Chapter 7- Annuities

Question 1

a retirement plan limited exclusively for employees of religious, charity, or educational groups

• accumulation payments often come from voluntary salary reductions
• the annuitant may have an individual account contact

Answer 1

403(b) Plan (also called tax-sheltered annuities)

Question 2

ways of providing a stream of income for a guaranteed period of time

Answer 2

annuities

Question 3

1035 Contract Exchange

Answer 3

This provision in the tax code allows you, as a policyholder, to transfer funds from a life insurance, endowment, or annuity to a new policy, without having to pay taxes.

Question 4

Accumulation Period

Answer 4

the pay-in period, where the contract owner makes the purchase payments
- normally may continue after the purchase payments cease

Question 5

annuity period (liquidation period, annuitization or pay-out period)

Answer 5

time when the money that has accrued during the accumulation period is paid-out in the form of payments to the annuitant

Question 6

make up the value of contributions made by the annuitant less a deduction for expenses.
- The value is a credit to the individual’s account and varies depending on the value of the underlying stock investment.

Answer 6

Accumulation Units

Question 7

Annuitant

Answer 7

the income benefits distributed at regular intervals during the liquidation phase of an annuity contract are normally payable to

Question 8

the converted accumulation units once variable annuity benefits are to be paid out to the annuitant

Answer 8

Annuity Units

Question 9

provides that, upon the death of an annuitant before payments totaling the purchase price have been made, the excess of the amount paid by the purchaser over the total annuity payments received will be paid in one sum to designated beneficiaries.

Answer 9

Cash refund option

Question 10

will pay the beneficiary the same monthly income benefit that the annuitant was receiving until the remaining principal is depleted

Answer 10

Installment refund option

Question 11

Joint and full survivor option

Answer 11

provides for payment of the annuity to two people

Question 12

• designed to pay the annuitant guarnteed payments for the life of the annuitant or for a specific period of time for the beneficiary
• it provides that benefit payments will continue for a minimum number of years regarless of when the annuitant dies

Answer 12

Life with Period Certain payout option (life income with term-certain)

Question 13

Deferred annuities

Answer 13

provide for postponement of the payment of an annuity until after a specified period or until the annuitant attains a specified age.
- May be purchased on either a single-premium or flexible premium basis
- Deferred annuities typically do not begin making income payments for at least one year after the date of purchase.

Question 14

Equity indexed annuities

Answer 14

a type of fixed annuity that offers the potential for a higher retrun than a standard fixed anniuity
- they are sometimes tied to the S&P 500 or composite stock price index

Question 15

Fixed annuities

Answer 15

• guarantees a fixed interest rate for a specified period of time
• provide a guaranteed rate of return
• the investment risk is on the insurer

Question 16

describes an annuity owner making multiple premium payments to accumulate principal. Typically, after the initial premium, these payments are flexible with frequency and amount

Answer 16

Periodic Payments Annuity (Flexible Premium)

Question 17

Immediate annuities

Answer 17

• provide for payment of an annuity benefit at one payment interval from the date of purchase.
• can only be purchased with a single payment
• begin paying income within one month of purchase

Question 18

• shift the investment risk from the insurer to the contract owner
• retirement payments will be made periodically to the annuitants, usually over the remaining years of their lives.
• there is no guarantee of the dollar amount of the payments; they fluctuate according to the value of the account invested, primarily in common stocks.

Answer 18

Variable annuities

Question 19

simple way to determine what portion of each annuity benefit payment is taxable

Answer 19

Exclusion ratio

Question 20

exclusion ratio =

Answer 20

investment in the contract / expected return

Question 21

an annuity income option that guarantees a definite minimum period of payments. IE: 10 years

Answer 21

Period certain

Question 22

can be attached to a deferred annuity that features fixed interest rate guarantees combined with an interest rate adjustment factor that can cause the actual crediting rates to increase or decrease in response to market conditions

Answer 22

Market Value Adjustment

Question 23

an annuity for which the entire premium is paid in one sum at the beginning of the contract period.
- This can be a deferred or immediate single premium annuity

Answer 23

Single premium Annuity

Question 24

an annuity income option that pays a guaranteed income for the annuitant’s lifetime, after which time payments stop

Answer 24

Straight life annuity

Question 25

Because variable annuities are based on non-guaranteed equity investments (such as common stock), a sales representative who wants to sell such contracts must be registered with the _____ as well as hold a ___ insurance license.

Answer 25

Financial Industry Regulatory Authority (FINRA); state

Question 26

type of annuity is one that has different values available for distribution at maturity depending upon whether the value is taken in a lump sun before annuitization or left with the insurer in order to receive monthly payments

Answer 26

two-tiered annuities

Question 27

a ____ prior to the annuity starting date is provided since the insurer is obligated to return all or a portion of the annuity cash value if the purchaser dies or voluntarily terminated the contract

Answer 27

guarantee