Investment Companies - Variable Annuities

Question 1

The “units” of the trust are ______ with the trust sponsor at any time at the NAV

Answer 1

redeemable

Question 2

Fixed UIT are very popular vehicles for packaging ______

Answer 2

muni bonds

Question 3

Prior to offering a Fixed UIT, the sponsor establishes a _______ to hold the bonds until the trust is formally created

Answer 3

“accumulation account”

Question 4

Sales charges on fixed UITs tend to be low, at around ____ or less of the POP

Answer 4

4%

Question 5

Municipal UITs can be insured by such companies as:

Answer 5

• AMBAC

- will make good on interest and principal

Question 6

In a fixed annuity, the insurer guarantees a specific _______ to the investor

Answer 6

rate of return

Question 7

In a “fixed” annuity, the insurance company assumes the _______ so it is not considered a ______

Answer 7

investment risk, so it is not a security

Question 8

Participating UITs for variable annuities can only invest in ______

Answer 8

open-end mutual funds

Question 9

Instead of buying shares in the separate account, each periodic payment is used to buy ________

Answer 9

accumulation units

Question 10

As interest, dividend, and capital gains accumulate, they are reinvested and ______

Answer 10

cannot be distributed until the contract is complete

Question 11

Any interest, dividends, or capital gains in a annuity are ______

Answer 11

tax-deferred

Question 12

Once the contract is annuitized, the _____ no longer applies

Answer 12

death benefit

Question 13

Under FINRA, the sales charge imposed on a variable annuity purchase must be ______

Answer 13

fair and reasonable (used to be max 8.5% sales charge like mutual funds, but no longer)

Question 14

To sell variable annuities, the rep must have a reasonable basis to believe that:

Answer 14

• customer has been informed, in general terms, of the material features of the product
• customer would benefit from one or more of the features
• particular var annuity as a whole, the underlying investments, and the riders to the policy are suitable

Question 15

A guaranteed minimum income benefit (GMIB) is a popular rider which:

Answer 15

• guarantees that when the separate account is annuitized, if the account has not grown at the min rate, then the account will be annuitized as if it grew at the guaranteed min rate

Question 16

Variable annuities are sold under a _______

Answer 16

prospectus

Question 17

The “mortality guarantee” is:

Answer 17

• simple means that the insurance company guarantees to pay the annuity for one’s life (if you live later than projected mortality, then payments continue)

Question 18

The “expense guarantee” is:

Answer 18

• if the expenses exceed a threshold, then the insurance company absorbs the rest

Question 19

Variable annuities are _________ tax vehicles

Answer 19

non-tax qualified –> all contributions are made after tax

Question 20

If a lump-sum distribution is made from a variable annuity, then the IRS requires that LIFO accounting be used, so the first dollars out are _____ and the next dollars out are _____

Answer 20

taxable, the next dollars out are tax-deferred (the original principal)

Question 21

If a customer cashes out of a variable annuity early and suffers a loss, that loss is tax deductible except for the _______

Answer 21

surrender fee

Question 22

A 1035 exchange is:

Answer 22

• an exchange of “like-for-like” products without any tax due

Question 23

The only permitted tax-free exchange that is NOT like-for-like is:

Answer 23

• exchanging a life insurance policy for a variable annuity contract