Annuities

Question 1

Outliving one’s money

Answer 1

Superannuation (Longevity Risk)

Question 2

Provides a stream of income to an annuitant for life. When the annuitant dies, the annuity payments end.

Answer 2

Straight Life Annuity

Question 3

Annuity payment option that provides for the insurer to continue periodic annuity payments after the annuitant has died until the sum of all annuity payments made equals the original purchase price.

Answer 3

Installment Refund Annuity Option

Question 4

Guarantees that the annuitant or the annuitants family will receive the payments made to purchase an annuity. Instead of continuing periodic payments the remainder is paid in cash.

Answer 4

Cash Refund Annuity Option

Question 5

This annuity payout will pay benefit for a specific period of time whether the annuitant lives or dies. If annuitant outlives this period they will continue to receive a payout until death.

Answer 5

Term Certain

Question 6

This type of annuity promises to make payments over the lives of two or more annuitants.

Answer 6

Joint and Survivor Life Annuities

Question 7

This type of annuity rider guarantees that for a specific period of time (typically 7-10 years) an investors contract value will be equal to a certain percentage of the amount invested regardless of investment performance.

Answer 7

GMAB - Guaranteed Minimum Accumulation Benefit

Question 8

This annuity rider is designed to provide an investor with a minimum amount of lifetime income during retirement, regardless of investment performance.

Answer 8

GMIB - Guaranteed Minimum Income Benefit

Question 9

This annuity rider guarantees that a certain percentage of the amount invested can be withdrawn annually until the entire amount is completely recovered.

Answer 9

GMWB - Guaranteed Minimum Withdrawal Benefit

Question 10

This annuity rider guarantees that a certain percentage of the amount invested can be withdrawn each year for as long as the contract holder lives.

Answer 10

Guaranteed Lifetime Income Benefit

Question 11

When this method is used, the index-linked interest crediting rate is determined each year by comparing the index value and the end versus the beginning of the contract year - interest is then added to the annuity each year during the term.

Answer 11

Annual Reset Method (Ratcheting Method)

Question 12

The interest value credited to the contract in this approach is based on the difference between the highest index values and the value at the start of the term.

Answer 12

High Watermark Approach

Question 13

This method is based on the difference between the index value at the end of the term compared with the index value at the start of the term.

Answer 13

Point to Point Linked Crediting Method

Question 14

A high income tax payer is an individual with more than ____________ of adjusted gross income and a married couple filing jointly with more than _________________ of adjusted gross income.

Answer 14

$200k, $250k

Question 15

High income individuals may be subject to a _______ % Medicare Surtax for distributions subject to ordinary income (IRAs and Qualified Retirement Plans not subject to this rule). May make sense to buy an annuity with an IRA for high income earners to get around this.

Answer 15

3.8%

Question 16

When taxable income is received from an annuity before the account holder is age 59 1/2 a _____ % penalty tax applies.

Answer 16

10 percent

Question 17

To prevent manipulation of tax rules in annuities purchased from the same insurer in the same year by the same policy holder the IRS treated multiple annuities purchased as 1 contract.

Answer 17

Aggregation Rules

Question 18

Annuities that have not yet been annuitized _________ be included in the in the estate of an annuitant for estate tax purposes.

Answer 18

WILL BE

Question 19

Represents assets that have a deferred income tax liability that was not paid prior to the date of the owners death.

Answer 19

IRD (Income in respect of decedent)

Question 20

IRD assets become an ____________ in the hands of a beneficiary not subject to 2% AGI limit but at the same time increase the estate tax liability. This benefit is to offset some of the income in the beneficiary’s tax return

Answer 20

Income Tax Deduction

Question 21

If an annuity has not begun payments then the entire interest must be distributed within how long after the owners death? Alternatively a named beneficiary can distribute over her life expectancy as long as the first payment is received within how long of the owners death?

Answer 21

5 years, 1 year

Question 22

A deferred annuity purchased by an individual at or before retirement that will not begin to make payments until that person reaches an advanced age.

Answer 22

Longevity Insurance

Question 23

An agreement under which someone who is entitled to receive a large lump sum of money decides, instead to accept periodic sums of money.

Answer 23

Structured Settlements

Question 24

Considered taxable to beneficiary and are utilized to punish the tortfeasor for an especially malicious or callous act of wrongdoing.

Answer 24

Punitive Damages

Question 25

Annuities that can be purchased from the original owner at a discount or from a third party and the stream of income is assigned to the purchaser.

Answer 25

Secondary Market Annuities

Question 26

What is the formula for the exclusion ratio?

Answer 26

Investment Value / Total Expected Payments

Question 27

Periodic payments made to a plaintiff who wins or settles a personal injury lawsuit. Instead of receiving a lump sum of money for damages, the injured party can receive a series of payments made over time.

Answer 27

Structured Settlements

Question 28

Three requirements of a Qualified Longevity Annuity Contract?

Answer 28

1) Max of $145k must be used to purchase QLAC
2) Purchased in IRA or defined contribution retirement plan
3) Must be annuitized no later than age 85

Question 29

Risk of likeliness of dying

Answer 29

Mortality risk