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General Insurance > Annuities > Flashcards

Annuities Flashcards

1
Q

Life insurance protects people from ______ ___ _____, annuities protect people from _____ ___ _____

A

Dying too soon; living too long

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2
Q

As a financial product, annuities can be used to:

A

-accumulate funds over a period of time
-evenly distribute a fund over a period of time
-both accumulate a fund and then evenly distribute it over a period of time

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3
Q

Two phases of an annuity

A

-accumulation- “pay-in”
-annuitization- “pay-out”

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4
Q

Annuity Accumulation period

A

-“pay-in”
-period when the principal and periodic deposits grow

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5
Q

Annuity annuitization period

A

-“pay-out”
-distribution face of an annuity

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6
Q

One the annuity contract is annuitized, no more..

A

..contributions can be made

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7
Q

Money paid into an annuity contract during the accumulation period is called a ________

A

Premium

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8
Q

_________ is credited on the accumulated value in the annuity contract and the accumulated contract value grows beyond the contract owner’s deposits

A

Interest

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9
Q

During the annuity accumulation period, the owner can generally:

A

-make additional premium payments or deposits
-take withdrawals from the accumulated value
-surrender the annuity for its cash value
-make other changes to the contract

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10
Q

During the annuitization period, money in the annuity contract is converted into:

A

A series of regular income payments that can continue for life or for a stated period of time

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11
Q

When the annuitization period starts, the accumulated value no longer belongs to the annuity owner therefore:

A

-no additional premium payments can be made
-no withdrawals can be taken
-the annuity cannot be surrendered
-the owner can’t change the contract

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12
Q

There are four parties involved in an annuity contract:

A
  1. Contract owner
  2. Annuitant
  3. Beneficiary
  4. Insurer
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13
Q

The annuity contract owner has the right to:

A

-name or change the annuitant
-name or change the beneficiary
-choose the payout option
-add more money or take withdrawals
-surrender or terminate the agreement

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14
Q

Used to determine the amount of the guarantees payments in an annuity

A

The annuitant’s life expectancy

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15
Q

The annuitant must be an:

A

Individual- a natural person- and cannot be corporation or a trust

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16
Q

Chosen by the annuity owner to receive the income payments during the annuitization period

A

Annuitant (insured)

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17
Q

The annuitant does not have the power to

A

Make withdrawals, deposits, change the names of the parties to the agreement or terminate the contract. They must also sign the annuity contract

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18
Q

The ____ ______ and the annuitant are frequently the same person

A

Contract owner

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19
Q

The _____ has no voice in the control or management of the annuity and only benefits upon the death of the contract owner

A

Beneficiary

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20
Q

The _______ is the party who issues the annuity contract

A

Insurer

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21
Q

Annuities provide ___-_______ savings for retirement

A

Tax-deferred

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22
Q

If you leave money in an annuity to a beneficiary, they will have to pay taxes on

A

Any growth (interest) on the money that was out into the contract

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23
Q

An ________ annuity is structured to provide current income and a _______ annuity’s payout is a specific dat win the future

A

Immediate; deferred

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24
Q

After paying a lump-sum premium, this annuity provides an individual with an income that may begin as soon as a month after purchase may be delayed for up to one year

A

Immediate annuity/ single premium immediate annuity (SPIA)

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25
Q

The funds in the immediate annuity contract accumulated on

A

…a tax deferred basis. When payments begin, the portion of each payment that is attributed to interest is subject to taxes; the rest is treated as a return of principal and therefore, is tax free

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26
Q

A single premium immediate annuity (SPIA) pays a monthly income ________

A

Immediately

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27
Q

The first payment of an immediate annuity would be made after a delay of

A

One payment interval or period

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28
Q

The earliest an income payment on an immediate annuity could be paid is __ ____. The latest payments can start in ____ ____.

A

One month; one year

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29
Q

Unlike immediate annuities, ________ annuities do not start an income stream immediately

A

Deferred

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30
Q

With deferred annuities, the annuity owner chooses the:

A

Premium amount and the frequency of premium payments

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31
Q

With these types of annuities, accumulated funds may be withdrawn at any time, subject to a possible surrender charge

A

Deferred annuities

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32
Q

The deferred annuity owner is not required to _________ the contract

A

Annuitize

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33
Q

Deferred annuities can be purchased with:

A

A single premium (single premium deferred annuity (SPDA), or ongoing premium payments (periodic or flexible premium deferred annuities (PPDA or FPDA)

34
Q

With all deferred annuities, the emphasis is on:

A

The accumulation of money for future use

35
Q

A withdrawal from an annuity is taxed differently than annuitized payments. When a withdrawal is taken from an annuity, the earnings, or the growth portion, is taxed as

A

Ordinary income

36
Q

Annuity surrender or withdrawal

A

-10% tax if withdrawn before 59 1/2
-surrender period-waiting period
-surrender fee-penalty for early withdrawal

37
Q

In order for the annuitant to avoid additional fees from the insurance for early withdrawal, there is a waiting period called the

A

Surrender period

38
Q

Surrender charges of an annuity are stated in the contract and commonly start at:

A

10%, declining each year

39
Q

The deferred annuity death benefit does not provide a surviving family a life insurance policy. Rather, the accumulated contract value is paid to:

A

A selected beneficiary if the annuity owner dies during the accumulation period

40
Q

The amount paid as a death benefit on a deferred annuity is the greater of:

A

-the accumulated value of the annuity
-the total premiums paid to that point, minus any withdrawals

41
Q

Annuity payout options fall into two categories:

A

-life annuitie, which have a payment that is guaranteed to last for at least as long as the annuitant lives
-temporary annuities-which do not

42
Q

Life only annuity payout option (straight life, pure life, life-no refund)

A

-guarantees income for life- regardless of how long
-death stops payments (even if after one payment)
-largest monthly check from life options

43
Q

The advantage of the life only annuity payout option is that:

A

It pays the highest monthly income amount because are no other contingencies and only the annuitant’s life expectancy was considered to determine the amount of the monthly payout

44
Q

The disadvantage of the life only annuity payout option is that:

A

The annuitant many die before their life expectancy and the total payout they received was much less than the total amount paid into the contract

45
Q

Under the life with refund annuity payout option, if the annuitant dies and the total payments received are:

A

Less than the amount paid for the annuity, the difference is paid to the beneficiary

46
Q

Under the life with refund annuity payout option, the money may be paid either as a:

A

-lump sum, called a cash refund
-continuation of payments in the same amount as was being paid to the annuitant, called an installment fund

47
Q

The life with period certain annuity payout option

A

Pays an income for as long as the annuitant is alive. In addition, the annuitant selects a payment period, typically 5, 10, or 20 years, and payments are guaranteed to be made for at least that number of years

48
Q

Under the life with period certain annuity payout option, if the annuitant dies before the end of the selected period, payments:

A

Continue to the beneficiary for the rest of the period certain. No payments are made to the beneficiary if the annuity live past the period certain

49
Q

With the joint and survivor annuity payout option, the insurer promises to:

A

Make payments until the last survivor of the two annuitants dies

50
Q

Under the joint life and survivor annuity payout option, the owner can choose for continued payments in the same amount for the survivor, or…

A

….in a lesser amount such as 2/3 or 1/2 of their monthly payout

51
Q

The joint life annuity options pays:

A

Income until the death of the first of two or more annuitants

52
Q

Factors in determining a life annuity payment amount

A

-annuitant’s age
-annuitant’s gender
-payment guarantee
-assumed interest rate

53
Q

There are 4 basic types of annuities:

A

-fixed
-variable
-equity-indexed
-market value adjusted

54
Q

________ annuity values are guaranteed against loss. Aside from surrender charges that may apply, the value of a ______ annuity will never be less than the amount paid into the contract

A

Fixed; fixed

55
Q

Fixed annuities are supported by the insurer’s _________ __________

A

General account

56
Q

With fixed annuities, the investment risk is born by:

A

The insurer

57
Q

During a fixed annuity’s accumulation period, accumulated values earn a interest rate that is:

A

Competitive with prevailing rates on other interest-bearing investments. Current rate usually declared at the beginning of the year and guaranteed for the year

58
Q

During the annuity period, fixed annuities provide a ______ payment amount

A

Level

59
Q

Fixed Annuities

A

-general account
-long term low risk investments
-if annuitized- fixed income payments
-money guaranteed by company

60
Q

________ annuities have the potential to keep pace with inflation because they are supported by investments (stocks and bonds)

A

Variable

61
Q

Variable annuities have ___________ _____ because values are not guaranteed against loss

A

Investment risk

62
Q

Insurers are not allowed to bear the risk of _______ annuities

A

Variable

63
Q

The assists that support variable annuities are kept in a _______ ________ where the investment risk is borne by the annuity owner

A

Separate account

64
Q

With a variable annuity, the owner makes the various investment choices called ___-_____, which resemble mutual funds

A

Sub-accounts

65
Q

The accumulated values of variable annuities are expressed as ________ _____, similar to shares purchased in a mutual fund

A

Accumulation units

66
Q

The value of a variable annuities accumulation unit is found by:

A

Dividing the total values of the separate account by the number of existing accumulation units

67
Q

When the annuity period of a variable annuity begins, the accumulation units are converted to ______ ______

A

Annuity units

68
Q

With a variable annuity, after annuity period begins the number of annuity units stays the same throughout the annuity period, however the value of an annuity unit varies with:

A

The values of the investments in the separate account

69
Q

Dual regulation of variable annuities

A

Variable annuities are regulated as insurance products and also regulated as securities

70
Q

To sell variable annuities, a producer must have:

A

A life insurance license, a special variable annuities certification (in certain states), and both a federal and state securities registration

71
Q

Equity-indexed annuity (EIA) is a type of

A

tax-deferred annuity whose credited interest is linked to an equity index- typically the S&P 500. It guarantees a minimum interest rate, typically between 1-3%, if held to the end of the surrender term and protects against a loss of principal

72
Q

Equity indexed annuities

A

-are fixed annuities
-value is guaranteed by company
-interest earned can go up or down like the stock market
-interest tied to stock market need (S&P 500)
-no securities license required

73
Q

A fixed annuity with a market value adjustment feature, also referred to as a modified guaranteed annuity, offers the flexibility of:

A

Various guarantee terms combined with the potential for higher interest rates than traditional fixed investments

74
Q

Market Value Adjusted Annuities

A

-single premium deferred annuities
-interest rate for a fixed number of years
-early surrender (withdrawal penalty, interest penalty may be higher or lower)
-not a variable product, no securities license required

75
Q

The most common annuity contract is one that has:

A

Tax deferred investment gains with the promise that the investment savings and gains will provide income in the future in the form of regular distributions

76
Q

Earnings on annuity accumulated values are tax ______ until distributions begin

A

Deferred

77
Q

Flexible premium annuities are designed to be used for funding:

A

Individual Retirement Accounts (IRAs)

78
Q

Uses of annuities

A

-life income
-tax favored savings
-funding individual retirement accounts (IRA)
-education funds

79
Q

Annuities are designed to accept ______ contributions made to the retirement plans set up for their employees

A

Employer

80
Q

Group annuities

A

-funded by employer contributions
-distributions determined by employer

81
Q
A

General Insurance (20 decks)

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