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IL Life and Health Insurance > Annuities > Flashcards

Annuities Flashcards

1
Q

Annuity

A

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

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2
Q

Annuities are often used to provide…

A

Regular income that can’t be outlived

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3
Q

Unlike LI, annuities address risk of…

A

Living too long

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4
Q

Owner

A

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

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5
Q

Annuitant

A

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

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6
Q

Beneficiary

A

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

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7
Q

Deferred Annuities

A

For people who want consistent income in the future

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8
Q

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

A

Credited with tax-deferred interest

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9
Q

Immediate Annuities

A

For people who want a steady stream of income now

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10
Q

Immediate annuities have a minimal chance for…

A

Tax deferral

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11
Q

Fixed Annuities

A

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

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12
Q

Variable Annuities

A

Offer potentially more growth in exchange for more risk

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13
Q

Variable annuities guard against…

A

Possible inflation

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14
Q

Variable annuities don’t always guarantee…

A

Return of principal

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15
Q

Variable annuities don’t guarantee…

A

Interest

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16
Q

Variable annuities require what licenses?

A

Securities and LI

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17
Q

Stepped-Up Death Benefit

A

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

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18
Q

Guaranteed Minimum Income Benefit (GMIB)

A

Guaranteed minimum amount will be paid regularly at annuitization

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19
Q

Guaranteed Minimum Withdrawal Benefit (GMWB)

A

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

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20
Q

Equity Indexed Annuity

A

Combines features of fixed and variable annuities

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21
Q

EIA: Offers interest rates that are linked to…

A

Economy or stock market performance

22
Q

EIA: Contains…

A

Minimum guarantees of the principal and interest

23
Q

EIA: Most are still considered fixed products and…

A

Don’t require securities license

24
Q

Spread

A

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

25
Q

Participation Rate

A

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

26
Q

Cap

A

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

27
Q

Annuitization/Payout

A

Regular payments of money out of the annuity to the consumer

28
Q

Annuitization: Single Life/Straight Life Annuity

A

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

29
Q

Annuitization: Period Certain

A

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

30
Q

Annuitization: Life with Period Certain

A

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

31
Q

If death occurs during accumulation period/prior to annuitization…

A

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

32
Q

If the annuity is greater than the owner’s principal investment…

A

Beneficiary pays taxes on the difference

33
Q

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

A

No death benefit

34
Q

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

A

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

35
Q

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

A

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

36
Q

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

A

Payments continue until beneficiary dies too

37
Q

Insurer Surrender Charges

A

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

38
Q

Insurer surrender charges often start at 7% and decrease…

A

By a certain percentage each year, for 7 years

39
Q

Up to 10% can be withdrawn based on…

A

Schedules set by the insurer

40
Q

Crisis Waiver/Rider

A

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

41
Q

No taxes on annuities until…

A

Money comes out

42
Q

Amounts from annuities bought with pre-tax dollars are…

A

Fully taxable to owner

43
Q

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

A

Partially taxable to the owner

44
Q

Each non-qualified annuity payment will be considered…

A

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

45
Q

Non-taxable portion is the…

A

Exclusion Ratio

46
Q

Exclusion Ratio

A

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

47
Q

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

A

Received amount and what the owner put into the annuity

48
Q

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

A

Come out first and be taxable

49
Q

Early withdrawals/surrenders might also result in…

A

10% tax penalty if accessed before 59.5

50
Q

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

A

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

IL Life and Health Insurance (29 decks)

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