Chapter 14 Flashcards
An annuity designed to overcome uneven taxation by spreading the tax load over the life of the annuity. It can only be purchased with non-registered funds.
prescribed annuity
A type of “insurance contract” that promises to pay the holder certain specified benefits based on the value of one or more specified pools of assets.
segregated fund
A fundamental contractual right associated with segregated funds. It is the promise that the beneficiary will receive at least 75% of the money invested upon the demise of the annuitant.
death benefit guarantee
An annuity designed for people with a reduced life expectancy because of illness. The annuity payments are higher than they are for people of the same age with no health issues.
impaired life annuity
An annuity that allows payments to be put off for several years. If purchased with registered funds, payments can be put off no later than the end of the year the annuitant turns 71. It can be for life or for a fixed term
deferred annuity
An annuity in which the amount of the monthly payment changes according to the value of investments in a segregated fund into which premiums are placed. This annuity has a limit (called a floor) below which benefits may not fall.
variable annuity
An annuity that pays a guaranteed income to a married or common-law couple as long as either spouse or partner is alive.
joint life annuity
A risk that considers the possibility of outliving one’s retirement funds; it is the risk that monies accumulated for retirement will get depleted before the individual passes away.
longevity risk
An annuity that makes increased payments if investment yields are higher than expected or if the issuing company’s expenses are lower than expected. It has a guaranteed portion and a dividend portion.
participating annuity
The legal term for a segregated fund.
individual variable insurance contract
A benefit that protects investors from downside risk while providing participation in the markets and the potential for market gains. It is a hybrid vehicle made up of investments, insurance, and guaranteed income.
guaranteed minimum withdrawal benefit (GMWB)
An annuity that allows early retirees to bridge the income gap until they receive benefits from OAS and CPP/QPP. At age 65, their annuity payments decrease by the amount of government benefits.
integrated annuity
An annuity which guarantees that, if the annuitant dies before having received the deposit amount, income payments will continue to the beneficiary until the whole amount is paid out.
installment refund annuity
An annuity that pays the annuitant a guaranteed income until death, regardless of how long it was in place. It provides the most guaranteed income per dollar of premium paid.
straight life annuity
An annuity that provides a lump-sum payment of the unpaid balance to the beneficiary if the annuitant dies before having received the deposit amount.
life annuity with a cash refund
A fundamental contractual right associated with segregated funds. It is the promise that the contract holder will receive at least 75% of the money invested at the end of the holding period.
maturity guarantee
An agreement to pay money for a personal injury claim in which all or part of the contract calls for future periodic payments. It is usually funded through an annuity purchased from a life insurer.
structured settlement
An annuity that 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.
term certain annuity, also known as a fixed term annuity.
A non-profit organization that provides protection to policyholders in situations where an insurance company becomes insolvent.
Assuris (formerly called CompCorp)
Every life insurance company authorized to sell
insurance policies in Canada is required by federal, provincial, and territorial regulators to become a member of ________
Assuris
If a life insurance company fails, Assuris guarantees that the annuity policyholder will retain up to $______ per month, or ___% of the promised monthly income benefit, whichever is higher.
$2,000
85%
Responsible for monitoring the solvency of insurance companies and determining minimum capital surplus requirements.
The Office of the Superintendent of Financial Institutions
This type of annuity covers someone for life, but also has a guaranteed payout period that the beneficiary would be entitled to if the annuitant were to die prior to the guaranteed payout period.
Life Annuity with A Guaranteed Payout Period
With this type of annuity, payments increase each year in line with a formula, usually related to increases in the cost of living
indexed annuity
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. The funds available for annuity purchase are split between an immediate, term-certain annuity and a single-premium deferred annuity
split-annuity
what are the taxes on annuity payments from a personal injury settlement?
They are tax-free
Segregated funds, annuities, and guaranteed minimum withdrawal benefits are types of _________ contracts
insurance
As with annuities, investors in segregated funds are protected by _________, which guarantees that, if the issuing company fails, the contract holder will retain up to $________or ____% of the promised guaranteed amounts, whichever is higher.
Assuris
$60,000 or 85%
Segregated funds are rated for risk in the same manner as mutual funds, using
standard deviation
Segregated Funds Risk Rating Scale:
Standard deviation: 0-5 = Low Risk 6-10 = Low to Medium 11-15 = Medium 16-19= Medium to High 20 = High
Provincial insurance legislation requires that the
guaranteed amount be at least ____% of the principal amount over a minimum ____ year holding period.
75%
10 year
There are basically three types of segregated fund maturity guarantees:
- A deposit-based guarantee- gives every deposit made by the client its own guarantee amount and maturity date.
- A yearly policy based guarantee - makes record keeping simpler by grouping all deposits made within a 12-month period and giving them the same maturity date.
- A policy-based guarantee- (the most generous type) bases all maturity guarantees on the date the policy was first issued.
Insurance companies offering 10-year maturity guarantees that exceed the statutory requirement of 75% impose restrictions on who qualifies for the enhanced guarantee. Normally, the restrictions are based on
age
If the proceeds of the contract are less than the ACB, income tax is payable on the _____________ amount
guaranteed
A hybrid vehicle composed of investments, insurance, and guaranteed income
GMWB
With a _________, the investor retains control of the
investment and has the option to cash out at the market value at any time, forfeit all guarantees, and terminate the
contract.
Guaranteed Minimum Withdrawal Benefit (GMWB)
GMWB, as traditionally offered, has two phases:
the savings phase (or accumulation phase) and the payout phase.
In the savings phase of a GMWB, a bonus of ___% to ___% is given to the investor for each year during which no withdrawal is made based on the initial deposit amount. This bonus would increase the Guaranteed Withdrawal Balance.
3% to 5%
Three types of guarantees are offered with a GMWB:
- Income guarantee
- Maturity guarantee
- Death benefit guarantee
As mentioned previously, this amount is typically 5% of the guaranteed withdrawal balance, either at the time of
initial investment or after resetting.
Guaranteed Withdrawal Amount
This is the amount that will be paid out during the year
The income guarantee is represented by the GWA if the annuitant is under age 65. If the annuitant is 65 or older, it
is represented by the
lifetime withdrawal amount (LWA).
If a withdrawal is made that is more than the GWA or LWA, the __________ _______ _________is reduced proportionately and the GWA or LWA is recalculated based on the new guaranteed withdrawal balance.
guaranteed withdrawal balance
Insurance products have the benefit of bypassing
probate
The benefits of a GMWB include the ability to
bypass probate, potential creditor protection, and protection by Assuris.
the premium for a segregated fund versus a mutual fund can be anywhere from ___ to ___ basis points
25 to 100
The assets within GMWBs are invested in
segregated funds
where the pool of assets in the segregated fund purchases institutional class units of the underlying mutual fund
fund-on-fund structure,
Certain investors cannot invest in GMWBs because their age. The age limit imposed by insurance companies, typically ____ to ____, applies to the initial sale of the contract.
75 to 80
Deferred annuities generally allow for full or partial withdrawals, although a ________ charge may be levied
Withdrawal
During the savings phase of a GMWB, Assuris covers…
up to $60,000 or 85% of the guaranteed withdrawal balance, whichever is high.
During the payout phase of a GMWB, Assuris covers
up to $2,000 per month or 85% of the guaranteed income benefit, whichever is higher.
