unit 15

Question 1

variable annuities purchase

Answer 1

units
tax deferred
expenses usually higher than mutual fund

Question 2

index annuity

Answer 2

performance tied to index
usually caps on performance gains but not losses
not security

Question 3

determine amount to be credited with participation rate

Answer 3

take participation rate and multiply times actual return and compare to cap.

Question 4

funding of annuties

Answer 4

single premum deffered (accumulation units)
periodic payment deffered( accumulation units)
single premium immediate(annuity units)
bonus annuity

Question 5

distribution

Answer 5

random withdrawals

annuitize

1. straight life(income for an entire lifetime)
2. life with period certain
3. joint life last survivor

Question 6

taxation on annuity

Answer 6

non qualified
aftertax
earnings tax deffered
anything above cost basis taxed at ordinary income
penalty if not 59 1/2 10% plus ordinary income
not penalty on CB for this case

withdrawls taxed lifo

if contract is annutized(exclusion ratio applies) every payment is considered part earnings and part cost basis

Question 7

benefits of annuity contracts

Answer 7

lifetime retirement income
tax deffered
inflation head possibly
1035 exchange

Question 8

disadvantage to annuity contracts

Answer 8

market risk
higher expenses than mutual funds
possible surrender charges
tax penalty for early withdrawal

Question 9

Term Life

Answer 9

fixed term
no cash value
renewable with the same face but preimum higher

Question 10

whole life

Answer 10

fixed premium

gaurenteed death benefit and cash value

Question 11

universal life

Answer 11

flex premium
no guarantee on cash value
may be overfunded

Question 12

variable life

Answer 12

fixed premium
guarenteed min death benefit
cash value not guarenteed
based on performance of separate account

Question 13

variable life policy loans

Answer 13

can borrow 75% of cash value after the third year

Question 14

variable life policy exchange

Answer 14

24 month right to exchange for permanent policy
based on original age
no physical required

Question 15

a variable life insurance plan may charge a maximum sales charge of

Answer 15

9% over a period not to exceed 20 years

Question 16

annual reset

Answer 16

interest to be credited to the account is computed by comparing index value at end of the year to value at the beginning. generally has a lower participation rate than point to point.

in short- comparing abeginning value against end, lower part rate than ptp.

Question 17

high watermark

Answer 17

the highest value reached by index between anniversary dates of an annuity is compared to the value at the beginning of the year. the option can provide the highest gains with look back.

in short- highest val between aniversary is compared to begining of year. can provide highest gains with look back during high volatility

Question 18

point to point

Answer 18

interest computed based on the value of the index at the end of the contract compared to the begining. variation is annual point to point

Question 19

averaging

Answer 19

most common is monthly averaging and can be the best options when markets are expected to be highly volatile

Question 20

variable annuity has different investment options known as

Answer 20

subaccounts

Question 21

Which of the following is indicative of the primary difference between variable life insurance and straight whole life insurance?

Answer 21

Variable life insurance allows the policyowner to decide how the cash value is invested through a number of subaccounts.

Question 22

Any increase in the value of a variable annuity is taxed

Answer 22

Any increase in the value of a variable annuity is taxed as ordinary income, never capital gain.

Question 23

A customer has a nonqualified variable annuity. Once the contract is annuitized, monthly payments to the customer are taxed how

Answer 23

The investor has already paid tax on the contributions, but the earnings have grown tax deferred. When the annuitization option is selected, each payment represents both capital and earnings. The money paid in will be returned tax free, but the earnings portion will be taxed as ordinary income.