UNIT 02.02-002 Flashcards
When may a variable annuity account be surrendered?
During the _________ period
During the accumulation period
A variable annuity may only be surrendered during the accumulation period.
If the account is annuitized, the investor has chosen a payout option.
Note that before the accumulation period, the annuity is NOT yet opened.
Which of the following is a possible advantage of variable life insurance over whole life insurance?
Possible ________ protection for the death benefit
Possible inflation protection for the death benefit
Variable life has scheduled, not flexible, premium payments. The distinguishing factor is the variable death benefit. The insured assumes more risk, not less, in exchange for the possibility that the death benefit will provide protection from inflation.
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To explain this concept, let’s think of whole life insurance and variable life insurance as two different types of vehicles designed to get you to a specific destination—financial security for your beneficiaries after your death.
Whole Life Insurance can be compared to a reliable, steady sedan. It offers a guaranteed death benefit (the money your beneficiaries receive when you pass away) and a cash value component that grows at a fixed rate over time. You pay fixed premiums (regular payments) throughout the life of the policy. This is like having a car that goes at a consistent speed, gets you where you need to go without much fuss, and has predictable costs for gas and maintenance.
Variable Life Insurance, on the other hand, is more like an SUV with the option to switch between different types of fuel (investments). The death benefit and the cash value can vary because they are tied to the performance of the investments you choose within the policy. Your premiums are fixed, but how your investment component performs can affect the value of your policy, including the death benefit. This is like having a vehicle where you can try different fuels to potentially go faster or more efficiently, but there’s also the risk that some of those fuels might not perform well, causing your vehicle to not go as far as expected on a tank of gas.
The Advantage of Variable Life Insurance: Possible Inflation Protection for the Death Benefit
This advantage is akin to the possibility that one of the fuels you choose for your SUV significantly increases its efficiency, allowing you to travel much further than you could with the sedan, even as fuel prices (inflation) rise. If the investments do well, the death benefit of the variable life insurance policy can grow over time, potentially offering protection against inflation. This means the money your beneficiaries receive could buy as much in the future as it does today, despite the rising cost of living.
However, just like experimenting with different fuels brings the risk of underperformance, choosing investments within a variable life insurance policy carries risk. If the investments perform poorly, the death benefit could decrease (though there’s usually a guaranteed minimum death benefit), and the insured assumes more risk compared to the predictable, steady growth of a whole life insurance policy.
In summary, the possible inflation protection for the death benefit is an advantage of variable life insurance over whole life insurance because it offers the potential for the death benefit to increase over time, which can help maintain its value in the face of rising prices and living costs.
Which of the following statements regarding sales charges on variable contracts of insurance companies are true?
The Conduct Rules do not impose a specific ________ on sales charges for variable annuities.
Variable life insurance contracts are limited to a maximum sales charge of __% over the life of the contract, but not to exceed 20 years.
The Conduct Rules do not impose a specific maximum on sales charges for variable annuities.
Variable life insurance contracts are limited to a maximum sales charge of 9% over the life of the contract, but not to exceed 20 years.
Variable annuities’ sales charges are held only to a standard of reasonableness.
The INVESTMENT COMPANY ACT of 1940 sets the limits for variable life insurance.
Variable annuity retirement payments are based on which of the following?
A variable amount determined by the value of the ______
A variable amount determined by the value of the SEPARATE ACCOUNT
For a variable annuity, the payments will vary with the value of the portfolio in the separate account.
How long is the free-look period for a variable life insurance policy?
___ days after delivery
___ days after application
10 days after delivery
45 days after application
The insurer must extend a free-look period to the owner of a variable life policy for 45 days from the execution of the application, or for 10 days from the time the owner receives the policy, whichever is longer. During the free-look period, the policyowner may terminate the policy and receive all payments made.
A customer has invested a total of $10,000 in a nonqualified deferred annuity through a payroll deduction plan offered by the school system where he works. The annuity contract is currently valued at $16,000, and he plans to retire. On what amount will the customer be taxed if he chooses a lump-sum withdrawal?
$6,000
Payments into a nonqualified deferred annuity are made with after-tax money; taxes must only be paid on the earnings of $6,000.
If an annuity’s separate account has a portfolio that contains mostly common stocks, what does this mean?
In a rising market, the value of the account may ____.
In a rising market, the value of an accumulation unit may ____.
In a rising market, the value of the account may rise.
In a rising market, the value of an accumulation unit may rise.
The variable annuity owner assumes the investment risk of the contract. If the market rises, the separate account’s value increases, reflecting an increase in accumulation unit value and, ultimately, in the account value. If the market falls, the separate account’s value decreases.
The XYZ Insurance company’s variable annuity contract specifies an ASSUMED INTEREST RATE of 4%.
During a particular measurement period, the ACTUAL RETURN of the separate account is 5%. Which of the following statements are true?
The ACCUMULATION UNIT’S value will _______.
The ANNUITY UNIT’S value will _______.
The accumulation unit’s value will increase.
The annuity unit’s value will increase.
Any time the actual return is higher than the AIR, the annuity unit value increases. Any time the actual return is positive, regardless of the AIR, the accumulation unit value increases.
If your customer, age 36, invested $1.2 million dollars with an insurance company to purchase an annuity that would begin payouts to him when he reached the age of 65, he would be purchasing
a _______ payment, ________ annuity.
a single payment, deferred annuity.
The annuitant paid a lump sum for his annuity to provide for his retirement, which is deferred to sometime in the future. He has thus purchased a single payment, deferred annuity.
An investor is in the ANNUITY STAGE of a VARIABLE ANNUITY purchased 15 years ago.
During the PRESENT month, if the annuitant receives a check for an amount that is LESS than the PREVIOUS MONTH’S payment, which scenario likely occurred?
The account’s performance was ____ than the _______ interest rate.
The account’s performance was less than the assumed interest rate.
In the annuity stage of a variable annuity, the amount received depends on the account performance compared with the assumed interest rate. If actual performance is less than the AIR, the payout amount declines.
