Review List (Exam 2) 10/27/2010
This review list covers important topics for Exam 2 (Annuities, Health Insurance, Chapter 19 to 24, and Special Topic 2). This list should be used only as a reference for exam preparation. All materials that are covered in the lectures and in the related sections of the textbook are testable unless explicitly excluded.

Annuities (Chapter 14)
1. What is “annuity”? Why do we need it?

An annuity provides periodic payments to an annuitant, which continue for either a fixed period or for the duration of a designated life or lives. The fundamental purpose of a life annuity is to provide lifetime income that cannot be outlived.

2. Understand how annuities work.

3. What are common types of annuities? Understand how fixed annuity and variable annuity work and their differences.

Fixed annuity pays periodic income payments that are guaranteed and fixed in amount. It can be purchased so that the income payments start immediately, or the payments can be deferred to some later date. Deferred annuities typically provide for flexible premiums.
Variable annuity pays a lifetime income, but the income payments vary depending on investment experience of the subaccount in which the premiums are invested. The purpose of this type of annuity is to provide an inflation hedge by maintaining the purchasing power of the periodic payments.
Equity indexed annuity offers the guarantees of a fixed annuity and limited participation in stock market gains. It is a fixed deferred annuity that allows the annuity owner to participate in the growth of the stock market and also provides downside protection against the loss of principal and prior interest earnings if the annuity is held to term.

4. What are the settlement options for annuities?

Cash option: the funds can be withdrawn in a lump sum or in installments. The taxable portion of the