a
back payment If the back payment is a back payment without a percentage, it is
worth nothing.
* Deferred annuity
Is a periodic
payment that can be purchased at a future date more than one year after the
date of purchase. For example, it starts twenty years after the date of
purchase. The period between the date of purchase of the installment contract
and the date of payment of the first installment, During the accumulation
period, premiums and interest are added to the account of the installment
holder. The money is collected and accumulated in this account. Therefore, the
deferred payment is considered a pension program for the accumulation of money
during the career and up to retirement age on deferred tax basis. , And the
payment start date is called the due date The payment or the date of the
acquisition of the right and the deferred payment may be purchased in a single
total amount (in a single installment) or in a regular premium or in a flexible
premium payments during the accumulation period, if purchased in a single lump
sum called a single-premium deferred annuity For example, a person aged 40
years buys a lifetime payment of a single premium of $ 200,000 to pay him a
life-long payment when he or she reaches the age of sixty years. In contrast to
a regular installment, the deferred premium annuity allows The installment
holder may change the installment, so that he does not have to pay a fixed amount
for each periodic period during the period Therefore, the owner of the payment
has great flexibility in paying installments. If the payer dies during the
period of accumulation, the insurance company will receive the total
installments paid or the monetary value of the payment contract whichever is
greater. Once the payment date is due, the payment becomes payable. The payment
holder is entitled to choose any payment options, such as the cash option. On
the payment date, a single lump sum is paid instead of periodic payments, and
the period of payment liquidation (period of payments). ) Is the period after
the accumulation period Is the period in which the payment of the payment to
the owner of installment ,, During the period of installment payments, the
money accumulated is converted to a periodic impulse to be annuitized begins to
pay the payment to the owner of the batch
However, if the
periodic installment is a fixed payment, it does not change over time. Thus,
the fixed installment does not provide protection against inflation. Deferred
payments are suitable for pension schemes.
5. Batch classification (in
terms of duration of payments)
* The main classification of
life payments is their classification into a lifetime payment and a temporary
life payment
5/1 Lifetime payment annuity /
lifetime annuity
A lifetime payment
is a periodic payment or regular income to the payment holder for the duration
of his life, regardless of the length of his life
The payment is
originally paid to him annually, but it is possible to pay it at regular
intervals of less than one year. If the contract ends and the payment ceases,
the main drawback in the installment for life is that when the installment
holder dies, the insurance company does not return to his heirs the principal
capital In which the purchase of the batch, in addition to that the payment
itself stop, do not find the heirs to the source of livelihood.
The purchase price
of this payment is determined on the basis of the age of the installment holder
and the date on which the first payment is made, and the older the payment is,
the cheaper the purchase price.
* When the first installment
is paid one year after the date of the purchase of a lifetime payment, the
payment is called a regular whole life annuity or an immediate lifetime payment
immediately whole life annuity
* When the first installment
is paid on the date of purchase of a lifetime payment, the payment is called a
lifetime payment submitted whole life annuity due.
* When the first installment
is paid more than one year after the date of purchase of a lifetime payment,
the payment is called deferred life life annuity and the delay period is
calculated in two ways as follows:
(A) The period of deferral is
from the date of purchase of a lifetime payment to the date of payment of the
first payment. The premium (or total premiums) and the return thereon during
the period of deferment to the date of payment of the first payment represents
or approximates the total amount of the purchase of a lifetime payment
submitted. If a person at the age of 60 buys a lifetime payment with a single
premium and the first payment is made at the age of 65 years, the period of
delay is five years
(B) The period of deferment is
a period from the date of purchase of a life payment to the date of the year
directly prior to the date of payment of the first installment. The premium (or
total premiums) and the return thereon during the period of deferment to the
date of the year immediately preceding the date of payment of the first payment
represents a lump sum If a person who is 60 years of age has purchased a
lifetime payment with a single premium and is the first to pay at the age of
65, the period of delay is four years.
* Lifetime payment for
critical conditions
A lifelong payment
for critical cases is a lifelong payment but is made by a sick person. If a
person is seriously ill, it is better for him to make such a payment, because
the sum is greater than the normal payment because life expectancy (the
remaining period of life) This patient) is less because of his illness, if a
person is ill or obese or smoker he will receive a life payment higher than the
normal payment so it is an enhanced boost annuity
6 - Classification of payments
in terms of stability or change the amount
Life payments can
be classified as fixed or changed to the following:
6/1 fixed payment
6.2 Increased Batch
6.3 The payment
associated with the stock index
6/4 Batch changing
6/1 fixed life
batch
level annuity /
fixed annuity
The fixed life
payment is a fixed periodic income guaranteed each year until the payment
holder dies or ends the installment contract before his death, let's assume
that a person aged 55 years, has retired on pension at the age of 55, and has
received a total amount of 40,000 pounds from his pension program To buy him a
lifetime payment, he chose an instant fixed payment of his life of 4000 pounds
a year, but this fixed cash amount each year reduced his purchasing power with
the price of goods and services year after year, and even protected himself
from inflation he had to buy an increasing boost ,, ,,
6.2 Incremental
installment / installment against inflation
increasing annuity
/ inflation proofing annuity
The incremental
payment protects the installment holder from inflation over time, but the
incremental installment starts at an amount less than the fixed payment at the
beginning of the payment period for the same amount of the payment,
There are choices
for incremental momentum as follows:
* Escalating
annuity where the payment increases each year by 3%, for example
* Inflation-indexed
annuity
The
inflation-linked payment is also called RPI-linked annuity, where the payment
is adjusted each year to reflect the change in the retail prices index. If the
government announces that the prices have risen 3% in a particular year, 3%,
and if the government announced that prices rose 10% in the following year, the
payment will increase 10%, but if the government announced no increase in
prices the payment will not increase, and if the government announced that
prices fell in a given year, the The installment goes down by the same
percentage, taking into account that the increasing installment in BID Any
contract is less than the fixed payment (for the same payment installment). For
example, if the fixed payment in the first month of the installment payment
stage is $ 1500, the first payment linked to the inflation index may be $ 1300
6/3 The life batch associated
with the equity-indexed annuity index
Is a fixed payment
but the owner is limited participation in the return of the stock market
investment, and the return on investment is a function (continued) of a known
or distinctive stock index such as the S & P 500 index
6/4 Variable
variable annuity
Investment linked
annuity
Is a periodic
payment that is directly linked to the performance of the investment fund in
which the batch capital is invested, so it is a unit-linked annuity that
carries the risk of investment. If the investment fund's performance decreases,
The variable
payment goes through two phases: the accumulation phase and the payout phase
In the accumulation
phase (purchase period) the installment holder pays installments in exchange
for accumulating investment units in the investment fund of his choice such as
stock funds, bond funds, etc. These funds are called sub-accounts or Separate
accounts and each fund has its objectives and its manager, and the manager uses
the total premiums in the purchase of securities issued by industrial and
commercial companies, and these securities are called securities securities
underlying securities so the value of investment units are not guaranteed
because they follow Directly The performance of the investment fund, in the
case of good performance of investment and therefore increase the net value of
assets of the investment fund increases the value of investment units, and the
value of investment units in case of failure of investment, investment units or
investment units cumulative earnings accruing units is an accounting measure
used by the insurance company to identify The share of each payment holder in the
separate account during the period of accumulation of the variable variable
annuity, and the value of each cumulative investment unit determined by
dividing the separate account value, the net value of the investment fund
assets, by the total number of investment units In the separate account, not
all installments paid by the owners of the payments go to purchase investment
units. Before the purchase of units, fees and charges are deducted from the
premium. The net premium is used to buy investment units. The longer the
installment owner continues to purchase the units, These units are added to his
account. For example, let's say that George paid the first installment of $ 100
and allocated 100 units in the first month, since the unit price at the time of
purchase is equal to $ 1, and we ignored the expense deduction for
simplification. If the net asset value In the second month, the unit price
increases to $ 1.1, for example When he pays the second month's premium, he
buys 91 units. If the net asset value of the fund falls in the third month, the
unit price drops to $ 0.9. For example, when he pays the third month's premium,
he buys 111 units
* The value in dollars for
each investment unit owned by the payment holder is determined by multiplying
the number of units owned by the investment unit. For example, The value in
dollars for each investment unit is one hundred thousand dollars, which is the
value of the accumulation account for the company and represents its share in
the separate account (investment fund), and when the time comes to start paying
the payment to the owner of the payment, another accounting measure should be
used, Cumulative profits in annuity units. (Suppose the batch unit is bought
for $ 1,000 and the gurch has $ 100,000, so it has a hundred units of payment).
* The annuity unit is used to
determine the amount of payment received by the payment holder during the
payment period, so the first monthly payment received by the payment holder is
determined, and the insurance companies have annuity tables (annuity tables).
Age and gender of the payment holder (men or women) and the duration of the
payment. In some countries, women live longer than men. Suppose payment
schedules set $ 10 per month for each payment unit, so the first monthly
payment received by Görch is $ 1,000 $ 10 = $ 1000). If Gorg has chosen a fixed
payment, this amount will remain fixed If a variable payment is chosen, the
number of installment units remains constant during the liquidation period (the
payment period). However, the value of the installment unit changes every month
or year depending on the performance of the investment fund, , For example,
George receives a payment of $ 1,000 in the first month of retirement, and
during the second month assume that the unit of the installment has increased
to $ 10.2, so the second month's income increases to $ 1020 (100 units x 10.2 $
= 1020 Suppose in the third month that the unit of the installment decreased in
value to $ 9.9 so the income of the third month Falling to $ 990.
* Units of investment (units)
investment units are two types of investment units distributed income and
investment units cumulative profits, in the units of investment distributed
income income units, the owner of investment units dividends dividends
immediately after the announcement of their distribution, in the units of
investment accumulation of profits accumulation units, The owner of the
investment units does not take dividends but they are added to the value of the
investment unit, meaning that the dividends are reinvested and accumulate on
the investment unit, for example the investment unit worth one dollar Become a
dollar worth ten cents if the advertising spread of ten cents per unit of
investment profits
* Guaranteed death benefit
The installment
owner is the person whose life depends on the continuation of the installment
payment. If he dies during the installment payment stage, the installment
contract ends with no value and the payment ends. However, if he dies during
the accumulation stage, the payment contract will be terminated and the
insurance company will pay the installments paid to the beneficiary specified
in the payment contract. The premium is a guaranteed death benefit to protect
the capital (premium) from loss due to failure of investment performance or
stock market decline. If the payer dies during the accumulation phase, the
amount paid to the beneficiary is the balance of the account or the total
installments paid minus the withdrawals.
7. Classification of payments
in terms of confirmation or probability of payment
A payment of a
lifetime with a number of payments is guaranteed (payment confirmed)
Period-certain annuity / guaranteed term annuity is the payment that guarantees
the payment of a certain number of payments, eg 20 annual payments. If the
payment dies before receiving twenty payments, This payment is valid for the
person who wants a lifetime income but at the same time wants to ensure income
for the beneficiary for a number of years
* Payment that is paid depends
on a condition called contingent annuity means a payment dependent on the
condition that the survival of the payment holder alive if the payment of
payment is interrupted for example a lifetime payment, and the payment that is
paid by the payment is called a confirmed payment or The payment may be a
mixture of assertion and probability, for example a guaranteed lifetime payment
and a guaranteed payment for a certain period of years even if the payment
holder dies within this guaranteed period, but after When this guaranteed
period expires, the payment turns into a payment A mechanism shall be
contingent on the owner of the batch stay alive, and, once his death
interrupted installment payment
* For example, if you rent
your home for sixty months at a monthly rent of $ 1,000, the monthly rent
within 60 months is called a confirmed payment, If a person grants a loan of
one thousand pounds to another person for sixty months, and gets a monthly
interest of ten pounds, the monthly interest during the sixty months is called
a confirmed payment, even if a person holds bonds yielding interest guaranteed
one thousand pounds every half year and for ten Years, the twenty-push benefits
are called a confirmed impulse, a temporary life boost that is assured Payment
is called a confirmed payment, and its premium is not dependent on the age of
the payment holder because it is guaranteed to pay throughout the liquidation
phase (payment period).
8. Payment options annuity
settlement options
The payment holder
can choose any payment option, for example he can take a lump sum equal to the
installments paid and have interest during the period of deferment or
cumulation or transfer the total amount of money accumulated in his account to
a periodic payment, If the payment holder chooses to convert the contract of
payment on the date of maturity of the contract into a periodic payment, he can
choose any of the above payment types. If he chooses not to convert the
installment contract into a periodic payment, he chooses the cash option Where
the maturity date of a contract The payment is a lump sum payment instead of
periodic payments, and the cash choice is against the insurer's choice because
those in bad health will choose to take their money instead of converting it
into money
* Payment options include the
so-called payment annuity or capital protection annuity / value protected
annuity
The payment of the
remaining amount of the purchase price is paid to the owner of the payment. If
the owner of the payment dies before receiving a total income equal to the
purchase price of the installment (payment installments), the payment will
continue to the beneficiaries until the total payments paid are equal to the
purchase price of the payment. This is the term of the installment payment
annuity. The purpose of the buyback payment is to protect the capital
The other form of
capital protection is the cash refund annuity. If the payer dies before
receiving a total income equal to the purchase price of the payment, the
insurance company collects all payments paid and compares the total to the
premium paid, Less than paid premiums, the insurance company will pay the
difference to the legacy of the deceased,
The premium on the
return batch selection is higher than the installment premium without a refund
* Payment payment options
include choosing a confirmed payment period
9. Longevity insurance
Because of medical
advances and increased life expectancy, some people live for more than 90
years, so they face the risk of running out of savings. That's why insurance
companies have created lifelong insurance policies. Age of 85 and life span of
the owner, life insurance documents differ from traditional life payments on
the one hand that if the payment dies either during the period of delay (the
accumulation) or payment stage, the insurance company does not return anything
to the heirs, and the common form To insure longevity is a single installment
deferred annuity And his wife at the age of 65 years so the husband can buy a
payment for the life of two people until the death of the last remaining single
installment at the age of 65 years to pay life at the age of 85 years and once
the death of the last remaining contract ends without return anything, for
these reasons, insurance Longevity is a low cost annuity if compared to a
traditional life push
10 - Difference between life
and pension payment?
1 - The first difference is
that a pension such as social security pension or government is a term known to
all people, while the impulse of life is a term unknown to all people
2. Upon the death of the
pensioner, the pension shall be transferred to his family
3 - the amount of payment of
life fixed or semi-static, while the social insurance pension provides
protection against inflation, and can be increased on the basis of special
recommendations from officials in the State
4 - Payment can be purchased
at the age of 60 years or more, while social insurance pension must be
subscribed during the period of employment
5. The installment shall be in
exchange for the premium (contributions), and the pension shall also be in
exchange for contributions, but this shall not preclude from being a social
insurance pension free of charge to the vulnerable class of society
6 - The pension is a financial
benefit received by the person after the referral to the pension, and the
payment is a pension program, but not necessarily received by the person after
the referral to the pension, he may receive it at any time suits him
7. The payment is purchased by
individuals from the insurance company, while pensions can be obtained from the
government
8.
Determination of the amount paid
The formula used to
determine the payment is based on mathematical and actuarial basis and is based
on the premium paid and the age of the installment holder, while the equation
used to determine the social insurance pension is based on the last salary and
duration of service. The equation may aim to support the weak classes
regardless of profit or Loss.
Disclaimer of
Author
This article does not provide any technical or
legal advice, but provides general read-only information that does not have any
legal relationship with the reader, may vary in application from one country to
another, and may contain errors or omissions. To the texts of documents and the
law applicable in his country.
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