14 - Annuity Based Finanial Products Flashcards
Who is the annuitant in an annuity
Person on whose life annuity is based
What is the non profit organization that provides protection to policyholders where insurance companies become insolvent
Assuris
What does Assuris guarantee
Up to $2k per month or 85% of monthly benefit. Whatever is higher
4 main types of annuity
Straight life
Joint life
Term certain
Deferred
How do interest rates affect annuities
When rates are high, payments tend to be higher
How do term certain annuities work
Guarantee to pay for certain number of years, usually to 90
If die before, beneficiary or estate get remaining payments or lump sum
If die after, payments end
Contributions to a non registered deferred annuity are-they tax deductible or not
No they are not
How is investment income taxed on deferred annuity
After 1989, accrued investment income must be included annually
Before 1989, every 3 years
What hawith money invested in a deferred annuity
At end of deferral period it must be cashed in or converted to immediate annuity
Can non registered annuities have beneficiaries
Yes
Annuity options of instalment refund annuity
If annuitant dies before receiving deposit amount, payments continue to beneficiaries until amount is refunded
Annuity options of life annuity with cash refund
If annuitant dies, lump sum paid of remaining unpaid balance
Annuity option of impaired life annuity
If reduced life expectancy, evidence must be provided, then payments are larger
Annuity option of participating annuity
Payments increase if investment yields are higher or company expenses are lower
Annuity option of indexed annuity
Payments increase with formula on cost of living
Annuity option of variable annuity
Monthly payments vary according to value of investments in seg fund
Lowest (floor) payment amount is usually 75%
Annuity option of split annuity
Funds are slit between immediate/term certain annuity and a deferred annuity
Term certain guarantees income over period, then once they end, lump sum paid from deferred
Annuity option of integrated annuity
Made to bridge gap until CPP and OAS. At 65 payments decrease by amount of government benefits
Annuity option of prescribed annuity
Spreads tax load, only for non registered
- usually annuities are taxed high in beginning because your taking interest, then lower at end when principal is left
Can deferred annuities be withdrawn
Yes, but there may be charges and tax implications
What may be charged along with withdrawal charges to break a deferred annuity
Market value adjustment may be charged, if interest rates change
2 ways to figure out market value adjustment charges
- if 3 year is redeemed after1, use 1 year rate
- if rates have gone up since issue, they will have to pay a new person a higher interest rate , therefore similar fee to breaking a mortgage
Immediate annuity with commutable contract
Allow lump sum to beneficiaries instead of payments
Non commutable contract for immediate annuities
Can not get lump sum payment, must be regular payments
Structured settlement
Payments of money for a personal injury claim
How are structured settlements done
Funded through an annuity purchased from a life insurance company
Benefits of claimant when annuities are used for structured settlements. 5
Lifelong financial security
Upfront cash for immediate needs
Tax savings- payments tax free
Relief from investing and managing investment
Protection from creditors
Are annuitants and policyholders the same person
Must be for registered seg funds / annuities
Assuris coverage for seg funds
Up to $60,000 or 85%, whatever is higher
What is minimum death and maturity on seg fund
Both have to be at least 75%
Maturity date of seg fund
Usually 10 years from contract date, not sooner by law
3 types of maturity guarantee
Deposit based, each has own date
Yearly policy based, all deposits within 12 months grouped together with same maturity date
Policy based guarantee,most generous, all maturity guarantee
S on original contract date
* may restrict subsequent deposit amounts
With 100% maturity guarantee. 2 things may be required
MERs may be higher
Maturity guarantee date may be longer. I.e. 15 years
How are seg fun’s withdrawals handled
Anytime
Guarantee reduced by withdrawal
Oldest units withdrawn first
Age restrictions for seg funds
No older than 80 for 10 year guarantee
RRSP must’ve terminated by 71
Non reg 90 years
Tax treatment of maturity guarantee
Cost of contract is ACB
Factors that affect income from annuity
Premium amount
Age of annuitant
Interest rate at time of purchase
2 phases of GMWB
Savings and payouts
How saving phase works for GMWB
Bonus of 3 - 5% given to investors each year based on initial deposit
How payouts phase works with GMWB
Investor receives payments based on guaranteed withdrawal amount regardless of markets
3 types of guarantee offered with GMWB
Income guarantee
Maturity guarantee
Death guarantee
Guaranteed withdrawal balance for GMWB
100% of initial deposit, base on which income is calculated
No fluctuations with market value
Additional deposits increase it and withdrawal lower it
Reset of guaranteed withdrawal balance
Every 3 years
If market value is higher, can reset it
How income works on GMWB if client under 65
Income if guaranteed withdrawal balance
Pays until gone or death if guaranteed for life
Income from GMWB if client is over 65
It is the lifetime withdrawal amount - this is the lifetime payment 5%
If more is withdrawn, it decreases the guaranteed withdrawal balance
When is creditor protection not available on a GMWB
When seg or GMWB is used as collateral
Claims due to child or spouse support
Arrears with CRA
Breakdown of Assuris coverage for GMWB
Savings phase, highest of $60k 85% of guarantee
Payout phase, $2k monthly or 85% go guaranteed income
Besides MERs are there other fees for GMWB
Yes, annual 25 to 85 basis points, higher if riskier investments.
Covered by redeeming units but this doesn’t factor into payments
