Unit 12- Variable Annuities Flashcards
Is a fixed annuity a security?
No
Is a variable annuity a security?
Yes
Are payments to annuities made with pre-tax or after-tax dollars?
after-tax dollars
Must fixed or variable annuities be held in a separate account?
Variable
FIXED/VARIABLE Annuities have a GUARANTEED/NOT GUARANTEED RATE of RETURN?
FIXED-GUARANTEED
VARIABLE-NOT GUARANTEED (dependent on performance of separate account)
How long is income guaranteed for?
for life
Combination Annuity
Fixed and Variable annuities
If investment manager directly manages the separate account, how must the account be registered?
As an open-ended management investment company
If investment manager passes the portfolio management on to another party, how must the account be registered?
Unit Investment Trust
What is the maximum sales load for a variable annuity?
no max
How often is pricing of unit value calculated?
one per day
When does tax liability of dividends and capital gains occur?
Upon withdrawal
Is there a penalty for withdrawals made before 59 1/2?
Yes- 10% and ordinary income tax on earnings portion of withdrawal (excess of contribution)
Accumulation Phase of the annuity is also called?
The growth phase
The Annuity Phase is also called the?
Payout Phase
Annuitization is when:
The annuitant begins to take income from the account
Assumed Interest Rate (AIR)
the actuarial determines a conservation projection of the performance of the separate account over the estimated life of the contract
How are total number of annuity units calculated?
by the accumulation units’ value
Life Income Payout Option
At annuitant’s death, the insurance company ceases making payments
Life w/ Period Certain payout option
There is a certain period in which payouts are certain even if the annuitant dies.
If lives to 100 yrs old, annuitant still gets payments continuously.
If take a 10 year certain period, and dies two years later. His/her beneficiary recieves payments for 8 more years
Joint Life with Last Survivor payout option
payments for as long as both spouse lives
Guaranteed Min. Withdrawal Benefit (GMWB)
Receive a regular payment ONLY until the annuitant has received the amount equal to the principal account value (or until end of contract term)
Lifetime Withdrawal Benefit/Lifetime INcome
a rider is added to the contract, guaranteeing regular periodic payemtn for the lifetime of the annuitant even if account balance goes to zero.
COST: Cannot cash out the contact
**NOT GOOD FOR those planning short retirements
Are contributions to annuities made with pre-tax or after-tax dollars?
after-tax dollars, unless under employer-sponsored qualified retirement plan
What amount is taxable upon witdrawal
the amount in excess of cost basis
If random withdrawal option is picked, how are distributions taxed?
LIFO (all earning withdrawn first at ordinary income tax rates)
Is there a capital gains tax on annuities contract?
No
