Investment Companies - Variable Annuities Flashcards
The “units” of the trust are ______ with the trust sponsor at any time at the NAV
redeemable
Fixed UIT are very popular vehicles for packaging ______
muni bonds
Prior to offering a Fixed UIT, the sponsor establishes a _______ to hold the bonds until the trust is formally created
“accumulation account”
Sales charges on fixed UITs tend to be low, at around ____ or less of the POP
4%
Municipal UITs can be insured by such companies as:
- AMBAC
- will make good on interest and principal
In a fixed annuity, the insurer guarantees a specific _______ to the investor
rate of return
In a “fixed” annuity, the insurance company assumes the _______ so it is not considered a ______
investment risk, so it is not a security
Participating UITs for variable annuities can only invest in ______
open-end mutual funds
Instead of buying shares in the separate account, each periodic payment is used to buy ________
accumulation units
As interest, dividend, and capital gains accumulate, they are reinvested and ______
cannot be distributed until the contract is complete
Any interest, dividends, or capital gains in a annuity are ______
tax-deferred
Once the contract is annuitized, the _____ no longer applies
death benefit
Under FINRA, the sales charge imposed on a variable annuity purchase must be ______
fair and reasonable (used to be max 8.5% sales charge like mutual funds, but no longer)
To sell variable annuities, the rep must have a reasonable basis to believe that:
- 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
A guaranteed minimum income benefit (GMIB) is a popular rider which:
- 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
Variable annuities are sold under a _______
prospectus
The “mortality guarantee” is:
- 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)
The “expense guarantee” is:
- if the expenses exceed a threshold, then the insurance company absorbs the rest
Variable annuities are _________ tax vehicles
non-tax qualified –> all contributions are made after tax
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 _____
taxable, the next dollars out are tax-deferred (the original principal)
If a customer cashes out of a variable annuity early and suffers a loss, that loss is tax deductible except for the _______
surrender fee
A 1035 exchange is:
- an exchange of “like-for-like” products without any tax due
The only permitted tax-free exchange that is NOT like-for-like is:
- exchanging a life insurance policy for a variable annuity contract