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Series 65 (FIN-451) > Unit 24 > Flashcards

Unit 24 Flashcards

Insurance-Based Products

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Series 65 flashcards
1
Q

Principal differences of variable annuities from mutual funds (3)

A
  1. Insurance company product
  2. Units instead of shares
  3. Some guarantees
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2
Q

Longevity risk

A

The uncertainty that one will outlive their money

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3
Q

Why IRS Section 1035 exchanges allow for

A

One annuity to be exchanged into another with tax consequences

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4
Q

3 advantages of variable annuities over mutual funds

A
  1. No age 73 restrictions
  2. No contribution limits
  3. No probate (Assets pass directly to beneficiary)
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5
Q

Main disadvantages of variable annuities as compared to mutual funds (3)

A
  1. Earnings taxed as ordinary income
  2. Withdrawals prior to 591/2 equal 10% penalty
  3. Most variable annuities carry a conditional deferred (surrender) sales charge
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6
Q

When comparing mutual funds and variable annuities, what is true of expense ratio?

A

Higher for variable annunities

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7
Q

The purchaser can be offered the following choices as to how growth in the underlying index will be credited in the form of interest to the account (4)

A
  1. Annual reset
  2. High-water mark
  3. Point-to-point
  4. Averaging
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8
Q

Annual reset crediting method

A

The interest to be credited to the account is computed by comparing the index value at the end of the year to the value at the beginning of the year

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9
Q

High-water mark crediting method

A

The highest value reached by the index between anniversary dates of the annuity is compared to the value at the beginning of the year (provides greatest gain)

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10
Q

Point-to-point crediting method

A

Interest is computed based on the value of the index at the end of the contract compared to the beginning.

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11
Q

Single-premium deferred annuity

A

When annuity is purchased with a single lump-sum investment

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12
Q

If an investor misses a periodic payment in the accumulation stage of an annuity, what happens?

A

Nothing, he is no danger of forfeiting previous contributions

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13
Q

Immediate annuity

A

Contract where investor deposits lump sum and receives payout benefits immediately

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14
Q

When annuitizing occurs

A

When investment converts from accumulation stage to distribution stage

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15
Q

Straight life payout option

A

Annuitant receives periodic payments (usually monthly) until death, gives largest payment

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16
Q

Life annuity with period certain

A

Annuitant receives payments for life, with a certain minimum period guaranteed. If the annuitant dies before the period certain expires, payments continue to the annuitant’s named beneficiaries for the period certain.

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17
Q

Joint Life with Last Survivor Annuity

A

Annuity that covers two people, usually married, paid as long as one of the annuitants is alive

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18
Q

Refund Annuity

A

Payments will continue after death of the insured until the full value of the initial premium (principal) has been returned.

19
Q

Mortality Guarantee

A

Guarantees payout for as long as annuitant lives

20
Q

What any earnings withdrawals are taxed as

A

Ordinary income

21
Q

Are any contributions taxed?

A

No

22
Q

Synonym terms for whole life

A

Ordinary life, straight life

23
Q

If the policyowner decides to stop paying the premiums, the policyowner may… (3)

A
  1. Surrender the policy for its cash value
  2. Take a reduced paid-up policy where the death benefit is decreased and future premiums are no longer required
  3. Take extended term insurance
24
Q

Current annual rate in universal life

A

Varies with current market conditions and may change every year

25
Q

Contract rate in universal life

A

Minimum guaranteed interest rate, and the policy will never pay less than that amount

26
Q

3 advantages of universal life

A
  1. The ability to adjust the amount of premium payments
  2. The ability to change the death benefit amount
  3. When the cash value is sufficient, no premium payment is required
27
Q

Variable life insurance

A

The general account receives an amount equal to the actual cost of the life insurance, and the portion in excess of that is invested in a separate account.

28
Q

Universal variable life insurance

A

type of variable life insurance with flexible premiums where premiums are invested in a separate account

29
Q

Charges deducted from the gross premium

A
  1. Sales load
  2. Administrative fee
  3. State premium taxes
30
Q

How much of the cash value must be available for a policy loan after the policy has been in force for three years?

A

75%

31
Q

Is the insurer is required to loan 100% of the cash value from variable life policy loans

A

No

32
Q

When cash value is reduced by the amount of the loan, what happened

A

The insured surrendered the contract

33
Q

Unique feature of variable life insurance

A

Right to exchange a VLI contract for a form of permanent insurance issued by the company with comparable benefits (usually whole life)

34
Q

Two testable facts about contract exchange provision

A
  1. The contract exchange provision must be available for a minimum of twenty-four months
  2. No evidence of insurability is required for the exchange
35
Q

Contract holders receive one vote per what dollar amount of cash value

A

$100

36
Q

How long a variable life policy must be in force for before loan provision can be made available

A

3 years

37
Q

What describes the relationship between annuity units and their value during the payout period of a variable annuity?

A

Number of units remains constant, but unit value varies

38
Q

Which term policy always has the lowest initial premium

A

Annual renewable term

39
Q

Which policy generally offers no cash value and is not tied to the stock market

A

Term life insurance

40
Q

Variable annuity greatest strength and weakness

A

Strength: Potential to keep with inflation
Weakness: Lack of guarantees

41
Q

What is guaranteed by a variable life policy

A

Minimum death benefit

42
Q

What annuitization guarantees

A

Income that will last for the client’s lifetime

43
Q

Maximum sales charge of a variable life insurance plan

A

9% averaged over 20 years

44
Q
A

Series 65 (FIN-451) (21 decks)

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