Annuities on the New York life insurance exam

The other half of the life license

The life license covers annuities as well as life insurance, so they appear on 17-51 and on the combined 17-55. Life insurance pays when someone dies. An annuity is built to pay while someone is alive, which is why the two are tested side by side and so often confused.

Two phases

In the accumulation phase, money goes in and grows. In the payout phase, the annuity turns that money into a stream of payments. Many questions simply ask which phase a situation belongs to.

Who is who

An annuity has an owner, who controls the contract; an annuitant, whose life the payments are measured by; and a beneficiary, who receives anything left when the annuitant dies. They can be the same person or three different people. Read each question for which one it means.

Payout options

The main choices trade income against what is left over. A straight life option pays the most per payment and stops at death, with nothing left for anyone. Options that guarantee a period of payments, or that refund the unpaid balance, pay less each time in exchange for that guarantee. Joint options continue paying while either of two people is alive.

Fixed against variable

A fixed annuity credits a rate the insurer sets, and the insurer carries the investment risk. A variable annuity's value moves with the investments the owner chooses, so the owner carries the risk. Variable products are also securities, which brings in additional licensing outside the insurance exam.

Selling them properly

Expect questions on suitability: whether the product fits the customer's age, needs and finances, and what the agent must find out and document before recommending it. When two options look right, choose the one where the agent gathers information first.