14 - Annuity Based Finanial Products

Question 1

Who is the annuitant in an annuity

Answer 1

Person on whose life annuity is based

Question 2

What is the non profit organization that provides protection to policyholders where insurance companies become insolvent

Answer 2

Assuris

Question 3

What does Assuris guarantee

Answer 3

Up to $2k per month or 85% of monthly benefit. Whatever is higher

Question 4

4 main types of annuity

Answer 4

Straight life

Joint life

Term certain

Deferred

Question 5

How do interest rates affect annuities

Answer 5

When rates are high, payments tend to be higher

Question 6

How do term certain annuities work

Answer 6

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

Question 7

Contributions to a non registered deferred annuity are-they tax deductible or not

Answer 7

No they are not

Question 8

How is investment income taxed on deferred annuity

Answer 8

After 1989, accrued investment income must be included annually

Before 1989, every 3 years

Question 9

What hawith money invested in a deferred annuity

Answer 9

At end of deferral period it must be cashed in or converted to immediate annuity

Question 10

Can non registered annuities have beneficiaries

Answer 10

Yes

Question 11

Annuity options of instalment refund annuity

Answer 11

If annuitant dies before receiving deposit amount, payments continue to beneficiaries until amount is refunded

Question 12

Annuity options of life annuity with cash refund

Answer 12

If annuitant dies, lump sum paid of remaining unpaid balance

Question 13

Annuity option of impaired life annuity

Answer 13

If reduced life expectancy, evidence must be provided, then payments are larger

Question 14

Annuity option of participating annuity

Answer 14

Payments increase if investment yields are higher or company expenses are lower

Question 15

Annuity option of indexed annuity

Answer 15

Payments increase with formula on cost of living

Question 16

Annuity option of variable annuity

Answer 16

Monthly payments vary according to value of investments in seg fund

Lowest (floor) payment amount is usually 75%

Question 17

Annuity option of split annuity

Answer 17

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

Question 18

Annuity option of integrated annuity

Answer 18

Made to bridge gap until CPP and OAS. At 65 payments decrease by amount of government benefits

Question 19

Annuity option of prescribed annuity

Answer 19

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

Question 20

Can deferred annuities be withdrawn

Answer 20

Yes, but there may be charges and tax implications

Question 21

What may be charged along with withdrawal charges to break a deferred annuity

Answer 21

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

Question 22

Immediate annuity with commutable contract

Answer 22

Allow lump sum to beneficiaries instead of payments

Question 23

Non commutable contract for immediate annuities

Answer 23

Can not get lump sum payment, must be regular payments

Question 24

Structured settlement

Answer 24

Payments of money for a personal injury claim

Question 25

How are structured settlements done

Answer 25

Funded through an annuity purchased from a life insurance company

Question 26

Benefits of claimant when annuities are used for structured settlements. 5

Answer 26

Lifelong financial security Upfront cash for immediate needs Tax savings- payments tax free Relief from investing and managing investment Protection from creditors

Question 27

Are annuitants and policyholders the same person

Answer 27

Must be for registered seg funds / annuities

Question 28

Assuris coverage for seg funds

Answer 28

Up to $60,000 or 85%, whatever is higher

Question 29

What is minimum death and maturity on seg fund

Answer 29

Both have to be at least 75%

Question 30

Maturity date of seg fund

Answer 30

Usually 10 years from contract date, not sooner by law

Question 31

3 types of maturity guarantee

Answer 31

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

Question 32

With 100% maturity guarantee. 2 things may be required

Answer 32

MERs may be higher Maturity guarantee date may be longer. I.e. 15 years

Question 33

How are seg fun’s withdrawals handled

Answer 33

Anytime Guarantee reduced by withdrawal Oldest units withdrawn first

Question 34

Age restrictions for seg funds

Answer 34

No older than 80 for 10 year guarantee RRSP must’ve terminated by 71 Non reg 90 years

Question 35

Tax treatment of maturity guarantee

Answer 35

Cost of contract is ACB

Question 36

Factors that affect income from annuity

Answer 36

Premium amount Age of annuitant Interest rate at time of purchase

Question 37

2 phases of GMWB

Answer 37

Savings and payouts

Question 38

How saving phase works for GMWB

Answer 38

Bonus of 3 - 5% given to investors each year based on initial deposit

Question 39

How payouts phase works with GMWB

Answer 39

Investor receives payments based on guaranteed withdrawal amount regardless of markets

Question 40

3 types of guarantee offered with GMWB

Answer 40

Income guarantee Maturity guarantee Death guarantee

Question 41

Guaranteed withdrawal balance for GMWB

Answer 41

100% of initial deposit, base on which income is calculated No fluctuations with market value Additional deposits increase it and withdrawal lower it

Question 42

Reset of guaranteed withdrawal balance

Answer 42

Every 3 years If market value is higher, can reset it

Question 43

How income works on GMWB if client under 65

Answer 43

Income if guaranteed withdrawal balance Pays until gone or death if guaranteed for life

Question 44

Income from GMWB if client is over 65

Answer 44

It is the lifetime withdrawal amount - this is the lifetime payment 5% If more is withdrawn, it decreases the guaranteed withdrawal balance

Question 45

When is creditor protection not available on a GMWB

Answer 45

When seg or GMWB is used as collateral Claims due to child or spouse support Arrears with CRA

Question 46

Breakdown of Assuris coverage for GMWB

Answer 46

Savings phase, highest of $60k 85% of guarantee Payout phase, $2k monthly or 85% go guaranteed income

Question 47

Besides MERs are there other fees for GMWB

Answer 47

Yes, annual 25 to 85 basis points, higher if riskier investments. Covered by redeeming units but this doesn’t factor into payments