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Series 66 > Unit 15 (3) > Flashcards

Unit 15 (3) Flashcards

1
Q

What type of account does a fixed annuity use?

A

General account

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2
Q

Where do premiums go for whole life, variable life, and universal life?

A

Whole life goes to the general account
Variable life goes to the general and separate account
Universal goes to the separate account

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3
Q

How much does a 100k term insurance pay out?

A

100k

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4
Q

Point to point

A

Value of the index at the end of the contract compared to the beginning. Annual point to point is a variation on this

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5
Q

How can you get 100 percent of the cash value of a variable policy?

A

If you surrender the policy. If you surrender with a loan taken out, the loan amount is taken out of the cash value

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6
Q

What is the interest rate on whole life cash value buildup?

A

Guaranteed interest rate on cash value buildup in a whole life policy

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7
Q

How are random withdrawals taxed on an annuity?

A

LIFO

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8
Q

What are the features of whole life insurance?

A

Whole life lasts your entire life. The benefit is the face amount and it remains constant. Whole life combines a death benefit with an accumulation or savings element. The accumulation is referred to as the cash surrender value and it increases each year. Investments are held in the general account.

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9
Q

Does ULI offer loans?

A

ULI offers loans like whole life or any permanent plan does

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10
Q

How are payouts determined in a fixed annuity?

A

When it annuitizes, the payouts are based on the accounts value and the annuitants life expectancy based on mortality tables

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11
Q

How often is the mortality expense charged?

A

It is charged to the account annually. The mortality expense stops once the contract is annuitized

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12
Q

What are the crediting methods of index annuities?

A

Annual reset, high water mark, point to point, averaging

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13
Q

Can you choose when to pay insurance premiums?

A

Yes, with all insurance you can choose between monthly, quarterly, semiannually or annually

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14
Q

How are lump sum withdrawals taxed on an annuity?

A

LIFO

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15
Q

When does the 10 percent penalty apply for annuity withdrawals?

A

If you withdrawal before age 59.5 but NOT if you annuitize before age 59.5

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16
Q

When does term insurance pay out?

A

Only if you die during the term

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17
Q

What can you do if you stop paying premiums?

A
  1. Surrender the policy for cash value
  2. Take a reduced paid up policy where the benefit is less and you stop paying premiums
  3. Take extended term insurance which pays the beneficiaries the full face amount if you die during the term
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18
Q

How much of a loan can you take out against a variable life policy?

A

Up to 75 percent after 3 years. If the death benefit happens before payback, that amount is taken out of the death benefit

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19
Q

Life with period certain

A

Certain period guaranteed. If you die during that period, beneficiary receives payment

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20
Q

Which of the following is most likely to affect the amount of interest credited on an index annuity?

  1. Cap rate
  2. Participation rate
  3. Annuity reset rat
  4. The CDSC
A
  1. Participation rate - virtually all index annuities have a specified participation rate, the percentage of the index’s earnings that will be credited to the account. Not all index annuities have a cap rate, but even then the cap rate only take effect when credited earnings exceed the cap.
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21
Q

What is the risk to fixed annuity payouts?

A

Payouts risk losing purchasing power due to inflation since the payouts are fixed over time.

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22
Q

High water mark

A

Highest value reached by the index between anniversary dates is compared to the value at the beginning of the year. Can provide highest gains

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23
Q

Do annuities have capital gains?

A

No. It’s not like an individual security where you can withdraw your $ or sell it at a higher value

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24
Q

How can a change in strategy of the separate account happen?

A

A majority vote of the outstanding shares

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25
How many votes do variable life holders get?
1 vote per $100 of cash value in the separate account
26
What is taken out of the separate account?
Mortality risk fee Expense risk fee Investment management fee
27
How do variable annuity and mutual fund holders vote?
1 vote per share
28
How are premiums paid with whole life, variable, and universal?
Whole life has a scheduled premium Variable life has a scheduled premium Universal has a flexible premium
29
What is taken from the gross premium in a variable life?
SAS Sales load Administrative fee State premium taxes
30
How long must you hold a variable life policy before you can take out a loan?
3 years
31
When can you terminate an annuity?
Anytime during the accumulation phase. Likely a surrender charge within the first 5-10 years
32
Your index annuity has a participation rate of 90 percent and a cap of 15 percent. The account is valued at 100k and goes up 20 percent that year, what is the value now?
115k. You get the total 15 percent up to the cap. Underneath the cap is where the participation rate would apply.
33
Mortality guarantee
If someone lives longer than expected, the insurance co assumes the additional cost - the mortality guarantee.
34
Life/straight life/pure life
Periodic payments until death. Largest periodic payment because it carries the greatest risk. For example, if you die one month after annuitizing, all payments stop.
35
What type of annuities offer a bonus?
Index and variable annuities will sometimes offer a bonus. Usually with a longer surrender period
36
Who issues an annuity?
A life insurance company the annuitant pays a lump sum or periodic payments
37
What type of insurance should young people with children buy?
Term. The lower premiums offer much more protection. For ages 60 and over, the rates are prohibitive.
38
What happens when you renew term insurance at the end of the term?
The payout remains the same but the premium goes up because you’re closer to dying.
39
What is the death benefit of a variable life policy?
The current face amount which includes gains or the guaranteed minimum, whichever is greater, minus any loans. If you invest 500k and the account goes up to 525k, and you take out a 50k loan, the account value is now 475k
40
What changes, the number of annuity units or the payment amount?
The payment amount may change with a variable
41
Does term insurance accumulate cash?
No
42
Do all annuities have a cap?
No. Virtually all have a participation rate, though
43
How long can you exchange a variable life?
2 years. You can exchange a variable life for a comparable policy, usually a whole life, and no evidence of insurability is required
44
What is the death benefit on a variable annuity?
There is a guarantee that the beneficiary will receive the higher of the amount invested or the current value.
45
How does the cash value grow in a Universal whole life?
Based on current interest rates
46
What are some features of index annuities?
Participation rate, cap, guarantee
47
What does variable life insurance cash value reflect?
The separate account. Since cash value isn’t based on AIR, positive growth will always be positive
48
How many separate account options can a variable annuity have?
A lot. More than 20
49
What parts of a variable annuity are variable?
The monthly payout and the rate of return
50
What is the least expensive insurance?
Term insurance
51
When does the mortality expense stop?
Once the contract is annuitized
52
Index annuities go up but don’t go down
A 100k annuity goes up 5 percent once year then goes down 2 percent the next year the value stays at 105k
53
ULI payout option 1
Level death benefit equal to policy face value amount
54
What can you adjust with Universal whole life?
The premiums and the death benefit
55
Where is the risk with a fixed annuity?
With the insurance company
56
What is SAS?
Sales load Administrative fee State premium taxes These are deducted from the gross premium in a variable life
57
Who regulates a fixed annuity?
Insurance regs. They are not securities
58
Can insurance cos require evidence of insurability when exchanging a variable life?
No. The new policy is issued as if everything was retroactive
59
What is the ULI contract rate?
The min guaranteed interest rate. The policy will never pay less
60
Variable life death benefit has 2 parts
Guaranteed minimum provided by funds from general account Variable benefit from the separate account Variable is recalculated annually
61
What licenses do you have to have to sell variable life?
Dual licensed both insurance and securities
62
When buying a bonus annuity the bonus is added to the initial amount
A 100k deposit with a 5 percent bonus is worth 105k to start out
63
A life insurance policy where the premium increases each time the policy is renewed but the face amount remains the same
Renewable level term
64
Can variable life holders vote?
Yes, they get one vote per $100 in the separate account
65
Who regulates variable annuities?
Insurance and securities regs
66
Refund annuity
Payments continue after death until full value of principal is returned
67
What are the premium payment features of a universal whole life?
You can increase, decrease or skip premium payments. Must maintain a minimum cash value
68
Where is the risk with a variable annuity?
With the investor
69
In a ULI, if the guaranteed rate was 5 percent and the current rate was 8 what would you get?
You would get 8, and you would never get below 5 if that was the gtd rate
70
Is the principal on an annuity taxed?
No, it has already been taxed because it’s a non qualified plan.
71
When do you pay taxes on earnings in an annuity?
When they are withdrawn
72
What is the biggest disadvantage of whole life?
You may have to pay premiums after you retire
73
In a scheduled prem. variable life ins. policy, all of the following is guaranteed except? 1. Minimum cash value 2. Borrowing 75% after three years 3. Exchange for permanent insurance within 2 yrs 4. Minimum death benefit
1. Cash value is not guaranteed. The minimum death benefit is guaranteed. You can borrow 75% of the cash value after three years. You can convert within 24 months regardless of health.
74
What types of investments are available in a variable annuity?
Portfolios of equity, debt, and money market instruments
75
When can a universal life policy lapse?
If the accumulation fund drops below a specified level and an additional premium is not paid.
76
Universal whole life has death protection and cash value.
The death protection resembles one year renewable term insurance
77
What are some differences between mutual funds and annuities?
1. Mutual funds are investment companies, annuities are insurance products 2. Mutual funds issue shares, annuities have units 3. Mutual funds offer no guarantees, annuities offer some
78
The exclusion ratio determines taxes
If your principal was 50k and your account is now worth 100k, 50 percent of your withdrawal is going to be taxed since 50 percent is from earnings
79
What advantages do annuities have over mutual funds?
1. Tax deferred growth 2. Guaranteed death benefit 3. Lifetime income 4. Exchange with no tax consequences under IRS 1035 5. No age 70.5 restrictions 6. No contribution limits 7. Tax free transfer between sub account 8. No probate - annuity has direct designation of beneficiary
80
Do annuities go through probate?
No. Because there is a specifically named beneficiary, annuities do not go through the probate process.
81
Which would most likely limit the amount earned on an index annuity, the cap rate or the participation rate?
The cap rate. The cap rate limits the total gains so that is the correct choice. The participation rate does limit gains, but without a cap it could go up indefinitely
82
What are common characteristics of mutual funds and annuities?
1. Varied investment objectives 2. Redeemed by the issuer 3. Priced based on formula 4. Voting rights
83
What is the death benefit for whole life, variable, and universal?
Whole life has a fixed death benefit Variable life has a minimum guaranteed plus variable death benefit Universal has a variable death benefit
84
ULI payout 2
Increasing death benefit equal to face value plus cash value
85
Annual reset
Interest computed by comparing the index value at the end of the year to the value at the beginning of the year. Lower participation rate than point to point
86
Averaging
Crediting method for index annuity. Most common is monthly average. Can be best option in volatile markets
87
Joint with last survivor covers two people
Payout is conditioned on both lives
88
In a scheduled premium variable life, what has a guarantee?
The death benefit has a guaranteed minimum. The cash value will vary based on the performance of the separate account.
89
What are fixed annuity portfolios made of?
Fixed income and mortgages
90
What is the limit you can invest in an annuity?
There is no limit to the amount you can invest in an annuity. Annuity earnings grow tax deferred
91
A 45 year old investor takes a lump sum distribution from a nonqualified variable annuity, how is it taxed?
Taxes are only paid on the amount that exceeds cost basis, Growth is taxed as ordinary income and growth receives a 10% penalty on taxable amount
92
A 45 year old investor take a lump sum distribution from a nonqualified variable annuity. How is the distribution taxed?
Growth is taxed as ordinary income. The growth portion is subject to a 10% penalty.
93
For withdrawals from a nonqualified annuity, what portion is taxed?
The amount exceeding cost basis.

Series 66 (22 decks)

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