Annuities

Question 1

Annuity

Answer 1

Insurer receives money from a consumer and is expected to pay it back with interest to the person either in a large sum or in regularly scheduled installments

Question 2

Annuities are often used to provide…

Answer 2

Regular income that can’t be outlived

Question 3

Unlike LI, annuities address risk of…

Answer 3

Living too long

Question 4

Owner

Answer 4

Person who pays for and controls the annuity; also typically pays taxes on it

Question 5

Annuitant

Answer 5

Person whose life expectancy determines the size of payments from insurer and usually received payments

Question 6

Beneficiary

Answer 6

Person who might receive death benefits if annuitant dies with money left over

Question 7

Deferred Annuities

Answer 7

For people who want consistent income in the future

Question 8

Prior to income stream, deferred annuities go through an accumulation period and are…

Answer 8

Credited with tax-deferred interest

Question 9

Immediate Annuities

Answer 9

For people who want a steady stream of income now

Question 10

Immediate annuities have a minimal chance for…

Answer 10

Tax deferral

Question 11

Fixed Annuities

Answer 11

Guarantee full return of principal investment and fixed rate of compound interest

Question 12

Variable Annuities

Answer 12

Offer potentially more growth in exchange for more risk

Question 13

Variable annuities guard against…

Answer 13

Possible inflation

Question 14

Variable annuities don’t always guarantee…

Answer 14

Return of principal

Question 15

Variable annuities don’t guarantee…

Answer 15

Interest

Question 16

Variable annuities require what licenses?

Answer 16

Securities and LI

Question 17

Stepped-Up Death Benefit

Answer 17

Locks in the death benefit at the current account value regardless of future performance

Question 18

Guaranteed Minimum Income Benefit (GMIB)

Answer 18

Guaranteed minimum amount will be paid regularly at annuitization

Question 19

Guaranteed Minimum Withdrawal Benefit (GMWB)

Answer 19

Account will be worth a guaranteed minimum amount immediately prior to annuitization

Question 20

Equity Indexed Annuity

Answer 20

Combines features of fixed and variable annuities

Question 21

EIA: Offers interest rates that are linked to…

Answer 21

Economy or stock market performance

Question 22

EIA: Contains…

Answer 22

Minimum guarantees of the principal and interest

Question 23

EIA: Most are still considered fixed products and…

Answer 23

Don’t require securities license

Question 24

Spread

Answer 24

Percentage of change in the index that the insurer keeps for admin expenses (often 1% or 3%)

Question 25

Participation Rate

Answer 25

Percentage of change in the economic index (post-spread) that the annuity might be credited with (50-100%)

Question 26

Cap

Answer 26

Max percentage of change in the economic index that can be credited to the annuity (often 10% or less)

Question 27

Annuitization/Payout

Answer 27

Regular payments of money out of the annuity to the consumer

Question 28

Annuitization: Single Life/Straight Life Annuity

Answer 28

Payments for the rest of person's life (most common)

Question 29

Annuitization: Period Certain

Answer 29

Payments for only a certain number of years even if the person lives longer

Question 30

Annuitization: Life with Period Certain

Answer 30

Payments for the rest of person's life or a certain number of years, whichever is greater

Question 31

If death occurs during accumulation period/prior to annuitization...

Answer 31

Owner's principal investment minus withdrawals or overall value of annuity at death, whichever is greater

Question 32

If the annuity is greater than the owner's principal investment...

Answer 32

Beneficiary pays taxes on the difference

Question 33

If death occurs after accumulation period/during annuitization: Straight life/single-life annuity

Answer 33

No death benefit

Question 34

If death occurs after accumulation period/during annuitization: Single life with period certain

Answer 34

Payments will continue to beneficiary but only if period certain hasn't ended

Question 35

If death occurs after accumulation period/during annuitization: Cash refund/installment refund

Answer 35

Beneficiary gets remaining original investment in lump sum or in pieces but no interest

Question 36

If death occurs after accumulation period/during annuitization: Joint life and survivorship

Answer 36

Payments continue until beneficiary dies too

Question 37

Insurer Surrender Charges

Answer 37

Percentage-based deduction from the owner's account if withdrawals or surrenders happen too soon

Question 38

Insurer surrender charges often start at 7% and decrease...

Answer 38

By a certain percentage each year, for 7 years

Question 39

Up to 10% can be withdrawn based on...

Answer 39

Schedules set by the insurer

Question 40

Crisis Waiver/Rider

Answer 40

Can allow withdrawals beyond 10% in cases of disability, LTC, serious illness, or unemployment

Question 41

No taxes on annuities until...

Answer 41

Money comes out

Question 42

Amounts from annuities bought with pre-tax dollars are...

Answer 42

Fully taxable to owner

Question 43

Amounts from annuities bought with after-tax dollars will be...

Answer 43

Partially taxable to the owner

Question 44

Each non-qualified annuity payment will be considered...

Answer 44

A return of principal (non-taxable) and income (taxable)

Question 45

Non-taxable portion is the...

Answer 45

Exclusion Ratio

Question 46

Exclusion Ratio

Answer 46

Amount invested divided by total amount expected to be received over life of annuity

Question 47

Non-qualified annuity death benefits are taxed on the difference between...

Answer 47

Received amount and what the owner put into the annuity

Question 48

Prior to annuitization, for early withdrawals/surrenders, all interest will...

Answer 48

Come out first and be taxable

Question 49

Early withdrawals/surrenders might also result in...

Answer 49

10% tax penalty if accessed before 59.5

Question 50

No 10% IRS penalty (but maybe regular income taxes) if...

Answer 50

Withdrawals occur after 59.5; annuitization is occurring at any age; Withdrawals are due to disability