ch 14 - Annuity-Based Financial Products

Question 1

Assuris

Answer 1

non-profit organization that provides protection to policyholders in situations where an insurance company becomes insolvent.

Question 2

Assuris guarantee

Answer 2

$2,000 per month, or 85% of the promised monthly income benefit, whichever is higher.

Question 3

straight life annuity

Answer 3

pays the annuitant a guaranteed monthly or annual income until he or she dies
when the annuitant dies, the payments stop, and no residual payment is made to the annuitant’s estate or beneficiary.

Question 4

A straight life annuity is suitable for the following clients:

Answer 4

• Those with no dependants, who wish to receive the highest available guaranteed payout for life, and are not concerned with leaving an estate
• Those in similar circumstances, but with dependants who are fully provided for by other means, such as life
insurance policies

Question 5

LIFE ANNUITY WITH A GUARANTEED PAYOUT PERIOD

Answer 5

• payments over a guaranteed number of years.
• If the annuitant dies during the guaranteed term, the annuitant’s beneficiary receives payments for the remaining years.
• Monthly payment amounts are lower than
those for straight life annuities.

Question 6

JOINT LIFE ANNUITY

Answer 6

pays a married or common-law couple as long as either spouse or partner is alive

Question 7

TERM-CERTAIN ANNUITY

Answer 7

provides the annuitant with a specified guaranteed monthly or annual income for a specified number of years. The most common end date is age 90.
If an annuitant dies before the term ends, their estate or designated beneficiary receives the unpaid balance of the annuity

Question 8

DEFERRED ANNUITY

Answer 8

deferred annuity allows payments to be put off for several years

payout amounts based on the original Principal plus income earned over the deferral period.

Question 9

instalment refund annuity

Answer 9

if the annuitant dies before having received the deposit amount, income payments will continue to the beneficiary until the whole amount is refunded.

Question 10

life annuity with a cash refund

Answer 10

Same as instalment refund annuity, except that the beneficiary receives a lump-sum cash refund of the unpaid balance

Question 11

impaired life annuity

Answer 11

for people with reduced life expectancy because of illness.

Annuity payments are higher

Question 12

participating annuity

Answer 12

provides for increased payments to the annuitant if the investment yields are higher
than expected or if the issuing company’s expenses are lower than expected

Question 13

indexed annuity

Answer 13

payments increase each year in line with a formula, usually related to increases in the cost of living

Question 14

who is a split annuity good for?

Answer 14

designed to meet the needs of a person who wants the guaranteed income of an immediate annuity, but who is reluctant to deplete capital immediately

Question 15

integrated annuity

Answer 15

designed to allow early retirees to bridge the income gap until they receive pension benefits

When early retirees reach age 65, their annuity payments decrease by the amount of government benefits, applicable at the
time of purchase.

Question 16

what can a prescribed annuity do? Tax-perspective

Answer 16

overcomes uneven taxation by spreading the tax load over the life of the annuity.

payments from a nonprescribed
annuity (i.e., an annuity subject to accrual taxation) are heavily taxed in the early years because they are made up of interest.

Question 17

structured settlement

Answer 17

payment of money for a personal injury claim

Payments for the settlement of a personal injury or death claim are made tax-free to the
claimant or, in the case of death, to his or her beneficiaries

Question 18

maturity guarantee (SEG FUNDS)

Answer 18

allows investors to participate in upside without the downside. Principal is protected.

Question 19

three types of maturity guarantees (SEG FUNDS)

Answer 19

• Deposit-based
• Yearly policy-based
• Policy-based guarantee

Question 20

RESET DATES - Segregated fund

Answer 20

contracts have at least a 10-year term, and they may be renewable when the term expires, depending on the annuitant’s age. If renewed, the maturity guarantee is reset for another 10 years.

Question 21

guaranteed minimum withdrawal benefit

GMWB

Answer 21

A GMWB is a hybrid vehicle composed of investments, insurance, and guaranteed income. It provides maturity and death benefit guarantees along with an income guarantee.

The GMWB investor is more likely to seek the guaranteed income stream and the potential to increase the income amount with resets and bonuses.

Question 22

guaranteed withdrawal balance. explain what it is and reset process

Answer 22

Every three years, on the contract anniversary date (i.e., the date of the first deposit), the guaranteed withdrawal
balance is compared to the market value on that date.

If the market value is greater than the guaranteed withdrawal balance, the balance is reset to the same amount as the market value.

Question 23

Three guarantees of a GMWB

Answer 23

• Income guarantee
• Maturity guarantee
• Death benefit guarantee

Question 24

BENEFITS OF A GMWB

Answer 24

• ability to bypass probate
• potential creditor protection
• protection by Assuris.

Question 25

UNDERLYING INVESTMENTS of GMWB

Answer 25

The assets within GMWBs are invested in segregated funds

Question 26

Office of the Superintendent of Financial Institutions (OSFI).

Answer 26

organization responsible for ensuring that federally regulated insurance companies are adequately capitalized.

Question 27

deposit-based guarantee

Answer 27

gives every deposit made by the client its own guarantee amount and maturity date.

Question 28

yearly policy-based guarantee

Answer 28

groups all deposits made within a 12-month period and gives them the same maturity date.

Question 29

policy-based guarantee

Answer 29

bases all maturity guarantees on the date the policy was first issued.