Session 8 Flashcards
Annuity
is generally a contract between an individual and a life insurance company, usually purchased for retirement income
Combination Annuities
attempts to provide a monthly payout that consists of guaranteed fixed amounts as well as a payout that might keep pace with inflation
Index Annuities (IA)
credits interest to the owner’s account using a formula based on performance of stock or index. Guaranteed against loss and max capped
Deferred Annuity
an annuity may be purchased with a single lump-sum investment
Periodic Payment Deferred Annuity
allows a person to make periodic payments on monthly, quarterly or annually basis
Immediate Annuity
are purchased by depositing a single lump sum
How long does it take for a payout for Immediate Annuity?
60 Days
Accumulation Stage
is the pay in period…if you miss a payment you wont forfeit the annuity
Accumulation Units
is an accounting measure that represents an investor’s share of ownership in the separate account
Sales charges and Variable annuities
there is no max…just has to be reasonable
Annuity Pay Out Options (4)
1- Life Annuity/ Straight Life/ Pure Life
2- Life Annuity w/ Period Certain
3- Joint Life with Last Survivor Annity
4- Refund Annuity
Life Annuity/ Straight Life/ Pure Life
biggest payout…the annuitant receives periodic payments over his lifetime
Life Annuity w/ Period Certain
an annuitant receives payments for life, with certain minimum period guaranteed
Joint Life with Last Survivor Annity
covers two or more people and payout is conditioned on both lives
Refund Annuity
payments will continue after death of the insured until the full value of the initial premium has been returned
Mortality Guarantee
annuity companies guarantee payments for as long as annuitants live
Operating Expense Guarantee
insurance companies must project their own expense and set a ceiling for fees
Assumed Interest Rate (AIR)
usually conservatively provides an earnings target for the separate account
Variable Annuity Payouts
are determined by mortality tables and value of the account (aren’t guaranteed)
Taxation of Annuities
since the contribution for annuities are made after tax only the earnings are taxed upon withdrawals
9 Advantages of Variable Annuities
1- Tax- Deferred Growth 2- Guaranteed Death Benefit 3- Lifetime Income 4- IRS Section 1035 5- No 70 1/2 age restriction 6- No contortion limit 7- Choice of 25-30 different subaccounts w/ different objectives 8-Tax-free transfer between subaccounts 9- No probate
IRS Section 1035
you can exchange from an annuity without an tax consequences
Term Insurance
is protection for a specified period…offers pure protection and is the least expensive
5 Main Points of Term Insurance
1- Provide temporary insurance protection for specified period
2- They pay the death benefit only if the insured dies during the term of coverage
3- Don’t accumulate cash value
4- Death Protection and premium remain level for the specified term
5- If renewed at the end of the term, the face amount remains the same but the premium will be based on age (Always increase)
Whole Life Insurance (WLI)
coverage begins on the date of issue and continues to the date of the insured’s death, provided premiums(fixed) are paid
Cash Value of Whole Life Insurance
combines before death benefit with accumulation element… invest in conservative investments
Policy Loans of Whole Life Insurance
borrow a portion of the cash value but must be paid back with interest
Surrendering the Policy of Whole Life Insurance (3)
1- surrender the policy for its cash value
2- take a reduced paid-up policy where the death benefit is decreased and future premiums are no longer required
3- take extended term insurance which pays the beneficiary full face full if die within term
Use of Whole Life Insurance
good for death benefits and if you need to borrow money in emergency situations
Universal Life
comprised of two components of death benefit and cash value, but aren’t fixed
Characteristics of Universal Life (4)
1- Premium payments are separated first being paid toward the insurance protection then to build cash value
2- The policy owner may increase/decrease the death benefit during the policy term
3- Premium amounts may be changed as long as enough premium is paid to maintain the policy. (Flexible)
4- The interest earned by the cash account will vary, subject to a guaranteed minimum
Universal Life Interest Rates
1- Current Annual Rate (what’s on the market)
2- Contract Rate (Minimum interest rate)
Universal Life Death Benefits A
provides a level death benefit equal to the policy face value…as the policy cash value increases and the net death protect actually decreases over the life of the policy
Universal Life Death Benefits B
provides for an increasing death benefit equal to the policy’s face amount plus the cash account. High initial premium and low initial death benefit
Universal Life Policy Loans
same as with the whole life insurance, must be paid with interest
Cash Withdrawal for Universal Life
also called a partial surrender and if the amount is paid back later it will be treated as a premium payment
Variable Life Insurance
cash value in the policy fluctuates with the performance of the separate account( PROVIDES MIN GUARANTEED Death BENEFIT)
Scheduled Premium Variable Life
is issued with a minimum guaranteed death benefit
Flexible Premium Variable Life
is a type of variable Life insurance with flexible premiums (Not Guaranteed)
For Variable Life what are the 3 deductions to the Premium?
1- the administrative fee
2- the sales load
3- state premium taces
Sales Charge Max is?
9% average over 20 years
For Variable Life what are the 3 deductions to the separate account?
1-mortalitly risk
2-expense risk fee
3- investment management fee
Variable Life Insurance Death Benefit
will have a guaranteed amount plus the amount the separate account as accumulated
Variable Life Insurance Cash Value
reflects the investment held in the separate account and is calculated monthly
