Unit 24: Insurance Based Products

Question 1

Annuity tax deferred earnings

Answer 1

earnings are tax deferred and do not have income limits like IRA and qualified plans

Question 2

annuity test purposes

Answer 2

every annuity is non-qualified unless stated otherwise

Question 3

variable annuities

Answer 3

-value fluctuates based on separate account
-can lose principal, rep must be securities licensed
-can keep up with inflation better than fixed annuity

Question 4

fixed annuity

Answer 4

-guaranteed rate of return
-is not considered a security
-rep does not need to be securities licenses

Question 5

VA advantages over Mutual Funds

Answer 5

-tax deferred earnings
-death benefit
-lifetime income
-1035 exchanges
-no RMD
-no contribution limits
-re allocate without incurring taxes
-no probate

Question 6

VA disadvantages to Mutual Funds

Answer 6

-when taxed, its at ordinary income rather than capital gains
-fees can be higher
-early w/d fees prior to 59.5
-CDSC

Question 7

indexed annuity

Answer 7

-principal protection but ability for market appreciation
-offers some protection against the purchasing power risk of fixed annuities
-not considered a security
-has participation rates, caps, and minimum guarantees
-calc can be annual reset, high-watermark, point-to-point, or average.

Question 8

period certain

Answer 8

annuitant will get paid out for life, but a certain number of payments will be guaranteed, meaning the annuitants estate/beneficiary will get paid if annuitant dies before the period.

Question 9

annuity units

Answer 9

similar to mutual fund shares; show the increase in CV

Question 10

annuity taxation

Answer 10

when one time distributions are made, taxed as LIFO

Question 11

annuitizing taxation

Answer 11

when annuitized, the monthly payments are treated as a ratio of contributions and earnings
-never a 10% penalty, even if annuitizing before 59.5

Question 12

Whole Life insurance

Answer 12

-cash value
-loans
-dividends

Question 13

Universal Life

Answer 13

-has same components as WL, but interest rate fluctuates and DB is 1-yr renewable terms
-DB has minimum guarantee, but can increase with continued premiums

Question 14

Variable Life

Answer 14

-Like WL, but excess funds can become invested in the market via separate account (includes voting rights per $100 invested).

Question 15

Variable Life fees

Answer 15

-deducted from premium: admin fee, sales load, state taxes
-deducted from separate account: mortality fee, expense risk fee, investment fees

Question 16

Variable Life calculations

Answer 16

-DB calc annually, CV calc monthly, SA calc daily

Question 17

Variable Life policy loans

Answer 17

-at least 75% of CV and in force 3 years
-full cash value only obtained by surrendering
-DB/CV reduced by loan

Question 18

Variable Life exchange

Answer 18

-must be in force 24 months
-no underwriting
-new policy issued retroactively

Question 19

Variable Life max fee

Answer 19

-9% over 20 years
-50% can be loaded first year, but must average 9% over first twenty years.

Question 20

mortality risk

Answer 20

is the danger of an annuitant outliving average life expectancy.

Question 21

annuity face value equals

Answer 21

the death benefit