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Life Insurance > Unit 2 > Flashcards

Unit 2 Flashcards

1
Q

Withheld or postponed until a specified time or event in the future

A

Deferred

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2
Q

Internal Revenue Service; a US Government agency responsible for collecting of taxes, and enforcement of the Internal Revenue Code

A

IRS

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3
Q

dependent upon whether or not the insured is alive

A

Life contingency

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4
Q

converting a person’s net worth into a cash flow

A

Liquidation of an estate

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5
Q

a human being

A

Natural person

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6
Q

A retirement plan that meets the IRS guidelines for receiving favorable tax treatment

A

Qualified plan

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7
Q

a requirement to determine if an insurance product or an investment is appropriate for a particular customer

A

Suitability

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8
Q

a contract that provides income for a specified period of years, or for life.

A

annuity

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9
Q

The purchaser of the annuity contract, but not necessarily the one who receives the benefits.

A

Owner

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10
Q

The owner of the annuity has all the rights, such as naming the beneficiary and surrendering the annuity.

A

The owner of an annuity may be a corporation, trust, or other legal entity.

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11
Q

The person who receives benefits or payments from the annuity, whose life expectancy is take into consideration, and for whom the annuity is written.

A

Annuitant

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12
Q

Because annuities are based on the life expectancy of an annuitant, the annuitant must be a natural person, regardless of who owns the policy.

A

Because annuities are based on the life expectancy of an annuitant, the annuitant must be a natural person, regardless of who owns the policy.

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13
Q

The person who receives annuity assets (either the amount paid into the annuity or the cash value, whichever is greater) if the annuitant dies during the accumulation period, or to whom the balance of annuity benefits is paid out.

A

Beneficiary

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14
Q

The period of time over which the owner makes payments (premiums) into an annuity.

A

Accumulation period or Pay-in period

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15
Q

the time during which the sum that has been accumulated during the accumulation period is converted into a stream of income payments to the annuitant.

A

Annuity period or annuitization period, liquidation or pay-out period

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16
Q

During the accumulation period, funds are paid INTO the annuity.
During the annuity period, funds are paid OUT to the annuitant.

A

During the accumulation period, funds are paid INTO the annuity.
During the annuity period, funds are paid OUT to the annuitant.

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17
Q

The annuity income amount is based upon the following:

A

The amount of premium paid or cash value accumulated.
The frequency of the payment.
The interest rate; and
The annuitant’s age and gender.

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18
Q

Shorter life expectancy = higher benefit

Longer life expectancy = lower benefit.

A

Shorter life expectancy = higher benefit

Longer life expectancy = lower benefit.

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19
Q

If an annuitant dies during the accumulation period, the insurer is obligated to return to the beneficiary either the cash value or the total premiums paid, whichever is greater. If a beneficiary is not named, the death benefit will be paid to the annuitant’s estate.

A

If an annuitant dies during the accumulation period, the insurer is obligated to return to the beneficiary either the cash value or the total premiums paid, whichever is greater. If a beneficiary is not named, the death benefit will be paid to the annuitant’s estate.

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20
Q

Classification of annuitites:

A

Premium payment method: Single premium vs. Periodic
When income payments begin: Immediate vs. Deferred
How premiums are invested: Fixed vs. Variable
Disposing of proceeds: Pure Life, Annuity Certain, or Life Refund Annuity

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21
Q

One-time lump-sum payment

A

Single Premium

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22
Q

Premiums are paid in installments over a period of time.

A

Periodic Payments

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23
Q

Periodic payment annuities can be level premium

A

The annuitant/owner pays a fixed installment

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24
Q

The amount and frequency of each installment varies.

A

Flexible Premium

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25
Q

One that is purchased with a single, lump-sum payment and provides income payments that start within one year from the date of purchase.

A

Immediate Annuity

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26
Q

an annuity in which the income payments begin sometimes after one year from the date of purchase.

A

Deferred Annuity

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27
Q

An immediate annuity is purchased with a single premium

A

An immediate annuity is purchased with a single premium

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28
Q

Income payments from a deferred annuity begin sometime after 1 year from the date of purchase

A

Income payments from a deferred annuity begin sometime after 1 year from the date of purchase

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29
Q

Law stipulates that a deferred annuity must have a guaranteed surrender value that is available if the owner decides to surrender the annuity prior to annuitization (e.g. 100% of the premium paid, less any prior withdrawals and related surrender charges). However, a 10% penalty will be applied to early withdrawals (prior to age 59 1/2).

A

Nonforfeiture

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30
Q

The purpose of the Surrender charge is to help compensate for loss of the investment value due to an early surrender of a deferred annuity.

A

The purpose of the Surrender charge is to help compensate for loss of the investment value due to an early surrender of a deferred annuity.

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31
Q

A surrender charge is levied against the cash value and is generally a percentage that reduces over time.

A

A surrender charge is levied against the cash value and is generally a percentage that reduces over time.

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32
Q

Fixed Annuity provides the following features:

A

Guaranteed minimum rate of interest to be credited to the purchase payment(s);
Income (Annuity) payments that do not vary from one payment to the next; and
The insurance company guarantees the specified dollar amount for each payment and the length of the period of payments as determined by the settlement option chosen by the annuitant.

33
Q

With fixed annuities, the annuitant knows the exact amount of each payment received from the annuity during the annuity period.

A

Level benefits payment amount.

34
Q

Fixed annuity premiums are deposited into the life insurance company’s

A

General account. The general account is comprised mostly of conservative investments like bonds. These investments are secure enough to allow the insurance company to guarantee a specified rate of interest, as well as assure the future income payments that the annuity will provide

35
Q

In fixed annuities, the insurer bears the investment risk. Future interest rates actually paid by an insurer are based upon the performance of the insurance company’s general account.

A

In fixed annuities, the insurer bears the investment risk. Future interest rates actually paid by an insurer are based upon the performance of the insurance company’s general account.

36
Q

Fixed annuities the rate may not drop below a policy’s guaranteed minimum (typically 3%). Should interest rates drop below this guaranteed rate, the insurer is obligated to pay the guaranteed rate amount.

A

Guaranteed minimum

37
Q

During the accumulation phase, the insurer will invest the principal, or accumulation, and give the annuitant a guaranteed interest rate based on a minimum rate as specified in the annuity, or the current interest rate, whichever is higher. The minimum rate is the lowest rate that the principal can contractually earn.

A

During the accumulation phase, the insurer will invest the principal, or accumulation, and give the annuitant a guaranteed interest rate based on a minimum rate as specified in the annuity, or the current interest rate, whichever is higher. The minimum rate is the lowest rate that the principal can contractually earn.

38
Q

Fixed annuities that invest on a relatively aggressive basis to aim for higher returns. Like a fixed annuity the indexed annuity has a guaranteed minim interest rate. The current interest rate that is actually credited is often tied to a familiar index like the Standard and Poor’s 500

A

Indexed (or Equity Indexed) annuities

39
Q

Equity indexed annuities are less risky than a variable annuity or mutual fund but are expected to earn a higher interest rate than a fixed annuity.

A

Equity indexed annuities are less risky than a variable annuity or mutual fund but are expected to earn a higher interest rate than a fixed annuity.

40
Q

The payments that the annuitant makes into the variable annuity are invested in the insurer’s separate account, not their general account.

A

Underlying Investment

41
Q

A variable annuity serves as a hedge against inflation and is variable from the standpoint that the annuitant may receive different rates of return on the funds that are paid into the annuity. Listed below are the 3 main characteristics of variable annuities.

A

A variable annuity serves as a hedge against inflation and is variable from the standpoint that the annuitant may receive different rates of return on the funds that are paid into the annuity. Listed below are the 3 main characteristics of variable annuities.

42
Q

Issuing insurance company does not guarantee a minimum interest rate.

A

Interest Rate

43
Q

A variable annuity is considered a security and is regulated by the Securities Exchange Commission (SEC) in addition to state insurance regulations. An agent selling variable annuities must hold a securitiies license in addition to a life insurance license.

A

License Requirements

44
Q

Represent ownership interest in the separate account.

A

Accumulation Units

45
Q

Upon Annuitization, the accumulation units are converted to

A

Annuity units.

46
Q

Interest Rate

A

Fixed Annuity - Guaranteed by insurer

Variable Annuity - No guarantee

47
Q

Underlying Investment

A

Fixed Annuity - General account (safe, conservative)

Variable Annuity - Separate account (equities, No guarantee)

48
Q

License Needed

A

Fixed Annuity - Life insurance

Variable Annuity - Life Insurance PLUS securities

49
Q

Expenses

A

Fixed Annuity - Guaranteed

Variable Annuity - Guaranteed

50
Q

Income Payment

A

Fixed Annuity - Guaranteed

Variable Annuity - NO Guaranteed

51
Q

The life annuity will pay a specific amount for the remainder of the annuitant’s life.

A

The life annuity will pay a specific amount for the remainder of the annuitant’s life.

52
Q

Payment ceases at the annuitant’s death (no matter how soon in the annuitization period that occurs).

A

Pure Life also known as life-only

53
Q

Provides the highest monthly benefit, but there is no guarantee that the entire principal will be paid out.

A

Pure life

54
Q

Under the life with guaranteed minimum settlement option, If the annuitant dies before the principal amount has been paid out, the remainder of the principal amount will be refunded to the beneficiary.

A

Refund Life

guarantees that the entire principal amount will be paid out.

55
Q

When the annuitant dies, the beneficiary receives a lump-sum refund of the principal minus benefit payments already made to the annuitant. this option is not guaranteed to pay any interest.

A

Cash Refund

56
Q

When the annuitant dies, the beneficiary will continue to receive guaranteed installments until the entire principal amount has been paid out.

A

Installment refund

57
Q

another life contingency payout option. Under this option, the annuity payments are guaranteed for the lifetime of the annuitant, and for a specified period of time for the beneficiary.

A

Life with period (term) certain

58
Q

annuities cover one life, and annuity payments are made with reference to one life only. Contributions can be made with a single premium or on a periodic premium basis with subsequent values accumulating until the contract is annuitized.

A

Single Life

59
Q

annuities cover 2 or more lives. The most common multiple life annuities are joint life, and joint and survivor.

A

Multiple life

60
Q

a payout arrangement where two or more annuitants receive payments until the first death among the annuitants, and then payments stop.

A

Joint Life

61
Q

arrangement is a modification of the life income option in that it guarantees an income for two recipients that neither can outlive.

A

Joint and Survivor

62
Q

payment options specify how annuity funds are to be paid out. They are very similar to the settlement options used in life insurance that determine how the policy proceeds are distributed to the beneficiaries.

A

Annuity

63
Q

In contrast with life contingency benefit payments options, annuities certain

A

Short-Term Annuities

64
Q

The annuitant selects the time period for the benefits, and the insurer determines how much each payment will be, based on the value of the account and future earnings projections. This option pays for a specified amount of time only, whether or not the annuitant is living.

A

Fixed-period installments

65
Q

The annuitant selects how much each payment will be, and the insurer determines how long the benefits will be paid by analyzing the value of the account and future earnings. This option pays a specific amount until funds are exhausted, whether or not the annuitant is living.

A

Fixed-amount installments

66
Q

The principal use of an annuity is to provide income for

A

Retirement

67
Q

Annuities may serve as an ideal financial vehicle for someone who comes into a large lump sum of money, such as inheritance, lottery, award of damages from a lawsuit, etc.

A

Lump-Sum Settlement

68
Q

These plans can be individual (such as individual retirement accounts - IRAs), and group (such as tax-sheltered annuity - TSA, or profit- sharing pension plans).

A

Qualified retirement plans

69
Q

The annuitant can withdraw a maximum percentage of his or her investment annually until the initial investment has been recovered.

A

Guaranteed Minimum Withdrawal Benefit (GMWB)

70
Q

Specific monthly payment for life and a specific period of time. If annuitant dies before payment period is up, payment goes to beneficiary.

A

Life with Period Certain

71
Q

Who receives benefits or payments from an annuity?

A

The annuitant receives benefits or payments from and annuity during the annuitization period.

72
Q

If the annuitant dies during the accumulation period, what happens to the account?

A

His/Her beneficiary will receive the amount paid into the plan or the cash value, whichever is greater

73
Q

An annuity can have 2 distinct periods. What are they called, and what happens during each?

A

Accumulation period or pay in period is the period of time over which the annuitant makes payments into the annuity.

Annuity period or pay out period. which is the time when money is distributed to the annuitant.

74
Q

How does inflation affect the purchasing power of a fixed annuity?

A

Inflation can erode the purchasing power of income payments.

75
Q

What are accumulation units?

A

Accumulation Units represent ownership interest in the separate account. Instead of buying “shares” the annuity holder purchases units.

76
Q

What type of annuity credits its interest based upon an index like the S&P 500?

A

Equity Indexed Annuities, which they invest on a relatively aggressive basis to aim for higher returns.

77
Q

How long will a life annuity with 15-year certain pay with a Joint and Survivor option?

A

The annuity will pay out for a guaranteed 15 years. After that, it will pay out for as long as the annuitants are living.

78
Q

How long will a life annuity with 15-year certain pay?

A

A life annuity with 15-year certain will pay for the life of the annuitant; however, if the annuitant dies shortly after the annuity payment begin, the payment to the beneficiary will only last 15 years.

79
Q

The owner is the person who purchases the contract and has all of the rights such as naming the beneficiary and surrendering the annuity. The owner, however, does not have to be the one who receives the benefits; it could be the annuitant (if different from the owner) or the beneficiary.

A

The owner is the person who purchases the contract and has all of the rights such as naming the beneficiary and surrendering the annuity. The owner, however, does not have to be the one who receives the benefits; it could be the annuitant (if different from the owner) or the beneficiary.

Life Insurance (3 decks)

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