Chapter 7 Flashcards
Product sold through insurance companies that contain investment options that subject the owner to market risk
Variable contract
Where do variable products purchasers place their money?
In a separate account
Investment account at a policy owner can allocate premium an account value dollars to a variety of investment accounts with an insurance companies separate account
Sub account
Permanent policy designed offer more competitive returns to potentially keep pace with her act as a hedge against inflation.
Variable life insurance
Features of variable life insurance policies
Fixed premiums, cash value growth dependent upon performance of separate account, death benefit fluctuates, but face amount is the guaranteed minimum
Policy combines investment choices of separate account with flexibility offered for premiums. Premiums paid are directly deposited into separate account with no guarantees to death benefits or cash value growth. Policy premiums are flexible. Has no general account
Variable universal life policy
Variable insurance policies separate account is valuated how often
Calculated daily at 4 PM
How often is the cash value calculated for a variable insurance policy
Monthly
How often is the death benefit on a variable life insurance policy calculated
Annually
Each policy owner of a variable life insurance has a minimum free look provision of how many days
Minimum 45 day free look provision
A policy owner can exchange their variable contract very traditional for my contract within a minimum of how long from the original contract day
Two years
What fees are deducted from the premium for a variable life insurance policy
Administrative fees state premium taxes sales charges up to 9%
What is deducted from the separate account of a variable life insurance policy
Expense risk fee, mortality risk fee, investment management fee
The insurance company is required to send a report to the policyholder detailing the contracts current death benefit and cash value , Must also list any policy loans outstanding and provide a record of all premium payments made and expenses related to the contract how often?
Annually
Taxation of cash values loans with drawls and surrenders a variable life and variable universal Insurance policies
FIFO Withdrawals are not taxable until the amount of premiums paid is exhausted.
Cost basis
Amount of premiums paid
Allows policy owners to transfer the assets of one policy to another without current income tax liability. The taxation will be referred to the future when the cost basis and games are transferred to the new insurance policy.
Section 1035
What type of exchange is not permitted for 1035 exchange?
Annuity to a life policy is not permitted
Two phases annuity contract
Accumulation phase (pay in) Annuity phase (pay out)
Annuity payout that’s payable for as long as the annuitant lives and upon death or payments sees provides the highest monthly income
Life income (pure or straight)
Annuity payout option payable for life or a specified period Which ever is longer. If the annuitant dies before the end of period Certain A beneficiary receives the balance of the payments for the remaining time
Life income period Certain
Annuity payout payable for the lifetime of the annuitant. Upon death if you have annuitant has not received an amount equal to the total of all payments made into the annuity the balance is refunded to the beneficiary either in a lump sum cash refund or in installments
Unit refund life
Annuity payout payable to two named annuitants while both are living. Upon the death of the first annuitant survivor benefits continue until the survivor dies
Joint and last survivor
Once an annuity is annuitized who takes ownership of the funds in the annuity?
The insurer
Variable annuity payout calculated based on the following factors
Principal balance of the contract, annuitants age, payout options selected, assumed interest rate
If the actual performance of the separate account is greater than the AAIR the amount of the next payment will
Increase
The actual performance of the separate account is less than the AIR the amount of the next payment will
Decrease
If the actual performance of the separate account is the same as the AIR The amount of the next payment will be how much
The same as the previous months payment
If the annuitant dies prior to annuitization What will the beneficiary receive?
The greater of the current value of the contract or the owners cumulative premiums paid minus any withdrawals
What does provision will wave or reduce the surrender charge penalty if you knew that needs access to the annuity funds due to a disability or confinement in a nursing home
Waiver of surrender charges
Withdraws made from an annuity are taxed on what basis?
LIFO
The formula used to determine the portion of each payment that is a return of cost basis and therefore excluded from taxation
Exclusion ratio
