Ch. 3 - Annuity Features & Characteristics

Question 0

What determines the amount of anonymity’s death benefit?

Answer 0

Generally, the death benefit is defined as the greater of either: the contracts accumulated value at the time of death or the sum of all premiums paid, less any withdrawals. Fixed and index annuities generally pay death benefits equal to the contract’s accumulated value. Variable annuities will pay either the accumulated value or the premiums paid less any withdrawals, whichever is greater.

Question 1

Death benefit

Answer 1

Payment in the event of the death of the owner or the annuitant if they die before the contract has annuitized.

Question 2

Funding options for immediate annuities

Answer 2

Immediate annuities require a lump sum premium payment.

Question 3

Funding options for deferred annuities

Answer 3

Single premium payment or any number of premium deposits.

Question 4

Annuitization

Answer 4

The accumulated values of annuity contract are converted into a stream of periodic income payments.

Question 5

Annuitization date (annuity start date, maturity date)

Answer 5

The date on which an annuity’s Annuitization schedule begins.

Question 6

Annuity dates for immediate annuities

Answer 6

Annuity days for immediate annuity is generally fall soon after the contract is purchased. The timing of this date mirrors the frequency of income payments. e.g., Income paid monthly equals an annuity date one month from purchase.

Question 7

Annuity dates for deferred annuities

Answer 7

Deferred annuities generally have flexible annuity dates, so the owner has some control over the start date for annuitization. generally, the annuity date falls on the later of the 10th anniversary date for the year the owner reaches age 80 or 85.

Question 8

Annuity payout options

Answer 8

Generally, fixed and indexed annuities pay a fixed income during payout and variable annuities pay income that fluctuates in line with how the underlying investments perform. Variable annuities, however, may allow the owner to decide which option they prefer.

Question 9

Fixed annuity fees

Answer 9

Surrender charges, premium tax, market value adjustments

Question 10

Surrender charge

Answer 10

Fees and insurer assesses for early withdrawal (withdrawal fee) or contract surrenders (surrender charge).

Question 11

Common approaches for determining surrender charges

Answer 11

Account value method and premium deposit method

Question 12

Account value method

Answer 12

Assessment of surrender charges equal to some percent of the contracts accumulated value

Question 13

Premium deposit method

Answer 13

A method for determining surrender charges that calculates charges on the amounts of the contracts invested premium, applying a percentage that usually declines annually over the surrender charge period.

Question 14

Market value adjustment

Answer 14

Adjustments made to the market value of the contract that is surrendered during the surrender charge period based on interest rates of the market.

Question 15

Premium tax

Answer 15

A tax on annuity premiums that some states impose on insurers, which ensures pass on to contract owners via fees.

Question 16

Variable annuity charges

Answer 16

Mortality and expense charge, fund expense charge, administrative service charge, contract maintenance fee, contingent deferred sales charge

Question 17

Mortality and expense (M&E) charge

Answer 17

The cost of a variable annuity’s death benefit and annuity charge plus related ensure costs such as agent commissions and overhead.

Question 18

Fund expense charge

Answer 18

The charge for investment companies managing portfolios securities within a variable annuity subaccount.

Question 19

Administrative service charge

Answer 19

Variable annuity fee to cover the costs associated with servicing the annuity.

Question 20

Contract maintenance fee

Answer 20

In the annual fee imposed on a variable annuity to cover the administrative costs of maintaining a contract.

Question 21

Contingent deferred sales charge (CDSC)

Answer 21

A fee associated with early variable annuity contract surrenders.

Question 22

No load variable annuities (C Share annuities)

Answer 22

Variable annuities that do not have a surrender charge. These annuities generally also do not provide a fixed account investment option.

Question 23

L share annuities

Answer 23

Variable annuities with shorter surrender charge periods than normal.

Question 24

Surrender-free withdrawals

Answer 24

Withdrawals allowed by annuities that are limited annually in terms of a percentage of premium invested, a percentage of accumulated values, or a percentage of earnings.

Question 25

Cumulative surrender free withdrawal

Answer 25

Contract provision that allows any free withdrawal amount that is not taking in any year to rollover to the next year.

Question 26

Crisis waiver

Answer 26

An instance when an insurer may waive the surrender charge if certain crises happen during the surrender period. Death, disability, unemployment, entry into a nursing home, terminal illness, RMD distribution.

Question 27

Bonus credits

Answer 27

Additional funds insurers provide to contract owners to entice them to either open a contract or keep any contract open (persistence bonus).

Question 28

Guaranteed living benefits

Answer 28

Guarantees a variable annuity’s principal will be protected and a minimum level of principal will be available for income, accumulation, or withdrawal.

Question 29

Three types of guaranteed living benefit riders:

Answer 29

Guaranteed minimum income benefit, guaranteed minimum accumulation benefit, guaranteed minimum withdrawal benefit.

Question 30

Guaranteed minimum income benefit

Answer 30

A rider that guarantees a minimum level of income payments will be paid if the owner decides to annuitize, regardless of the value of the contract upon annuitization.

Question 31

Guaranteed minimum accumulation benefit

Answer 31

A rider that guarantees that a contract principal will be safeguarded and will not be drawn down by poor investment performance.

Question 32

Guaranteed minimum withdrawal benefit

Answer 32

A rider that guarantees that the full amount of the owners invested principal will be available for systematic withdrawals or a specified number of years, regardless of the contract actual values.

Question 33

Long-term care insurance rider

Answer 33

Hey writer that is designed to provide cash benefit payments in the event that the owner needs long-term care.

Question 34

Free look provision

Answer 34

A contract feature that allows the contract holder to return the contract within a specified period of time and efforts the livery and receive a full refund of premium.