What's the difference between a "premium" (life insurance premium) and a "consideration" (annuity consideration). Aren't they the same thing?
Total Comments: 15
Posted: Wed May 20, 2009 09:35 am Post Subject:
I think that the difference lies in the way both the products work.
Annuity doesn't promise you any coverage at the event of your sad death. It'd be simply insuring a stream of income at the time of your retirement. You either with the one time payment or periodic payments would be building a fund to receive monthly allowances after retirement.
Life insurance, on the contrary, would promise a lump-sum amount of coverage against the premium paid by you.
And, yeah, no death benefits are available with the annuity plans.
Thanks,
Rupert
Posted: Wed May 20, 2009 10:20 am Post Subject:
Rupert, annuities often have a death benefit.
Posted: Thu May 21, 2009 02:08 am Post Subject: insurance
Life Insurance VS. Annunity: seems like the best choice is Life Insurance. I know a few people who DO have Annunities. If Life Insurance is BETTER 'coverage', then why pick the other ( just thinking outloud, I guess).
Posted: Thu May 21, 2009 04:07 am Post Subject:
Because Life insurance and Annuities are two different things.
One is too cover an untimely death. (aren't they all pretty untimely?)
The other is to help cover a long life. (You don't want to outlive your money)
That's actually a little too simple when it comes to annuities though. They can be used for several things, but safety of money is one of the greatest motivators for annuities.
Posted: Thu May 21, 2009 05:41 am Post Subject:
Great answers in this post. I knew I liked this place.
If you want to get technical (don't I always?), a "premium" is actually part of the policyowner's "consideration." Sounds weird, huh?
The "consideration" is one of the elements of a valid, legal and enforceable contract. It's an exchange- each party to the contract must give something of value to the other party; money, a promise, property, etc. In an insurance contract, the insured's consideration is making statement on an application for insurance and the payment of premium and in "exchange" for that the insurance company give the insured a promise to pay the benefits cited in the contract of insurance (insuring agreement).
So, simply...you give them money (premium) and an application, and if they issue the policy they give you the promise to pay for a covered loss. So, while premium and consideration aren't exactly the same thing, they go hand in hand. It's commonly the language used in the different contracts. Annuity language has always been different than insurance language. Here the terms basically mean the same thing.
As far as life insurance paying in a lump sum, many insurers offer methods of annuitizing the death benefit, similar to annuity payouts.
As far as annuities and death benefits: Most deferred annuities are required to provide a death benefit if the annuitant dies during the accumulation period before the annuitization period begins. The death benefit is commonly 100% of the accumulated sum, but many companies will deduct loads from this death benefit. It's not a life insurance death benefit, it's just a return of some or all of the money in the annuity to the designated beneficiary.
There ya be. Always here to bore you.
InsTeacher
InsTeacher 8)
Posted: Thu May 21, 2009 06:40 am Post Subject:
Thanks for the great answers...same meaning different language
That makes it easy to understand
Posted: Thu May 21, 2009 09:35 am Post Subject:
Rupert, annuities often have a death benefit.
Yeah, but the purpose of annuity isn't same as that of life insurance. You don't buy annuity to cover the expenses associated with your untimely death.
Death benefit offer by the annuity plans are an added benefit. May be to attract more people towards it.
Thanks,
Rupert
Posted: Thu May 21, 2009 09:50 am Post Subject:
Hey guys, as far I know the income received from the annuity fund is taxable. Do they also impose tax on the death benefit received from the annuity plan?
Posted: Thu May 21, 2009 12:18 pm Post Subject:
Hey guys, as far I know the income received from the annuity fund is taxable. Do they also impose tax on the death benefit received from the annuity plan?
It's the realized gain that is taxable. If the death benefit causes there to be a gain, it will be taxable, but that usually won't be the case. If a death benefit is paid, there usually isn't a gain. Let me give you an example of a typical death benefit on a deferred variable annuity:
The death benefit is the greater of the contract value or the premiums paid. Ex. Joe invests $100,000. The contract value drops to $50,000. Joe dies. His beneficiaries get $100,000. This will be tax free (assuming a non-qualified contract) since there is no gain.
Posted: Fri May 22, 2009 06:23 am Post Subject:
Hey guys, as far I know the income received from the annuity fund is taxable. Do they also impose tax on the death benefit received from the annuity plan?
When an annuity starts paying the income stream, only part of the annuity payments are taxable. Each payment the annuitant receives will be part return of premium and part interest or gain, depending on the type of contract. The annuitant is taxed only on the gain portion.
As far as taxation on the death benefit is concerned, Insurance Expert nailed it:
It's the realized gain that is taxable. If the death benefit causes there to be a gain, it will be taxable,
On the other hand, I've seen plenty of fixed annuities that will pay "100% of the accumulated value to the designated beneficiary if the annuitant dies during the accumulation period." In that case, the beneficiary would receive all of the money in the annuity and as Expert said, would be taxed on the gain.
Don't forget the tax hit on the dead annuitant's estate. The estate of the (dead) annuitant would be grossed up by an amount equal to the death benefit received by the beneficiary. Time for some estate planning!
Now on this comment by Rupert:
Yeah, but the purpose of annuity isn't same as that of life insurance. You don't buy annuity to cover the expenses associated with your untimely death.
You're absolutely right, without question. Life insurance is intended (primarily) to take care of premature death, and annuities are intended to prevent one from outstripping their resources and having nothing to live on.
Posted: Wed May 20, 2009 09:35 am Post Subject:
I think that the difference lies in the way both the products work.
Annuity doesn't promise you any coverage at the event of your sad death. It'd be simply insuring a stream of income at the time of your retirement. You either with the one time payment or periodic payments would be building a fund to receive monthly allowances after retirement.
Life insurance, on the contrary, would promise a lump-sum amount of coverage against the premium paid by you.
And, yeah, no death benefits are available with the annuity plans.
Thanks,
Rupert
Posted: Wed May 20, 2009 10:20 am Post Subject:
Rupert, annuities often have a death benefit.
Posted: Thu May 21, 2009 02:08 am Post Subject: insurance
Life Insurance VS. Annunity: seems like the best choice is Life Insurance. I know a few people who DO have Annunities. If Life Insurance is BETTER 'coverage', then why pick the other ( just thinking outloud, I guess).
Posted: Thu May 21, 2009 04:07 am Post Subject:
Because Life insurance and Annuities are two different things.
One is too cover an untimely death. (aren't they all pretty untimely?)
The other is to help cover a long life. (You don't want to outlive your money)
That's actually a little too simple when it comes to annuities though. They can be used for several things, but safety of money is one of the greatest motivators for annuities.
Posted: Thu May 21, 2009 05:41 am Post Subject:
Great answers in this post. I knew I liked this place.
If you want to get technical (don't I always?), a "premium" is actually part of the policyowner's "consideration." Sounds weird, huh?
The "consideration" is one of the elements of a valid, legal and enforceable contract. It's an exchange- each party to the contract must give something of value to the other party; money, a promise, property, etc. In an insurance contract, the insured's consideration is making statement on an application for insurance and the payment of premium and in "exchange" for that the insurance company give the insured a promise to pay the benefits cited in the contract of insurance (insuring agreement).
So, simply...you give them money (premium) and an application, and if they issue the policy they give you the promise to pay for a covered loss. So, while premium and consideration aren't exactly the same thing, they go hand in hand. It's commonly the language used in the different contracts. Annuity language has always been different than insurance language. Here the terms basically mean the same thing.
As far as life insurance paying in a lump sum, many insurers offer methods of annuitizing the death benefit, similar to annuity payouts.
As far as annuities and death benefits: Most deferred annuities are required to provide a death benefit if the annuitant dies during the accumulation period before the annuitization period begins. The death benefit is commonly 100% of the accumulated sum, but many companies will deduct loads from this death benefit. It's not a life insurance death benefit, it's just a return of some or all of the money in the annuity to the designated beneficiary.
There ya be. Always here to bore you.
InsTeacher
InsTeacher 8)
Posted: Thu May 21, 2009 06:40 am Post Subject:
Thanks for the great answers...same meaning different language
That makes it easy to understand
Posted: Thu May 21, 2009 09:35 am Post Subject:
Rupert, annuities often have a death benefit.
Yeah, but the purpose of annuity isn't same as that of life insurance. You don't buy annuity to cover the expenses associated with your untimely death.
Death benefit offer by the annuity plans are an added benefit. May be to attract more people towards it.
Thanks,
Rupert
Posted: Thu May 21, 2009 09:50 am Post Subject:
Hey guys, as far I know the income received from the annuity fund is taxable. Do they also impose tax on the death benefit received from the annuity plan?
Posted: Thu May 21, 2009 12:18 pm Post Subject:
Hey guys, as far I know the income received from the annuity fund is taxable. Do they also impose tax on the death benefit received from the annuity plan?
It's the realized gain that is taxable. If the death benefit causes there to be a gain, it will be taxable, but that usually won't be the case. If a death benefit is paid, there usually isn't a gain. Let me give you an example of a typical death benefit on a deferred variable annuity:
The death benefit is the greater of the contract value or the premiums paid. Ex. Joe invests $100,000. The contract value drops to $50,000. Joe dies. His beneficiaries get $100,000. This will be tax free (assuming a non-qualified contract) since there is no gain.
Posted: Fri May 22, 2009 06:23 am Post Subject:
Hey guys, as far I know the income received from the annuity fund is taxable. Do they also impose tax on the death benefit received from the annuity plan?
When an annuity starts paying the income stream, only part of the annuity payments are taxable. Each payment the annuitant receives will be part return of premium and part interest or gain, depending on the type of contract. The annuitant is taxed only on the gain portion.
As far as taxation on the death benefit is concerned, Insurance Expert nailed it:
It's the realized gain that is taxable. If the death benefit causes there to be a gain, it will be taxable,
On the other hand, I've seen plenty of fixed annuities that will pay "100% of the accumulated value to the designated beneficiary if the annuitant dies during the accumulation period." In that case, the beneficiary would receive all of the money in the annuity and as Expert said, would be taxed on the gain.
Don't forget the tax hit on the dead annuitant's estate. The estate of the (dead) annuitant would be grossed up by an amount equal to the death benefit received by the beneficiary. Time for some estate planning!
Now on this comment by Rupert:
Yeah, but the purpose of annuity isn't same as that of life insurance. You don't buy annuity to cover the expenses associated with your untimely death.
You're absolutely right, without question. Life insurance is intended (primarily) to take care of premature death, and annuities are intended to prevent one from outstripping their resources and having nothing to live on.
InsTeacher 8)
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