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CA Health & Life > Chapter 6 > Flashcards

Chapter 6 Flashcards

1
Q

Annuity

A

An Annuity is a contract between a buyer and an insurance company where in exchange for a single premium, or multiple premiums paid to the life insurance company, the insurance company promises a future series of regularly spaced income payments to the buyer.

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2
Q

Annuitant

A

The annuitant is the person whose age, life expectancy, and gender are used to calculate the benefits of the annuity. The annuitant must be a person and may not be a corporation or a nonprofit organization. Annuitant is measuring life.

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3
Q

Accumulation Period

A

This is the period of time from the first deposit to the selection of a settlement option, during which taxes are deferred. Annuity (Liquidation) period starts at the receipt of the first periodic payment, and continues on a regular basis.

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4
Q

Annuitization

A

Annuity Period - Process of converting a lump sum of money into periodic income payments. All annuities, including deferred annuities, provide an income stream.

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5
Q

Beneficiary

A

The beneficiary receives the death benefit upon the death of the owner. The death benefit may be a lump sum payment, progress payments, or the commuted present value of the future stream of payments the annuitant would have received, if living. It is important to note that not all annuities have beneficiaries.

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6
Q

Owner

A

Owner is the purchaser of the annuity. The owner pays the premiums and has the right to change beneficiaries and to surrender the annuity for an applicable cash value. Owner may be a person or non person. Owner is also responsible for any taxes due at surrender or payout, (partial withdrawal or regular income payments).

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7
Q

Annuity Principles and Concepts

A

Accumulation - The time of the first deposit to the selection of a settlement option.
Annuitization Period - Starts with receipt of the first payment. Most annuities have surrender charges + early penalty fees are applicable. Total flexible, during accumulation. Irrevocable decision at annuitization.

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8
Q

Annuitization

A

Annuities protect against out living the individual’s retirement benefits (superannuation). When financially secure retirees attempt to spend down his/her retirement, the uncertainty of when death will occur makes it a nearly impossible task. Annuity tables reflect a grater life expectancy than do life insurance tables due to the adverse selection factor. The owner’s rights begin at the time of purchase. An owner may change the annuity date, beneficiary, and settlement option.

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9
Q

Death of Annuitant

A

When the contract owner and the annuitant are the same person and the designated beneficiary is the spouse, IRS code allows the spouse to assume ownership of the annuity upon the death of the annuitant. If death occurs during accumulation period, all rights of ownership are assumed to include tax deferment.

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10
Q

Annuity Principles

A

To discourage the use of annuities as short term investments, a 10% penalty tax for premature withdrawals to 59 1/2.
Surrender charges diminish over a period of time

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11
Q

Surrender Charges

A

Waived if annuitant is hospitalized for an extended period, placed in a nursing facility, becomes disabled, or dies.
Corporations may use annuities to provide pension benefits for employees. Annuity is considered a Group Deferred Annuity with each employee receiving a certificate. Corporations may not use annuities to invest profits and defer taxes as the assets grow for the benefit of the corporation.

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12
Q

Annuity Contributions

A

Privately, annuities may be used as a basic savings vehicle, or a tax-qualified retirement plan. When used as a basic saving vehicle, contributions are unlimited. If used as a retirement plan (TSA, IRA), contributions are limited by the IRC.

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13
Q

Free Look

A

Unless otherwise specified, premiums are invested in a fixed income or money market fund during this period. If cancelled, full premiums will be refunded. If the owner directed them to stocks or bonds, the refund will be based on the account value at that time.

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14
Q

Annuity Benefit Payment Options

A 
Temporary Annuity (Fixed Period)
Life Income (Pure or Straight) No Beneficiary
Life Income Period Certain
Life Income with Refund
Fixed Amount 
Life Income Joint & Survivor
Joint Life
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15
Q

Immediate and Deferred Annuities

A

Single Premium Immediate Annuity (SPIA)
Single Premium Deferred Annuity (SPDA)
Flexible Premium Deferred Annuity (FPDA)

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16
Q

Single Premium Immediate Annuity

A

Immediate Annuity doesn’t have an accumulation period and is used as immediate income, within one year. A retirement plan buy out, or death proceeds of a life insurance policy might be used to purchase a SPIA.

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17
Q

Single Premium Deferred Annuity (SPDA)

A

Future payments begin more than 1 year from date of purchase. If a deferred annuity contract is cancelled during the early years, the insurer normally assesses a surrender charge. Ideal for educational funding.

18
Q

Flexible Premium Deferred Annuity

A

Flexible contributions may be made as often and in whatever amount the contract owner desires. May assess a surrender charge. During the accumulation face, annuitant has total flexibility.

19
Q

Fixed Annuity

A

Guaranteed Interest and Guaranteed Benefit.
Insurer invests in its General Account
Annuitization based on dollars, receive same amount each month. Downside is inflation.
Suitable for elderly and conservative investors.

20
Q

Fixed (Guaranteed)

A

Level Fixed with fixed guaranteed rate.
A 20 year projected schedule of cash availability must be shown for each anniversary.
Insurer’s general account assets guarantee the fixed annuity contract.
The insurer bears any investment risk.

21
Q

Bailout Provision (Escape Clause)

A

Favors annuitant. If interest rate drops below the current rate by a specific amount, the annuity may be surrendered without surrender charges being applied. Variable annuities do not use a declared interest rate.

22
Q

Equity Indexed

A

An annuity product with renewal interest rates that are linked to a stock market related equity index, such as the S&P 500 Index. The Contract owner enjoys safety of principal and some guaranteed minimum returns such as 3%, and gains in stock market. Minimum period of participation required.

23
Q

Market-Value Adjusted Annuity

A

SPDA - backed with the assets of bonds.

24
Q

Variable

A

Payments fluctuate according to the investment experience of the separate account(s). Payments are made in units rather than dollars. Contract owner bears investment risk. Both an insurance and securities license is required. Management fee is stated in contract and in prospectus.

25
Q

Qualified Vs. Non-Qualified

A

Qualified - Funded with pre-tax dollars and is fully taxable upon withdrawal.
Non-Qualified - Funded with after-tax dollars, and all earnings exceeding cost basis is taxed.

26
Q

Variable Annuities

A

Mortality and Administrative costs are charged and invested into separate account.
No guaranteed return
Suitable for moderate/high risk tolerance investors

27
Q

Non-forfeiture of Fixed and Equity-Indexed Annuities

A

Fixed and Equity-Indexed Annuities place requirements upon the insurer to absorb 100% of the management and investment risk. The insurer is accountable to invest properly and reserve adequately to fulfill
the guarantees of the contract. Contract owner assumes no market risk, because there’s no potential for losing any principal.
Insurer must pay any excess interest above the guaranteed minimum interest rates specified in the contract.

28
Q

Annuity (Benefit) Payment Options

A 
Temporary
Life Income (Pure or Straight Life)
Life Income Period Certain (Fixed Period)
Life Income with Refund (Fixed or Cash)
Fixed Amount (Level Benefit)
Life Income Joint & Survivor
Joint Life
29
Q

Temporary Annuity

A

Annuity payments are received for a specified period of time, or until death, whichever occurs first.

30
Q

Life Income (Pure or Straight Life)

A

Annuity is payable for as long as the annuitant lives, and upon death all payments cease (pays more monthly income than other options).

31
Q

Life Income Period Certain (Fixed Period)

A

Annuity is payable for life, or for a specified period. Whichever occurs last.

32
Q

Life Income with Refund

A

Payable for life. Upon his/her death, if an annuitant has not received an amount equal to the total of all payments made, balance is refunded to beneficiary either lump sum or in installments.

33
Q

Fixed Amount (Level Benefit)

A

Pays an amount as stated by the annuitant for as long as the principal and interest will pay the set or level benefit.

34
Q

Life Income Joint & Survivor

A

Annuity is payable to two or more annuitants while both are living. Upon the death of the first annuitant, survivor benefits continue, normally reduced to 2/3 or 1/2. The higher the percentage of payment to the survivor, the greater amount of capital required.

35
Q

Joint Life

A

Annuity is payable to 2 or more annuitants while all are living. Upon the death of the first, payments cease.

36
Q

Senior Insurance in California

A

Elder - Any person residing in this state who is 65 years of age or older. Sale or liquidation of any stock, bond, IRA, CD, mutual fund, annuity or other asset to fund the purchase of the product may have tax consequences, early withdrawal penalties, or other costs or penalties as a result of their sale or liquidation.
Consult independent legal or financial advice before selling or liquidating any assets.
No misrepresentation to manipulate Medi-Cal eligibility. Give Medical eligibility document, and have purchaser, spouse, R, sign acknowledgement.

37
Q

Any person who meets at senior’s home is required to deliver in writing

A

no less than 24 hours prior to the meeting that establishes:
Sales Representation on stipulated product
Senior has rights to have others present
Right to end meeting at any time.
Consumer assistance number to complain.
Who will be present, along with any license information.

38
Q

Upon arriving at senior home

A

Purpose of visit,
Names and title of all those arriving home
Name of the insurer being represented
A business card, Person’s name, business address, telephone number, and any insurance license number.

39
Q

Obtain following Information

A 
Occupation and occupational status
Marital Status
Age
Number/Type Dependents
Sources of Income
Yearly Income
Existing Insurance
Insurance needs/objectives
Ability to pay for the proposed contract
40
Q

…

A 
Source of Premium Payment
Investment Savings
Liquid Net Worth
Tax status
Investment Experience
Concern for preservation of Capital
Product time Horizon
Awareness of surrender charges and liquidity limitations

CA Health & Life (13 decks)

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